(EDGAR Online via COMTEX) -- Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following Management's discussion and analysis ("MD&A") of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto included as part of this Annual Report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those discussed in the section titled "Risk Factors" included under Part I, Item 1A and elsewhere in this Annual Report. See "Special Note Regarding Forward-Looking Statements" in this Annual Report.
We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of next generation targeted therapies for women's cancers. Our team has spent the past decade characterizing the structure and function of the ER, a key driver of breast cancer in approximately 75% of patients, in order to develop more potent, oral therapies that completely inactivate this signaling pathway. Our wholly owned lead product candidate, OP-1250, is a novel oral therapy with combined activity as both a CERAN and a SERD, which we believe will drive deeper, more durable responses than existing therapies. OP-1250, both as a monotherapy and in combination with inhibitors of CDK4/6 demonstrated robust tumor shrinkage in several xenograft models, including a breast cancer brain metastasis model. In August 2020, we initiated an ongoing Phase 1/2 dose escalation and expansion trial evaluating OP-1250 for the treatment of recurrent, locally advanced or metastatic ER+, HER2- breast cancer, and expect to report initial data from this trial in the second half of 2021. We own worldwide development and commercialization rights to OP-1250. As summarized in the figure below, our plan is to develop OP-1250 in a number of ER+ breast cancer indications, both as a monotherapy and in combination with approved targeted therapies that have shown improved outcomes with other endocrine therapies. We believe OP-1250's oral formulation and dual mechanism of action directly address the limitations of current endocrine therapies, such as fulvestrant and tamoxifen, and position OP-1250 as a potential endocrine therapy of choice for the treatment of ER+ breast cancers. Our goal is to transform the standard of care for women living with cancers by developing more effective therapies that apply our deep understanding and collective expertise in endocrine-driven cancers, nuclear receptor activities and mechanisms of acquired resistance.
Since our inception, we have devoted substantially all of our resources to organizing and staffing our company, research and development activities, business planning, raising capital, establishing and maintaining our intellectual property portfolio, conducting nonclinical studies and clinical trials and providing general and administrative support for these operations.
We do not have any product candidates approved for commercial sale, and we have not generated any revenue from product sales. Our ability to generate product revenue sufficient to achieve profitability, if ever, will depend on the successful development and eventual commercialization of one or more of our product candidates which we expect, if it ever occurs, will take a number of years. We also do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for nonclinical and clinical testing, as well as for commercial manufacturing if any of our product candidates obtain marketing approval. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment and personnel while also enabling us to focus our expertise and resources on the development of our product candidates.
Through December 31, 2020, we had received aggregate gross proceeds of $391.3 million from sales of our common stock, convertible preferred stock and issuance of convertible promissory notes since inception. As of December 31, 2020, we had cash and cash equivalents of $338.5 million. In January 2020, we received proceeds of $3.0 million from the issuance of convertible promissory notes, or the 2020 Notes. From March 2020 through June 2020, we issued 10,801,277 shares of our Series B convertible preferred stock at a price of $4.712 per share for cash proceeds of $50.9 million, and 638,270 shares of our Series B convertible
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preferred stock upon conversion of the 2020 Notes (including accrued interest). In September 2020, we issued 7,904,135 shares of our Series C convertible preferred stock at a price of $11.063 per share for cash proceeds of $87.4 million. In November 2020, we completed the initial public offering of our common stock, in which we issued an aggregate of 12,650,000 shares of common stock, including 1,650,000 shares of common stock issued pursuant to the over-allotment option granted to the underwriters, at a price of $19.00 per share, for gross cash proceeds of $240.4 million, before underwriting discounts and commissions. We received approximately $220.6 million in net proceeds, after deducting underwriting discounts, commissions and offering expenses. Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to fund our planned operating expenses and capital expenditure requirements through the end of 2022.
We have incurred significant operating losses since the commencement of our operations. Our net losses were $22.1 million, $4.3 million, and $2.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, and we expect to incur significant and increasing losses for the foreseeable future as we continue to advance our product candidate, and as we transition to operating as a public company. Our net losses may fluctuate significantly from period to period, depending on the timing of expenditures on our research and development activities. As of December 31, 2020, we had an accumulated deficit of $33.1 million. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures and 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 other current liabilities.
We expect to continue to incur net operating losses for at least the next several years, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. We expect our expenses and capital requirements will increase significantly in connection with our ongoing activities as we:
? continue our ongoing and planned research and development of our lead product candidate OP-1250 for the treatment of ER+ positive breast cancer;
? initiate nonclinical studies and clinical trials for any additional product candidates that we may pursue in the future;
? seek to discover and develop additional product candidates and further expand our clinical product pipeline;
? seek regulatory approvals for any product candidates that successfully complete clinical trials;
continue to scale up external manufacturing capacity with the aim of securing ? sufficient quantities to meet our capacity requirements for clinical trials and potential commercialization;
establish a sales, marketing and distribution infrastructure to commercialize ? any approved product candidates and related additional commercial manufacturing costs;
? develop, maintain, expand, protect and enforce our intellectual property portfolio, including patents, trade secrets and know how;
? acquire or in-license other product candidates and technologies;
? attract, hire and retain additional clinical, scientific, quality control, and manufacturing management and administrative personnel;
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add clinical, operational, financial and management information systems and ? personnel, including personnel to support our product development and planned future commercialization efforts;
? expand our operations in the United States and to other geographies; and
? incur additional legal, accounting, investor relations and other expenses associated with operating as a public company.
We also expect to increase the size of our administrative function to support the growth of our business. 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.
We will require substantial additional funding to develop our product candidates and support our continuing operations. Until such time that we can generate significant revenue from product sales or other sources, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic and otherwise. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, including requiring us to have to delay, reduce or eliminate our product development or future commercialization efforts. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot provide assurance that we will ever be profitable or generate positive cash flow from operating activities.
The COVID-19 pandemic continues to rapidly evolve. As a result of the COVID-19 pandemic, we experienced some delays in setting up our current Phase 1/2 clinical trial and in clinical site initiation, including delays in recruiting clinical site investigators and clinical site staff, which we may experience again in the future. The extent of the impact of the COVID-19 pandemic on our business, operations and development timelines and plans remains uncertain, and will depend on certain developments, including the duration of the outbreak and its impact on our development activities, planned clinical trial enrollment, future trial sites, CROs, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel and with many of our employees working remotely. We continue to actively monitor the rapidly evolving situation related to the COVID-19 pandemic and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. During 2020, although we modified our operations and practices due to the COVID-19 pandemic and to comply with federal, state and local requirements, our business, operations and development timelines were not material adversely affected. However, the extent to which the COVID-19 pandemic may affect our business, operations and development timelines and plans in the future, including the resulting impact on our expenditures and capital needs, remains uncertain.
Components of our results of operations
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for the foreseeable future.
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Research and development
Research and development expenses account for a significant portion of our operating expenses and consist primarily of external and internal expenses incurred in connection with the discovery and development of our product candidates. To date, our research and development expenses have related primarily to discovery efforts and nonclinical and clinical development of our product candidate OP-1250. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
External expenses include:
expenses incurred in connection with the discovery and nonclinical development ? of our product candidates, including under agreements with third parties, such as consultants and CROs;
? costs of manufacturing products for use in our nonclinical studies and clinical trials, including payments to CMOs and consultants;
? costs of funding research performed by third parties;
? costs of purchasing lab supplies and non-capital equipment used in designing, developing and manufacturing nonclinical study and clinical trial materials;
? costs associated with consultants for chemistry, manufacturing and controls development, regulatory, statistics and other services;
? expenses related to regulatory activities, including filing fees paid to regulatory agencies; and
? facility costs including rent, depreciation and maintenance expenses.
Internal expenses include employee and personnel-related costs and expenses, including salaries, benefits and stock-based compensation expense for employees and personnel engaged in research and development functions.
We expense research and development expenses in the periods in which they are incurred. Costs for certain activities, such as manufacturing and nonclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and collaborators.
We typically use our employee, consultant and infrastructure resources across our development programs. We track outsourced development costs by product candidate or nonclinical program, but we do not allocate personnel costs, other internal costs or external consultant costs to specific product candidates or nonclinical programs.
Research and development expenses to advance the development of our lead product candidate and nonclinical program were $13.7 million, $3.9 million and $1.7 million for the years ended December 31, 2020, 2019 and 2018, respectively.
We expect our research and development expenses to increase substantially in absolute dollars for the foreseeable future as we advance OP-1250 or any other future product candidates we may develop into and through nonclinical studies and clinical trials and pursue regulatory approval of our product candidates. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-
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consuming. The actual probability of success for OP-1250 or any other future product candidates we may develop may be affected by a variety of factors including but not limited to: the safety and efficacy of our product candidates, early clinical data, investment in our clinical program, the ability of collaborators to successfully develop our licensed product candidates, competition, manufacturing capability and commercial viability. We may never succeed in achieving regulatory approval for our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our OP-1250 or any other future product candidates we may develop. Clinical and nonclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future nonclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate's commercial potential. In addition, we cannot forecast whether OP-1250 or any other future product candidates we may develop may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. We are also unable to predict when, if ever, we will generate revenue from our product candidates to offset these expenses. Our expenditures on current and future nonclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs and timing of nonclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
? the timing and progress of nonclinical and clinical development activities;
? the number and scope of nonclinical and clinical programs we decide to pursue;
? our ability to maintain our current research and development programs and to establish new ones;
? establishing an appropriate safety profile with investigational new drug-enabling toxicology studies;
? successful patient enrollment in, and the initiation and completion of, clinical trials;
the successful completion of clinical trials with safety, tolerability and ? efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;
? establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
? receipt of regulatory approvals from applicable regulatory authorities;
? the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
? our ability to establish licensing or collaboration arrangements;
? the performance of our future collaborators, if any;
? development and timely delivery of commercial-grade product formulations that can be used in our planned clinical trials and for commercial launch;
? commercializing the product candidate, if approved, whether alone or in collaboration with others;
? obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
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? obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
? maintaining a continued acceptable safety profiles of our products following approval; and
? obtaining and retaining key research and development personnel.
Any changes in the outcome of any of these factors could significantly impact the costs, timing and viability associated with the development of our product candidates.
General and administrative
General and administrative expenses consist primarily of personnel expenses, including salaries, benefits and stock-based compensation expense, for personnel in executive, finance, accounting, business development, legal, human resource and administrative functions. General and administrative expenses also include costs not otherwise included in research and development expenses, including corporate facility costs, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance, and professional fees for legal, patent and consulting services.
We expect that our general and administrative expenses will increase substantially in the foreseeable future as we increase our headcount to support the continued research and development of our programs and the growth of our business. We also anticipate incurring additional expenses associated with operating as a public company, including increased expenses related to ongoing financial statement audit and interim-period quarterly reviews, internal control over financial reporting compliance and audit, legal, other regulatory and compliance, director and officer insurance, investor and public relations and tax-related services associated with maintaining compliance with the rules and regulations of the SEC and standards applicable to companies listed on a national securities exchange, additional insurance expenses, investor relations activities and other administrative and professional services.
Total other income (expense), net
Interest income, interest expense and other income
Interest income primarily consists of interest income on our cash and cash equivalents. Interest expense primarily consists of interest on our convertible promissory notes, and in the year ended December 31, 2020, a non-cash interest charge related to a beneficial conversion feature on a convertible note issued in January 2020. Other income consists of miscellaneous income not related to operating activities.
Loss on extinguishment of convertible notes
Loss on extinguishment of convertible promissory notes consists of the loss recognized from the extinguishment of the unpaid principal and accrued interest on convertible promissory notes issued in 2017. These notes were extinguished in July 2018 and noteholders were issued Series A-1 convertible preferred stock and common stock concurrent with the extinguishment of the notes.
Loss on remeasurement of convertible notes
Loss on remeasurement of convertible promissory notes consists of the loss recognized from the remeasurement of convertible promissory notes issued in 2018. In July 2018, these notes were remeasured to their final fair value, and then settled with the issuance of Series A-1 convertible preferred stock and common stock provided to noteholders.
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Results of operations
Comparison of the years ended December 31, 2020 and 2019
The following table summarizes our results of operations for the years ended December 31, 2020 and 2019:
Years Ended December 31, 2020 2019 $ Change (in thousands) Operating expenses: Research and development $ 13,704 $ 3,920 $ 9,784 General and administrative 7,824 403 7,421 Total operating expenses 21,528 4,323 17,205 Loss from operations (21,528) (4,323) (17,205) Other (expense) income: Interest income 60 7 53 Interest expense (653) - (653) Total other (expense) income, net (593) 7 (600) Net loss and comprehensive loss $ (22,121) $ (4,316) $ (17,805)
Research and development expenses
Research and development expenses for the year ended December 31, 2020 were $13.7 million, compared to $3.9 million for the year ended December 31, 2019. The increase of $9.8 million was primarily due to increased spending in (i) advancing our lead product candidate OP-1250 clinical study and the associated contract manufacturing costs, (ii) other nonclinical research and discovery program costs, and (iii) personnel-related costs due to increased headcount, and an increase in the non-cash stock-based compensation of $2.0 million recognized during the year ended December 31, 2020.
General and administrative expenses
General and administrative expenses for the year ended December 31, 2020 were $7.8 million compared to $0.4 million for the year ended December 31, 2019. The increase of $7.4 million was primarily due to increased salary expense associated with the expanded executive team, fees paid to outside consultants in connection with our initial public offering and operating as a public company, and an increase in the non-cash stock-based compensation of $1.1 million recognized during the year ended December 31, 2020.
Other (expense) income, net
Other (expense) income, net for the year ended December 31, 2020 was $(0.6) million, which primarily consisted of a non-cash interest charge incurred in connection with convertible notes issued in January 2020.
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Comparison of the years ended December 31, 2019 and 2018
The following table summarizes our results of operations for the years ended December 31, 2019 and 2018:
Years Ended December 31, 2019 2018 $ Change (in thousands) Operating expenses: Research and development $ 3,920 $ 1,693 $ 2,227 General and administrative 403 386 17 Total operating expenses 4,323 2,079 2,244 Loss from operations (4,323) (2,079) (2,244) Other (expense) income: Interest income 7 4 3 Interest expense - (28) 28 Loss on convertible notes - (94) 94 Total other income (expense), net 7 (118) 125 Net loss and comprehensive loss $ (4,316) $ (2,197) $ (2,119)
Research and development expenses
Research and development expenses for the year ended December 31, 2019 were $3.9 million, compared to $1.7 million for the year ended December 31, 2018. The increase of $2.2 million was primarily due to the nonclinical research of OP-1250 and included a $0.7 million increase in lab services costs and $1.5 million increase in third-party research and development fees.
General and administrative expenses
General and administrative expenses remained relatively unchanged year over year and were $0.4 million for the years ended December 31, 2019 and 2018, respectively.
Other income (expense), net
Other income (expense), net for the year ended December 31, 2019 was less than $0.1 million, compared to $(0.1) million during the year ended December 31, 2018. The change was primarily due to the $0.1 million loss on extinguishment . . .
Mar 17, 2021
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