(EDGAR Online via COMTEX) -- Item 2. 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 the section entitled "Risk Factors" and our unaudited interim condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited financial statements and the notes thereto for the year ended December 31, 2020 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled "Risk Factors," our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section entitled "Risk Factors" to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements.
We are a clinical-stage biotechnology company focused on the discovery and development of engineered T cell therapies, and aiming to provide a deep and durable, perhaps curative, treatment, for patients with B cell-mediated autoimmune diseases. Our proprietary technology utilizes Chimeric AutoAntibody Receptor, or CAAR, T cells that are designed to selectively bind and eliminate only specific B cells that produce disease-causing autoantibodies, or pathogenic B cells, while sparing normal B cells. Our lead CAAR T cell product candidate was designed based on the clinically validated and commercially approved Chimeric Antigen Receptor, or CAR, T cell technology that is marketed for the treatment of B cell cancers. By harnessing the power of targeted cell therapy, we believe our CAAR T product candidates have the potential to provide responses that may be a safer and more effective option than current treatments. We believe our technology, in combination with our proprietary Cabaletta Approach for selective B cell Ablation platform, called our CABATM platform, has applicability across over two dozen B cell-mediated autoimmune diseases that we have identified, evaluated and prioritized. In order to accelerate product development for our lead program and to access a proven cell therapy manufacturing platform, we have entered into a collaboration with the University of Pennsylvania, or Penn. We hold multiple agreements with Penn to develop CAAR T cell therapies for the treatment of these diseases. Our goal is to leverage our team's expertise in autoimmunity and engineered T cell therapy and our collaboration with Penn to rapidly discover and develop our portfolio of CAAR T product candidates. Our initial focus is mucosal pemphigus vulgaris, or mPV, which is an autoimmune blistering disease. We submitted an Investigational New Drug, or IND, application for our lead product candidate, DSG3-CAART, to the U.S. Food and Drug Administration, or the FDA, in August 2019 and our IND was cleared in September 2019. The FDA granted DSG3-CAART orphan drug designation for the treatment of PV in January 2020, and fast track designation for improving healing of mucosal blisters in patients with mucosal pemphigus vulgaris, or mPV, in May 2020. DSG3-CAART is being evaluated in a Phase 1 trial, or the DesCAARTesTM trial, that is currently enrolling patients. In May 2021, we reported the acute safety data from the first cohort of patients in the DesCAARTesTM trial, where no dose-limiting toxicities, or DLTs, had been observed eight days after infusion in the first three patients who received DSG3-CAART. In August 2021, with FDA clearance, a protocol amendment was implemented in the DesCAARTesTM trial to allow a minimum dosing interval of seven days between patients within a cohort, versus 14 days. In August 2021, we also reported the 28-day safety data from the second cohort of patients in the DesCAARTesTM trial, where no DLTs had been observed 28 days after infusion in the second cohort of three patients who received DSG3-CAART. In November 2021, we reported dose dependent increases in DSG3-CAART persistence in the third cohort relative to the first two low dose cohorts throughout the 28 days following infusion have been observed, as well as the continued absence of any DLTs or clinically relevant adverse events for the first three cohorts as of October 31, 2021. We expect to report top-line biologic activity data for the first two low dose cohorts in the fourth quarter of 2021. We also expect to report 28-day safety data for the fourth dose cohort in the first quarter of 2022.
Our lead preclinical product candidate is designed for the treatment of muscle-specific kinase myasthenia gravis, or MuSK MG, and is currently in IND enabling studies, with an IND submission planned in the fourth quarter of 2021. We are also advancing additional product candidates currently in discovery-stage or preclinical development for the treatment of mucocutaneous PV, or mcPV, PLA2R-associated membranous nephropathy, or PLA2R MN, and Hemophilia A with Factor VIII, or FVIII, alloantibodies in addition to two undisclosed targets and expect to conduct a pre-IND interaction with the FDA to discuss the development path for PLA2R-CAART in the fourth quarter of 2021. Preclinical data demonstrating that PLA2R CAAR T cells specifically recognized and eliminated anti-PLA2R antibody-expressing B cells and membrane proteome arrays screened with PLA2R CAAR candidates did not identify off-target interaction will be presented at the American Society of Nephrology Kidney Week in the fourth quarter of 2021.
We were incorporated in April 2017. In August 2018, we entered into multiple agreements with Penn to develop the CAAR T technology to treat B cell-mediated autoimmune diseases. Our operations to date have been financed primarily by net proceeds of $86.4 million from the sale of convertible notes and convertible preferred stock and net proceeds of $71.0 million from the sale of common stock in our initial public offering, or IPO, in October 2019. Through October 29, 2021, we have raised $42.3 million, or net proceeds of $41.0 million, in "at-the-market" offerings, pursuant to a Sales Agreement with Cowen and Company, LLC which provides for the offering, issuance and sale of up to an aggregate amount of $75.0 million of our common stock. As of September 30, 2021, we had $119.3 million in cash and cash equivalents and investments.
Impact of the COVID-19 Pandemic
In December 2019, a novel strain of coronavirus disease, or COVID-19, surfaced in Wuhan, China and was subsequently declared a pandemic by the World Health Organization. The ongoing COVID-19 pandemic continues to evolve, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures, which have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions.
We have been carefully monitoring the ongoing COVID-19 pandemic and its potential impact on our business and have taken important steps to help ensure the safety of employees and their families and to reduce the spread of COVID-19 community-wide. We have established a work-from-home policy for all employees, other than those performing or supporting business-critical operations, such as certain members of our laboratory staff. For those employees, we have implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic. We have also maintained efficient communication with our partners and potential clinical sites as the COVID-19 situation has progressed. We have taken these precautionary steps while maintaining business continuity so that we can continue to progress our programs.
The extent to which COVID-19 impacts our operations or those of our third party partners will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including new information that may emerge concerning the severity of COVID-19, the impact of new strains of the virus, the effectiveness, availability and utilization of vaccines and the actions to contain COVID-19 or treat its impact, among others. Our financial results through the period ending September 30, 2021 have not been significantly impacted by COVID-19, however, we cannot at this time predict the specific extent, duration, or full impact that the ongoing COVID-19 pandemic will have on our financial condition, operations, and business plans, including our ability to raise additional capital, the timing and enrollment of patients in our ongoing and planned clinical trials, future financings and other expected milestones of our product candidates.
Amended and Restated License Agreement with the Trustees of the University of Pennsylvania and the Children's Hospital of Philadelphia
In August 2018, we entered into a license agreement with Penn, which was amended and restated in July 2019 to include the Children's Hospital of Philadelphia, or CHOP, collectively, the Institutions, and collectively with such amendment, as amended in May 2020 and October 2021, the License Agreement, pursuant to which we obtained (a) a non-exclusive, non-sublicensable, worldwide research license to make, have made and use products in two subfields of use, (b) effective as of October 2018, an exclusive, worldwide, royalty-bearing license, with the right to sublicense, under certain of the Institutions' intellectual property to make, use, sell, offer for sale and import products in the same two subfields of use, and (c) effective as of October 2018, a non-exclusive, worldwide, royalty-bearing license, with limited rights to sublicense, under certain of Penn's know-how to make, have made, use, sell, offer for sale, import and have imported products in the same two subfields of use. Our rights are subject to the rights of the U.S. government and certain rights retained by the Institutions.
Unless earlier terminated, the License Agreement expires on the expiration or abandonment or other termination of the last valid claim in Penn's intellectual property licensed by us. We may terminate the License Agreement at any time for convenience upon 60 days written notice. In the event of an uncured, material breach, Penn may terminate the License Agreement upon 60 days written notice.
Sponsored Research Agreements
We have two sponsored research agreements, or SRAs, with Penn for the laboratories of Drs. Payne and Milone, who are also our scientific co-founders and members of our scientific advisory board. In May 2020, the agreement with Dr. Payne, or the Payne SRA, was expanded to include CAAR design and optimization efforts in three additional B cell-mediated autoimmune diseases. In August 2020, the Payne SRA was further amended to extend the term of the original research plan. In April and October 2021, the agreement with Dr. Milone was amended to extend the term of the original research plan. Under the amended agreements, we are committed to funding a defined research plan through February 2023. The total estimated cost of the agreements is $12.3 million, which satisfies the $2.0 million annual obligation under the License Agreement. As of September 30, 2021, $9.3 million of cost has been incurred pursuant to these agreements.
Master Translational Research Services Agreement
In October 2018, we entered into a Master Translational Services Agreement with Penn, or the Services Agreement, pursuant to which Penn agreed to perform certain services related to the research and development of the technology licensed to us under the License Agreement, as well as certain clinical, regulatory and manufacturing services. The Services Agreement will expire on the later of (i) October 19, 2021 or (ii) completion of the services for which we have engaged Penn under the Services Agreement, which
we currently anticipate being at least through 2023. Either party may terminate this agreement with or without cause upon a certain number of days' prior written notice. The services encompassed by the Services Agreement are performed by different organizations at Penn pursuant to certain addenda to the Services Agreement, including the Center for Advanced Retinal and Ocular Therapeutics, or CAROT, Addendum, as amended in May 2020, and the CVPF Addendum.
Components of Operating Results
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sales of products for several years, if at all. If our development efforts for our current or future product candidates are successful and result in marketing approval, 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. We may never succeed in obtaining regulatory approval for any of our product candidates.
We may also in the future enter into license or collaboration agreements for our product candidates or intellectual property, and we may generate revenue in the future from payments as a result of such license or collaboration agreements.
Research and Development
Our research and development expenses include:
personnel costs, which include salaries, benefits and stock-based compensation expense;
expenses incurred under agreements with consultants and third-party contract organizations that conduct research and development activities on our behalf;
costs related to sponsored research service agreements;
costs related to production of preclinical and clinical materials, including fees paid to contract manufacturers;
licensing fees for intellectual property and know-how;
laboratory and vendor expenses related to the execution of preclinical studies and ongoing and planned clinical trials; and
laboratory supplies and equipment used for internal research and development activities and related depreciation expense.
We have not reported program costs since inception because historically we have not tracked or recorded our research and development expenses on a preclinical program-by-program basis. We use our personnel and infrastructure resources across the breadth of our research and development activities, which are directed toward identifying and developing product candidates.
We expense all research and development costs in the periods in which they are incurred. Costs for certain research and development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers.
We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in manufacturing, as our programs advance and we conduct clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, 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 any of our product candidates.
Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of the current or future preclinical studies and clinical trials or if, when, or to what extent we will generate revenues from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
successful completion of preclinical studies and IND-enabling studies;
development of chemistry, manufacturing and controls, or CMC, processes and procedures for purposes of IND applications;
successful patient enrollment in, and the initiation and completion of, clinical trials;
the impact of any business interruptions to our operations, including the timing and enrollment of patients in our ongoing and planned clinical trials, or to those of our clinical sites, manufacturers, suppliers, or other vendors resulting from the COVID-19 pandemic or similar public health crisis;
receipt of regulatory approvals from applicable regulatory authorities;
establishing commercial manufacturing capabilities or arrangements with third-party manufacturers;
obtaining and maintaining patent and trade secret protection and non-patent exclusivity;
launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;
acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;
effectively competing with other therapies and treatment options;
a continued acceptable safety and efficacy profile following approval;
enforcing and defending intellectual property and proprietary rights and claims; and
achieving desirable medicinal properties for the intended indications.
We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our preclinical studies and clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For example, if the FDA or another regulatory authority, were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development. We expect our research and development expenses to increase for the foreseeable future as we continue the development of product candidates.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel costs, costs related to maintenance and filing of intellectual property, depreciation expense and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation expense. We expect our general and administrative expenses to increase over the next several years to support our continued research and development activities, manufacturing activities, increased costs of operating as a public company and the potential commercialization of our product candidates. We anticipate our general and administrative costs will increase with respect to the hiring of additional personnel, developing commercial infrastructure, fees to outside consultants, lawyers and accountants, and increased costs associated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements, insurance and investor relations costs.
Other income consists of interest earned on our cash equivalents, amortization of bond discount or premium and investment gains and losses realized during the period.
Results of Operations for the Three Months ended September 30, 2021 and 2020 The following sets forth our results of operations for the three months ended September 30, 2021 and 2020: Three Months Ended September 30, 2021 2020 Change (in thousands) Statements of Operations Data: Operating expenses: Research and development $ 8,169 $ 5,650 $ 2,519 General and administrative 3,394 2,766 628 Total operating expenses 11,563 8,416 3,147 Loss from operations (11,563 ) (8,416 ) (3,147 ) Other income: Interest income 3 23 (20 ) Net loss $ (11,560 ) $ (8,393 ) $ (3,167 )
Research and Development Research and development expenses were $8.2 million for the three months ended September 30, 2021 as compared to $5.7 million for the three months ended September 30, 2020. The table below summarizes our research and development expenses: Three Months Ended September 30, 2021 2020 Change (in thousands) Sponsored research activities $ 674 $ 645 $ 29 License of intellectual property and subscription fee 10 10 - Manufacturing of preclinical and clinical supplies 1,670 1,209 461 Clinical trials 935 297 638 Personnel 2,627 1,857 770 Development services 2,149 1,591 558 Other 104 41 63 $ 8,169 $ 5,650 $ 2,519
Specific changes in our research and development expenses quarter over quarter include a:
$0.8 million increase in personnel costs primarily driven by an increase in headcount to support overall growth, including an increase of $0.1 million in stock-based compensation expense;
$0.6 million increase in clinical trial costs for the DesCAARTesTM trial, including outsourced costs and investigator payments to clinical trial sites;
$0.6 million increase in costs under our development services from increased outsourced preclinical research activities and lab related expenses; and
$0.5 million increase in manufacturing costs primarily due to vector manufacturing and cell processing capabilities and related activities.
General and Administrative
General and administrative expenses were $3.4 million for the three months ended September 30, 2021 compared to $2.8 million for the three months ended September 30, 2020. The increase of $0.6 million is primarily from higher personnel and professional services costs.
Interest income was flat at less than $0.1 million in both the three months ended September 30, 2021 and 2020, with interest rates remaining low after a significant decrease in interest rates beginning in March 2020.
Results of Operations for the Nine Months ended September 30, 2021 and 2020 The following sets forth our results of operations for the nine months ended September 30, 2021 and 2020: Nine Months Ended September 30, 2021 2020 Change (in thousands) Statements of Operations Data: Operating expenses: Research and development $ 22,575 $ 15,601 $ 6,974 General and administrative 9,845 8,902 943 Total operating expenses 32,420 24,503 7,917 Loss from operations (32,420 ) (24,503 ) (7,917 ) Other income and (expense): Interest income 19 473 (454 ) Net loss $ (32,401 ) $ (24,030 ) $ (8,371 )
Research and Development Research and development expenses were $22.6 million for the nine months ended September 30, 2021 as compared to $15.6 million for the nine months ended September 30, 2020. The table below summarizes our research and development expenses: Nine Months Ended September 30, 2021 2020 Change (in thousands) Sponsored research activities $ 2,391 $ 2,026 $ 365 License of intellectual property and subscription fee 10 43 (33 ) Manufacturing of preclinical and clinical supplies 4,360 3,920 440 Clinical trials 2,328 840 1,488 Personnel 7,228 5,493 1,735 Development services 6,005 3,182 2,823 Other 253 97 156 $ 22,575 $ 15,601 $ 6,974
Specific changes in our research and development expenses year over year include a:
$2.8 million increase in costs under our development services from increased outsourced preclinical research activities and lab related expenses;
$1.7 million increase in personnel costs primarily driven by an increase in headcount to support overall growth, including an increase of $0.6 million in stock-based compensation expense;
$1.5 million increase in clinical trial costs for the DesCAARTesTM trial, including outsourced costs and investigator payments to clinical trial sites;
$0.4 million increase in manufacturing costs primarily due to vector manufacturing and cell processing capabilities and related activities; and
$0.4 million increase in costs under our sponsored research agreements, primarily due to an expanded scope of research.
General and Administrative
General and administrative expenses were $9.8 million for the nine months ended September 30, 2021 compared to $8.9 million for the nine months ended September 30, 2020. The increase of $0.9 million is from additional personnel costs, primarily driven by an increase in headcount to support overall growth, including an increase of $0.6 million in stock-based compensation expense, and . . .
Nov 01, 2021
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