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 (1) our condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and the related notes and management’s discussion and analysis of financial condition and results of operations for the fiscal year ended December 31, 2022 included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, or SEC, on March 23, 2023, which we refer to as the 2022 10-K.
Overview
We are a microbiome technology company with a portfolio of intellectual property and microbiome assets. Our objectives are to realize the value of our intellectual property estate through licensing our technology to collaboration partners and enforcing our patent rights against infringing parties and, in certain cases, to generate additional data on selected product candidates through academic collaborations. We have a robust intellectual property estate reflecting our pioneering role in the microbiome therapeutics field, including more than 70 issued U.S. and foreign patents with relevance for both donor-derived and donor-independent microbiome therapeutics in a range of potential indications. Our assets include CP101, an investigational, orally administered microbiome candidate designed for the prevention of recurrent C. difficile infection, or CDI, with positive clinical data from a Phase 2 randomized, placebo-controlled trial and a Phase 2 open-label trial, and pre-clinical assets that are designed to target ulcerative colitis, Crohn’s disease, and autism spectrum disorder. Additionally, we have developed a significant biorepository of strains and samples. In January 2023, we announced the decision to discontinue our Phase 3 clinical trial of CP101 in recurrent CDI and focus on realizing the value of our intellectual property estate and other assets. We have significantly scaled back our expenses by winding down our development efforts, including by liquidating certain of our assets, terminating vendor contracts and reducing headcount.
Until January 2023, we were a clinical-stage microbiome therapeutics company using our Human-First Discovery platform to develop a novel class of orally administered biological drugs. The microbiome consists of trillions of microbes that live symbiotically in and on every human and are essential to our health. When key microbes are lost, the resulting microbiome disruption can increase susceptibility to immune disorders, infections, neurological conditions, cancer and other serious diseases. We developed our Human-First Discovery platform to use reverse translation to identify diseases of microbiome disruption and to design microbiome therapeutics that address them.
We were previously developing CP101 as an orally administered complete microbiome therapeutic designed for the prevention of recurrent CDI. In June 2020, we reported positive topline data from our Phase 2 placebo-controlled clinical trial of CP101 for the prevention of recurrent CDI, and in November 2021 we reported positive topline data from our open-label, Phase 2 clinical trial of CP101 for the prevention of recurrent CDI. On January 24, 2023, we announced our decision to discontinue our Phase 3 clinical trial of CP101 for the prevention of recurrent CDI, or the PRISM4 trial. We believe that CP101 has therapeutic potential in both CDI and other indications.
We have also used our Human-First Discovery platform to develop FIN-211, an investigational microbiome candidate designed to address the gastrointestinal and behavioral symptoms of autism spectrum disorder, or ASD. Following a strategic review of our pipeline, on November 10, 2022, we announced the decision to suspend efforts to initiate our planned Phase 1 clinical trial of FIN-211 in ASD, or the AUSPIRE trial.
In January 2017, we entered into an agreement, which we refer to as the Takeda Agreement, with Takeda Pharmaceutical Company Limited, or Takeda, pursuant to which we granted Takeda a worldwide, exclusive license, with the right to grant sublicenses, under certain of our patents, patent applications and know-how to develop our microbiome therapeutic candidate, FIN-524, for the prevention, diagnosis, theragnosis or treatment of diseases in humans. We also partnered with Takeda on discovery efforts targeting the development of the microbiome therapeutic candidate FIN-525 for the treatment of Crohn’s disease. In August 2022, Takeda elected to terminate the Takeda Agreement. Termination of the Takeda Agreement became effective on November 17, 2022, at which point the license rights granted to Takeda terminated and we regained full rights to pursue FIN-524 and FIN-525, and any other microbiome product candidates for inflammatory bowel disease, in all fields worldwide.
We will also continue to explore opportunities to realize the value of our intellectual property and microbiome assets through strategic partnerships and academic collaborations. These include an investigator-sponsored trial with Brigham and Women’s Hospital designed to evaluate CP101 in ulcerative colitis and our licensing relationship with the University of Minnesota, or UMN, pursuant to which UMN is conducting multiple investigator-sponsored clinical trials using a microbiome product candidate comprised of compositions to which we hold an exclusive license. In addition to our clinical and pre-clinical assets, we have developed a
19
biorepository of samples and strains that can be used in a variety of research applications and may form the basis for future collaborations.
On each of April 19, 2022, September 1, 2022, and January 24, 2023, we announced the implementation of certain expense reduction measures, including reductions in our workforce. On January 24, 2023, we announced a decision to re-orient our business strategy to close our Phase 3 study of CP101 in CDI and focus on realizing the value of the Company’s intellectual property and other assets. This decision came after an assessment by our management team and board of directors of multiple factors, including our outlook for identifying a commercial partner, slower than anticipated enrollment in the PRISM4 trial, the harmful impact of what we believe is the ongoing unauthorized use of our intellectual property, and broader sector trends in the biotechnology industry. In April 2023, we announced the termination of employment, without cause, of our Chief Executive Officer and our Chief Operating Officer and the appointment of Matthew Blischak and Lance Thibault as our new Chief Executive Officer and Chief Financial Officer, respectively, effective May 16, 2023.
Our recent business initiatives have been focused primarily on organizing and staffing our company and establishing and protecting our intellectual property portfolio. Until January 2023, we also focused on developing and progressing our product candidates through clinical development, and research and development activities. We do not currently expect to be able to progress any product candidate through clinical trials or commercial approval and we do not currently expect to generate any revenue from product sales. Since our inception, we have funded our operations primarily with proceeds from our March 2021 initial public offering (the "IPO"), the sale of convertible preferred stock, our loan agreement with Hercules Capital and from collaboration revenue.
Although we believe strongly in the value of our pioneering intellectual property portfolio and the merits of our current litigation activities relating to those assets, we may never succeed in realizing the value of our intellectual property estate and other assets and, even if we do, we may never generate revenue that is significant or large enough to achieve profitability.
As a result, we may need additional funding to support our operating activities as we seek to realize value from our intellectual property estate and other assets. Until such time, if ever, that we can generate substantial revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms, if at all. If we are unable to obtain funding as needed, we may decide to pursue a dissolution and liquidation.
We believe that our existing cash and cash equivalents of $41.7 million as of March 31, 2023, will be sufficient to fund our operations into 2025. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources.”
Components of Our Results of Operations
Revenue
We have no products approved for commercial sale. We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of licensed products for the foreseeable future. Our revenue to date has been generated primarily through collaboration and license agreements. We recognize revenue over our expected performance period under each agreement. We expect that our revenue for the next several years, if any, will be derived from enforcement and out-licensing of our intellectual property estate. Additionally, we will continue to earn royalties under our Asset Purchase Agreement, dated as of November 19, 2020, or the OpenBiome Agreement, with Microbiome Health Research Institute, Inc., doing business as OpenBiome, or OpenBiome, based on sales of fecal microbiota transplantation, or FMT, materials, which we receive as reimbursement for the payment of third-party license fees.
Collaboration and License Agreement with Takeda
In January 2017, we entered into a research collaboration and exclusive license agreement, or as amended and restated, the Takeda Agreement, with Takeda, pursuant to which we granted Takeda a worldwide, exclusive license, with the right to grant sublicenses, under our rights in certain patents, patent applications and know-how to develop, have developed, manufacture, have manufactured, make, have made, use, have used, offer for sale, sell, have sold, commercialize, have commercialized and import our microbiome therapeutic candidate FIN-524, for the prevention, diagnosis, theragnosis or treatment of diseases in humans. We subsequently amended and restated the Takeda Agreement in October 2019 to provide a similar worldwide, exclusive license to a second microbiome therapeutic candidate, FIN-525. We amended the Takeda Agreement in August 2021 to transition primary responsibility for further development and manufacturing activities with respect to FIN-524 from us to Takeda in accordance with a transition plan,
20
with Takeda to assume sole responsibility for regulatory matters with respect to FIN-524. In November 2021, we amended the Takeda Agreement to enable us to carry out certain FIN-525 preliminary evaluation activities.
In August 2022, we received written notice from Takeda that, following a review of its pipeline, Takeda had elected to exercise its right to terminate the Takeda Agreement. In accordance with the terms of the Takeda Agreement, the termination became effective on November 17, 2022, or the Termination Effective Date. Pursuant to a further amendment to the Takeda Agreement, dated October 19, 2022, we transitioned activities under the Takeda Agreement. As of the Termination Effective Date, the license rights granted to Takeda terminated and Takeda ceased to accrue any financial obligations to us. Revenue earned to date under the Takeda Agreement is recognized as our research and development services are provided and is recorded as collaboration revenue on our consolidated statement of operations.
In connection with entry into the Takeda Agreement, we received a one-time, upfront payment from Takeda in the amount of $10.0 million. Additionally, we received an aggregate of $4.0 million in additional payments upon the achievement of certain development milestones for FIN-524 therapeutic products. Since the Termination Effective Date, we are no longer eligible to receive future milestones under the Takeda Agreement.
Agreements with OpenBiome
We have historically collaborated with OpenBiome under several agreements related to, among other things, the license of various technology and intellectual property rights, and the supply of certain materials, as further described below.
On November 19, 2020, we entered into the LMIC License Agreement, or the LMIC Agreement, with OpenBiome, pursuant to which we granted OpenBiome a non-exclusive royalty-bearing license, with the right to grant sublicenses, under certain patents, patent applications, and know-how that are reasonably necessary or useful for the exploitation of products manufactured directly from stool from a stool donor source without the use of culturing or replication, or certain natural products. The license granted to OpenBiome excludes a license under our intellectual property to exploit a lyophilized natural product (such as CP101) where processed stool is lyophilized. The only consideration provided to us under the LMIC Agreement is in the form of future royalties on net sales of these products, which are not currently commercially viable. We are entitled to receive tiered royalties on net sales of certain products, ranging from mid-single digit to low second decile digits on a product-by-product and country-by-country basis. We did not recognize any revenue related to the LMIC Agreement for the three months ended March 31, 2023 and 2022, as there are currently no products available for sale.
Also on November 19, 2020, we entered into an asset purchase agreement, or the OpenBiome Agreement, with Microbiome Health Research Institute, Inc., or OpenBiome. The OpenBiome Agreement effectively terminated certain existing agreements with OpenBiome and internalized certain functions for which we previously relied on OpenBiome. Pursuant to the OpenBiome Agreement, we acquired certain biological samples and obtained a license to certain OpenBiome technology, and, upon closing of the transaction, which occurred on March 1, 2021, we acquired certain additional assets, including biological samples, a commercial lease, intellectual property, capital equipment and contracts. As of March 31, 2023, we have made payments of $5.0 million to OpenBiome related to the OpenBiome Agreement, which is the full amount agreed upon. We are also required to pay certain milestones up to $26.0 million upon the occurrence of certain research and development events, regulatory approvals, and commercial sales, and low single digit royalties on net sales of products on a product-by-product and country-by-country basis, as well as a mid-single digit royalties on sublicensing revenue related to such products.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for research activities, including discovery and development efforts. We expense research and development costs as incurred, which include:
•salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
•upfront, milestone and maintenance fees incurred under license, acquisition and other third-party agreements;
•costs of laboratory supplies and acquiring, developing and manufacturing study materials;
21
•facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs; and
•costs of outside consultants engaged in research and development functions, including their fees and related travel expenses
Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed. We do not allocate certain employee-related costs, external costs directly related to our Human First Discovery platform, and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs and, as such, are classified as costs of our platform research.
Until January 2023, research and development activities were central to our business model. We expect that our research and development expenses will decrease in the foreseeable future due to our reduced headcount and our decisions to discontinue our Phase 3 clinical trial of CP101 and to focus on realizing the value of our intellectual property estate and other assets. This decision came after an assessment by our management team and board of directors of multiple factors, including our outlook for identifying a commercial partner, slower than anticipated enrollment in the PRISM4 trial, the harmful impact of what we believe is the ongoing unauthorized use of our intellectual property, and broader sector trends in the biotechnology industry. Our research and development expenses have been primarily focused on supporting clinical trials for CP101.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services, travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expect that our general and administrative expenses will decrease in the foreseeable future due to our reduced headcount. We expect to continue to incur expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services, director and officer insurance costs, and investor and public relations costs.
Impairment of Goodwill and IPR&D
Goodwill and IPR&D are evaluated for impairment annually on October 1, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Factors we consider important, on an overall company basis, that could trigger an impairment review include significant underperformance relative to historical or projected future operating results, significant changes in our use of the acquired asset or the strategy for its overall business, significant negative industry or economic trends, a significant decline in the Company’s stock price for a sustained period, or a reduction of its market capitalization relative to net book value.
To conduct impairment tests of goodwill, the fair value of the Company’s single reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, the Company records an impairment loss to the extent that the carrying value of goodwill exceeds its fair value.
To conduct impairment tests of IPR&D, the fair value of the IPR&D asset is compared to its carrying value. If the carrying value exceeds its fair value, we record an impairment loss to the extent that the carrying value of the IPR&D asset exceeds its fair value. We estimate the fair value for our IPR&D asset using discounted cash flow valuation models, which require the use of significant estimates and assumptions, including, but not limited to, estimating the timing of and expected costs to complete in-process projects, projecting regulatory approvals, estimating future cash flows from product sales resulting from completed projects and in-process projects, and developing appropriate discount rates.
22
Impairment of Long-Lived Assets
Impairment of long-lived assets consists of costs attributable to the cease of use of laboratory equipment, leasehold improvements, and software associated with program development, as it was determined that certain long-lived assets would no longer be used due to our January 2023 announcement which discontinued the Company's Phase 3 clinical trial in CP101.
Restructuring Expense
Restructuring expense consists of costs directly incurred as a result of restructuring initiatives, and includes one-time severance payments, healthcare coverage, outplacement services and related expenses.
Total Other (Expense) Income, Net
Other (Expense) Income, Net
Other income (expense), net consists of sublease income, loss on disposal of fixed assets, loss on loan extinguishment as well as realized gains and losses on foreign exchange.
Interest Income (Expense)
Interest income primarily consists of interest earned on our cash and cash equivalents. Interest expense consisted primarily of interest on borrowings under our Loan Agreement with Hercules Capital, Inc., or the Loan Agreement, which was fully paid off in January 2023.
Income Tax Benefit
The income tax benefit reflects the full removal of the deferred tax liability associated with the IPR&D that was written off during the first fiscal quarter of 2023 and treated as a discrete item in the tax provision.
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED MARCH 31, |
|
|
|
2023 |
|
|
2022 |
|
REVENUE: |
|
|
|
|
|
|
Collaboration revenue |
|
$ |
107 |
|
|
$ |
354 |
|
Total revenue |
|
|
107 |
|
|
|
354 |
|
OPERATING EXPENSES: |
|
|
|
|
|
|
Research and development |
|
|
(8,588 |
) |
|
|
(15,530 |
) |
General and administrative |
|
|
(9,617 |
) |
|
|
(9,404 |
) |
Impairment of IPR&D |
|
|
(32,900 |
) |
|
|
— |
|
Impairment of Long-Lived Assets |
|
|
(13,141 |
) |
|
|
— |
|
Restructuring expense |
|
|
(3,236 |
) |
|
|
— |
|
Total operating expenses |
|
|
(67,482 |
) |
|
|
(24,934 |
) |
Net operating loss |
|
|
(67,375 |
) |
|
|
(24,580 |
) |
OTHER (EXPENSE) INCOME, NET: |
|
|
|
|
|
|
Interest income, net |
|
|
425 |
|
|
|
13 |
|
Loss on loan extinguishment |
|
|
(1,366 |
) |
|
|
— |
|
Loss on disposal of fixed assets, net |
|
|
(137 |
) |
|
|
— |
|
Other income, net |
|
|
1,053 |
|
|
|
— |
|
Total other (expense) income, net |
|
|
(25 |
) |
|
|
13 |
|
Income tax benefit |
|
|
3,461 |
|
|
|
— |
|
Net loss |
|
$ |
(63,939 |
) |
|
$ |
(24,567 |
) |
23
Revenue
Revenue of $0.1 million and $0.4 million for the three months ended March 31, 2023 and 2022, respectively, primarily consisted of collaboration revenue earned under the Takeda Agreement. Our collaboration revenue decreased by $0.3 million in the three months ended March 31, 2023 compared to the three months ended March 31, 2022 due to the November 2021 amendment to the Takeda Agreement, pursuant to which we transitioned primary responsibilities for further development and manufacturing activities with respect to FIN-524 to Takeda in the third quarter of 2021, resulting in a decrease in collaboration revenue throughout 2022, and due to Takeda's election in August 2022 to terminate the agreement, which terminated in November 2022.
Research and Development Expenses
The following table summarizes our research and development expenses for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED MARCH 31, |
|
|
|
2023 |
|
|
2022 |
|
|
Increase (Decrease) |
|
CDI |
|
$ |
3,972 |
|
|
$ |
3,530 |
|
|
$ |
442 |
|
Inflammatory Bowel Diseases (IBD) |
|
|
116 |
|
|
|
492 |
|
|
|
(376 |
) |
Autism Spectrum Disorder (ASD) |
|
|
71 |
|
|
|
1,866 |
|
|
|
(1,795 |
) |
Hepatitis B (HBV) |
|
|
— |
|
|
|
298 |
|
|
|
(298 |
) |
Platform |
|
|
2,081 |
|
|
|
8,144 |
|
|
|
(6,063 |
) |
Unallocated |
|
|
2,348 |
|
|
|
1,200 |
|
|
|
1,148 |
|
|
|
$ |
8,588 |
|
|
$ |
15,530 |
|
|
$ |
(6,942 |
) |
Research and development expenses for the three months ended March 31, 2023 were $8.6 million, compared to $15.5 million for the three months ended March 31, 2022. The decrease in expenses for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 was driven by a decrease in platform-related costs of $6.1 million, due to our decision in January 2023 to discontinue the Company's Phase 3 clinical trial in CP101 and cease all program development. Additionally there was a decrease of $1.8 million in our ASD program expenses and a decrease of $0.3 million in our HBV program expenses due to our decision to suspend our HBV program, announced on March 31, 2022, and our subsequent decision, announced on September 1, 2022, to suspend our Phase 1 clinical trial in ASD. In addition, there was a decrease of $0.4 million in IBD program expenses due to the termination of our collaboration agreement with Takeda in November 2022. These decreases were offset by an increase of $1.1 million in unallocated expenses due a change in allocation of personnel expenses and a $0.4 million increase in expenses related to our CP101 program, as the program and Phase 3 clinical trial were incurring expenses through the January 2023 announcement.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED MARCH 31, |
|
|
|
2023 |
|
|
2022 |
|
|
Increase (Decrease) |
|
Personnel expenses (including stock-based compensation) |
|
$ |
2,088 |
|
|
$ |
3,658 |
|
|
$ |
(1,570 |
) |
Facilities and supplies |
|
|
1,840 |
|
|
|
218 |
|
|
|
1,622 |
|
Professional fees |
|
|
4,398 |
|
|
|
3,254 |
|
|
|
1,144 |
|
Other expenses |
|
|
1,291 |
|
|
|
2,274 |
|
|
|
(983 |
) |
|
|
$ |
9,617 |
|
|
$ |
9,404 |
|
|
$ |
213 |
|
General and administrative expenses were $9.6 million for the three months ended March 31, 2023, compared to $9.4 million for the three months ended March 31, 2022. The increase of $0.2 million for the three months ended March 31, 2023 was primarily due to a $1.6 million increase in facilities and supplies, and a $1.1 million increase in professional fees, partially offset by a decrease of $1.6 million in personnel expenses and a $1.0 million decrease in other expenses. The increase in professional fees was primarily related to $1.2 million increase in legal expenses, in addition to a $0.1 million increase in consulting costs, partially offset by a $0.2 million decrease in audit and tax related expenses. This increase was further offset by a $1.6 million decrease in personnel expenses comprised of a $1.4 million decrease in employee-related costs and a $0.2 million decrease in stock-based compensation expense.
24
Impairment of IPR&D
For the three months ended March 31, 2023, we recognized an IPR&D impairment charge of $32.9 million, as the fair value of the IPR&D asset was determined to be less than its carrying value. No impairment charge to IPR&D was recognized for the three months ended March 31, 2022.
Impairment of Long-Lived Assets
For the three months ended March 31, 2023, we recognized an impairment charge to long-lived assets of $13.1 million, as it was determined that certain equipment, leasehold improvements, and software associated with program development would no longer be used following the Company's announcement in January 2023 that it would discontinue its Phase 3 clinical trial in CP101. No impairment charge to long-lived assets was recognized for the three months ended March 31, 2022.
Restructuring Expense
Restructuring expense for the three months ended March 31, 2023 was $3.2 million, compared to zero for the three months ended March 31, 2022. The increase is due to the costs associated with the implementation of certain expense reduction measures in January 2023. Refer to Note 8 within the condensed consolidated financial statements for further information.
Other (Expense) Income, Net
Total other expense, net for the three months ended March 31, 2023 was less than $0.1 million compared to income of less than $0.1 million for the three months ended March 31, 2022. The change to other (expense) income was driven by sublease income of $1.1 million and interest income of $0.5 million earned during the three months ended March 31, 2023, offset by realized loss on loan extinguishment of $1.4 million.
Income Tax Benefit
The income tax benefit for the three months ended March 31, 2023 reflects the full removal of the deferred tax liability associated with the IPR&D that was written off during the quarter and treated as a discrete item in the tax provision. No income tax benefit was recorded for the three months ended March 31, 2022.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not recognized any product revenue and have incurred operating losses and negative cash flows from our operations. We do not currently expect to progress any product candidate through clinical trials or commercial approval and we do not currently expect to generate any revenue from product sales. We expect that our revenue for the next several years, if any, will be derived from enforcement and out-licensing of our intellectual property estate. We have funded our operations primarily through equity financings, the Loan Agreement, and from collaboration revenue. We have raised an aggregate of approximately $177.0 million from the sale of convertible preferred stock and $14.0 million in collaboration revenue from the upfront payment and milestone payments received under our collaboration agreement with Takeda which was terminated in 2022. In May 2022, we borrowed $15.0 million under the Loan Agreement, and subsequently, in January 2023, we voluntarily paid off all outstanding amounts under the Loan Agreement. In March 2021, we completed our IPO whereby we sold an aggregate of 7,500,000 shares of our common stock. In April 2021, we sold an additional 192,877 shares of our common stock, pursuant to the underwriters’ partial exercise of their overallotment option, at a public offering price of $17.00 per share, for aggregate gross proceeds of $3.3 million. In aggregate, we received approximately $118.8 million in net proceeds related to our IPO after deducting $9.2 million of underwriting discounts and commissions and $2.9 million of offering expenses.
Cash Flows
The following table summarizes our cash flows for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED MARCH 31, |
|
|
|
2023 |
|
|
2022 |
|
Net cash used in operating activities |
|
$ |
(13,381 |
) |
|
$ |
(25,646 |
) |
Net cash used in investing activities |
|
|
(14 |
) |
|
|
(909 |
) |
Net cash (used in) provided by financing activities |
|
|
(16,159 |
) |
|
|
5 |
|
Net decrease in cash and cash equivalents, and restricted cash |
|
$ |
(29,554 |
) |
|
$ |
(26,550 |
) |
25
Operating Activities
During the three months ended March 31, 2023, cash used in operating activities was $13.4 million. This cash outflow was primarily related to our net loss of $63.9 million, offset by a $32.9 million IPR&D impairment charge and a $13.1 million impairment charge to long-lived assets in the first fiscal quarter of 2023. The change included $1.2 million in stock-based compensation expense, $1.4 million in non-cash depreciation and amortization, a $1.4 million loss on loan extinguishment, and $1.0 million in other non-cash operating lease cost, partially offset by a $3.5 million benefit for deferred taxes. The net increase in our operating assets and liabilities of $2.9 million included a $4.0 million increase in other non-current assets, $1.8 million increase in prepaid expenses and other current assets, and a $1.5 million increase in accounts payable. This was offset by a $2.7 million decrease in accrued expenses and other current liabilities and a $1.6 million decrease in operating lease liabilities.
During the three months ended March 31, 2022, cash used in operating activities was $25.6 million. This cash outflow was primarily related to our net loss of $24.6 million in addition to a net decrease in our operating assets and liabilities of $4.8 million. The cash outflow included $2.1 million in stock-based compensation expense and $1.3 million in non-cash depreciation and amortization. The net decrease in our operating assets and liabilities of $4.8 million included a $7.0 million decrease in prepaid expenses and other current assets and a $0.3 million decrease in operating lease liabilities. This was offset by a $1.1 million increase in accounts payable, a $0.7 million increase in accrued expenses and other current liabilities, a $0.4 million increase in other non-current assets, and a $0.3 million increase in accounts receivable.
Investing Activities
During the three months ended March 31, 2023 and 2022, we used less than $0.1 million and $0.9 million, respectively, of cash in investing activities. The less than $0.1 million and $0.9 million used during the three months ended March 31, 2023 and 2022 were due to purchases of property and equipment.
Financing Activities
During the three months ended March 31, 2023, net cash used in financing activities of $16.2 million due to payment of the Loan Agreement.
During the three months ended March 31, 2022, net cash provided by financing activities of approximately $5,000 was due to proceeds from the exercise of company stock options offset by principal payments on finance lease obligations.
Funding Requirements
As of March 31, 2023, our cash and cash equivalents were $41.7 million. We believe that our existing cash on hand will enable us to fund our operating expenses and capital expenditure requirements into 2025. We have based this estimate on assumptions that may prove to be wrong, and we could expend our capital resources sooner than we expect. We expect to continue to incur significant losses for the foreseeable future as we attempt to realize the value of our intellectual property estate and other assets.
Material Cash Requirements
During the three months ended March 31, 2023, there were no other material changes to our material cash requirements from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” discussed in the 2022 10-K.
Critical Accounting Policies and Significant Judgments and Estimates
Our unaudited interim condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our unaudited interim condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our condensed financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. However, even though we believe we have used reasonable estimates and assumptions in preparing our interim condensed consolidated financial statements, the future effects of the COVID-19
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pandemic on our results of operations, cash flows, and financial position are unclear. Our actual results may differ from these estimates under different assumptions or conditions.
There have been no significant changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in the 2022 10-K.
Recently Issued Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.
Emerging Growth Company Status and Smaller Reporting Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company and, as a result, we will not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
We will remain an emerging growth company until December 31, 2026 or, if earlier, (i) the last day of our first fiscal year in which we have total annual gross revenues of at least $1.235 billion, (ii) the date on which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.