The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties, including those set forth under the heading "Risk Factors" and elsewhere in this Annual Report on Form 10-K. Our actual results and the timing of selected events discussed below could differ materially from those expressed in, or implied by, these forward-looking statements.
Overview
We are a research and clinical development biopharmaceutical company focused on
developing protease therapeutics to address unmet medical needs in disorders of
the complement system or where complement components are associated with
progression of the disease state. Proteases are an important class of enzymes,
which are key natural regulators of many biological processes, including the
complement system. We use our protease engineering platform to create improved
or novel molecules for the treatment of diseases that result from dysregulation
of the complement system. Our complement pipeline consists of a preclinical
complement component 3 ("C3") degrader program for geographic atrophy ("GA") in
dry age-related macular degeneration ("dAMD"), an improved Complement Factor I
("CFI") protease, CB 4332, for subcutaneous ("SQ") or intravitreal ("IVT")
therapy to restore complement homeostasis in disease of overactive complement of
CFI deficiencies, and proteases from our ProTUNE™ C3b/C4b degrader and
ImmunoTUNE™ C3a/C5a degrader platforms designed to target specific disorders of
the complement or inflammatory pathways. Historically, we also used our protein
engineering platform to develop potential therapies for coagulation disorders,
including marzeptacog alfa (activated) ("MarzAA"), a SQ administered
next-generation engineered coagulation Factor VIIa ("FVIIa") for the treatment
of episodic bleeding and prophylaxis in subjects with rare bleeding disorders,
and dalcinonacog alfa ("DalcA"), a next-generation SQ FIX, both of which has
shown sustained efficacy and safety in mid-stage clinical trials.
The product candidates generated by our protease engineering platform are
designed to have improved functional properties such as longer half-life,
improved specificity and targeting, higher potency, and increased
bioavailability. These characteristics potentially allow for improved safety and
efficacy for SQ administration of recombinant complement regulators, or less
frequently dosed intravitreal products than current therapeutics in development.
Our current complement portfolio consists of the development candidates CB 4332
and CB 2782-PEG. CB 4332 is a wholly owned, first-in-class improved
albumin-fused CFI molecule intended for prophylactic SQ or IVT administration in
individuals with an imbalance in complement homeostasis or a CFI deficiency. CB
2782-PEG is a potential best-in-class C3 degrader product candidate in
preclinical development for the treatment of dry AMD that we had licensed to
Biogen. In March 2022 , we re-acquired the full rights to CB 2782-PEG adding to
our promising portfolio, which includes CB 4332 our enhanced CFI development
candidate. We have several engineered protease programs in discovery or early
non-clinical development. These programs all target diseases caused by deficient
regulation of the complement system and inflammation.
In July 2021 we commenced patient enrollment in the screening ("CFI-001") and
natural history of disease ("CFI-002") studies to assess CFI blood levels in
patients who have diseases related to CFI deficiency and identify those who
might benefit from CB 4332 treatment ("ConFIrm" and "ConFIdence" studies,
respectively). As of February 2022 , we have completed enrollment of these
studies.
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The following table summarizes our current development programs.
[[Image Removed]]We continue to experience operational and other challenges as a result of the COVID-19 global pandemic, which could delay or impact our development programs. See Note 7, Commitments and Contingencies, Other Recent Developments and Item 1A - Risk Factors for further discussion of the current and expected impact on our business and development programs.
Recent Development Program Updates
Complement
Our protease programs are designed to take advantage of nature's natural
complement regulators that restore complement homeostasis and potentially treat
a variety of complement-mediated disorders. We have several protease programs
currently in preclinical discovery or early non-clinical development. These
programs target diseases caused by aberrant regulation of the complement system
including both ocular programs, specifically for dry AMD, and systemic
complement disorders, all of which are wholly owned by Catalyst.
The complement system is an enzyme-based innate immune defense system with the
primary role of protecting the body from pathogens. The system is naturally
regulated by proteases which is the basis for our approach to addressing
complement-driven diseases. Deficient or excessive activation of the complement
system may lead to severe disorders, including microthrombotic, autoimmune
and/or immune-complex diseases, severe infectious diseases, and degenerative
ophthalmic or neurologic diseases affecting a variety of tissues and organ
systems. The absence of regulation can cause the complement system to become
self-destructive or not provide the necessary protection when needed. The
protease therapeutic candidates generated by our platforms are designed to
correct or restore the missing balance in the complement system that drives
several diseases.
Proteases are uniquely poised to regulate key biological functions such as the
complement system, either by promoting or limiting the cascade of events that
leads to eventual clearing of foreign and damaged proteins, inflammation, and
formation of the membrane attack complex, which is deposited on the surface of
cells and drives their destruction. Compared with antibodies and small molecule
inhibitors that generally require a sustained excess of therapeutic compound
over that of the target, Catalyst's protease therapeutic candidates are based on
natural regulatory proteins that are capable of rapidly engaging and modulating
large quantities of target molecules, as each protease molecule can degrade many
target molecules over their effective lifetime. This means that our proteases
are ideal for regulating high abundancy targets such as complement proteins in a
way antibodies and small molecule inhibitors cannot.
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CB 2782-PEG is an engineered pegylated C3 degrader previously licensed to Biogen
that we designed with a best-in-class anti-C3 profile for geographic atrophy
("GA") in dry AMD. Dry AMD is an ocular disease that leads to vision loss and
blindness for which there is currently no approved therapy. CB 2782-PEG degrades
C3 in the eye reducing the steady state level of C3 activity. It is expected
that maintaining low C3 levels in the eye can significantly slow disease
progression and vision loss in patients with dry AMD. We have demonstrated in
preclinical non-human primate models that we have the potential to reduce C3
levels in humans based on modeling studies for up to 3 months with a single
intravitreal injection. In September 2021 , Apellis released the results of the
DERBY and OAKS phase 3 trials for GA secondary to dry AMD, showing that
once-monthly pegcetacoplan, a pegylated C3 targeted inhibitor, was safe and
efficacious, meeting its primary endpoint in one trial and narrowly missing the
primary endpoint in a second trial for reducing GA lesion growth over a 12-month
period. Further subpopulation analyses demonstrated a greater effect of reducing
GA lesion growth in those subjects with extrafoveal lesions at baseline. CB
2782-PEG provides a differentiated mechanism of action by degrading both C3 and
one of its byproducts, C3a potentially offering not only less frequent dosing
but a more efficacious mechanism than pegcetacoplan or other complement
inhibitors in development for GA. In March 2022 , Biogen terminated the license
agreement and returned full rights to CB 2782-PEG.
CB 4332 is an engineered albumin-fused version of the CFI protease with an
extended half-life that can be dosed subcutaneously or intravitreally in
individuals who would benefit from enhanced regulation of complement. CFI is the
central regulator of the complement system and CB 4332 has the potential to
address several mechanistically related diseases driven by complement imbalance
such as: Lupus Nephritis ("LN"), Systemic Lupus Erythematosus ("SLE"), warm
Autoimmune Hemolytic Anemia ("wAIHA"), atypical Hemolytic Uremic Syndrome
("aHUS"), C3 Glomerulonephritis ("C3G"), and Immune Complex
Membranoproliferative Glomerulonephritis ("IC-MPGN"), dry AMD and complete CFI
deficiency ("CFID"), a rare immunodeficiency primarily affecting children. These
are severe, chronic, life-threatening diseases that result in a significantly
decreased quality of life for the afflicted individual.
CB 4332 can be dosed subcutaneously for systemic diseases and has the potential
for infrequent IVT injections for ophthalmic indications. As a key complement
regulator, CFI has the potential to be used in several complement dysregulated
diseases (e.g., those associated with hyperactive complement) in which
additional upstream regulation may prove more effective than inhibiting specific
downstream targets such as C3 or C5, where many of current molecules in
development are targeted.
Individuals with complete or significant absence of endogenous CFI may present
with a variety of disease manifestations, such as recurrent invasive infections
with encapsulated bacteria, but these patients are also at risk of developing
autoimmune and/or immune-complex diseases such as chronic inflammation of the
blood vessels of the brain, spinal cord, heart, or kidneys. No CFI replacement
therapy, including for prophylactic use, has been approved, and patients often
receive supportive care with lifelong antibiotic treatment, which may cause a
range of additional problems. We have received pre-IND guidance from the FDA as
well as Rare Pediatric Disease Designation of CB 4332 for treatment of CFI
deficiency in January 2022 .
Low circulating serum CFI levels have been shown to be associated with rare CFI
genetic variants and all forms of AMD ranging from early to late-stage
manifestations. Studies have estimated the prevalence rates of CFI deficiency in
GA to be approximately 20%, suggesting that CFI is a prognostic biomarker for
progression of GA. Approximately 1 million individuals globally are predicted to
have low serum CFI levels and may potentially benefit from targeted CFI therapy.
Gyroscope released interim results from its FOCUS phase 1/2a trial for patients
with GA and having rare CFI variants, showing that gene therapy with GT005, an
AAV-delivered CFI rebalanced the overactivation of complement observed in the
vitreous with sustained expression of CFI. The FOCUS data also showed that
AAV-delivered CFI reduced complement biomarkers in the broader GA population who
do not have a rare CFI genetic variant.
We have additional early-stage complement discovery programs that target
different proteins of the complement system including proteases from our
ProTUNE™ C3b/C4b degrader and ImmunoTUNE™ C3a/C5a degrader platforms. These
proteases are designed to target specific disorders of the complement or
inflammatory pathways. The ProTUNE™ platform generates optimized,
next-generation engineered CFI molecules that are selectively enhanced for
potency and target engagement. We expect to nominate a development candidate and
target indication from this platform in 2022.
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Coagulation Programs MarzAA MarzAA is a potent, subcutaneously administered, next-generation Factor VIIa variant. We commenced enrollment of a Phase 3 registrational trial of MarzAA for episodic treatment of spontaneous or traumatic bleeding episodes in adolescents and adults with congenital hemophilia A or hemophilia B with inhibitors inMay 2021 . We have discontinued this trial based on a number of factors, including challenges in enrollment resulting from the limited number of potential patients eligible to enroll in this trial, competition from competing approved therapies, delays in enrollment resulting from COVID-19, the capital requirements to complete the trial, and other factors. Patients enrolled in the study returned to their standard of care and completed all required safety assessments. In the patients enrolled to date, we have successfully treated bleeds with SQ MarzAA and have not observed any adverse events. We plan to report these data at an appropriate medical conference in the future. We had also begun enrollment of a Phase 1/2 trial of MarzAA for treatment of bleeding in individuals with Factor VII Deficiency, Glanzmann Thrombasthenia, and hemophilia A with inhibitors on emicizumab prophylaxis. We have discontinued this trial as well, in light of the difficulties in identifying and enrolling eligible patients, the capital requirements to complete the trial and other factors. We believe that a SQ recombinant Factor VIIa therapy, like MarzAA, has the potential to be an important treatment option for patients with various bleeding disorders and are exploring opportunities to license or sell MarzAA to another party for further development. DalcA DalcA is a next-generation SQ Factor IX product candidate for the prophylactic treatment of individuals with hemophilia B. An open-label, Phase 2b study was completed in 2020, demonstrating that FIX plasma activity levels were raised from severe to mild hemophilia B levels and maintained throughout the course of the study. We have received guidance from the FDA on the design of the registrational Phase 3 clinical trial, have the necessary data to support its initiation, and are exploring opportunities to license or sell DalcA to another party for further development.
Recent Manufacturing Updates
CB 4332
CB 4332 is an albumin-fused version of the CFI protease with an extended half-life that is designed to be a subcutaneous or intravitreal dosed therapy for people who would benefit from improved complement regulation.
Other Recent Developments COVID-19 Business Impact The global coronavirus pandemic has resulted in widespread requirements for individuals to work from their homes, strained medical facilities worldwide, and disruptions to certain pharmaceutical manufacturing and product supply chains. While our offices inCalifornia have reopened for all employees, we may experience future disruptions in applicable guidelines for workplace safety, necessitating a return to a remote working environment. We are also still experiencing operational and other challenges as a result of the COVID-19 global pandemic, which delayed our enrollment in MAA-304 and MAA-202, contributing to the decision to discontinue these trials, and which may delay or halt our other development programs. Recent Financing
In the first quarter of 2021, we issued and sold a total of 9,185,000 common shares (including 485,000 shares sold following the exercise of the underwriters’ over-allotment option) at a price of
We have no drug products approved for commercial sale and have not generated any revenue from drug product sales. From inception toDecember 31, 2021 , we have raised net proceeds of approximately$509.3 million , 67 -------------------------------------------------------------------------------- primarily from private placements of convertible preferred stock since converted to common stock, proceeds from our merger with Targacept, issuances of shares of common stock and warrants, including$83.5 million in total cash receipts from our license and collaboration agreements. We have never been profitable and have incurred significant operating losses in each year since inception. Our net losses were$87.9 million and$56.2 million for the years endedDecember 31, 2021 and 2020, respectively. As ofDecember 31, 2021 , we had an accumulated deficit of$402.7 million . As ofDecember 31, 2021 , our cash, cash equivalents and short-term investments balance were$46.9 million . Substantially all our operating losses were incurred in our research and development programs and in our general and administrative operations. We expect to incur significant expenses and increasing operating losses for at least the next several years as we continue preclinical, manufacturing and clinical development, and seek regulatory approval for our drug candidates. Our operating losses may fluctuate significantly from quarter to quarter and year to year due to timing of preclinical, manufacturing, clinical development programs and regulatory guidance spending.
Direction changes
OnJuly 14, 2021 , we promoted Grant Blouse, Ph.D., to chief scientific officer andTom Knudsen , DVM, Ph.D., to senior vice president, corporate development.Howard Levy , M.B.B.Ch, Ph.D., M.M.M., chief medical officer, announced his plan to retire and transition to a senior clinical advisor role to Catalyst. OnSeptember 9, 2021 (the "Effective Date"), we appointed Ms.Jeanne Y. Jew as a Class III director of Catalyst with a term to expire at the 2024 Annual Meeting of Stockholders. In connection with the appointment, the Board approved an increase in the size of the Board, from seven to eight members, effective as of the Effective Date. OnOctober 13, 2021 ,Clinton Musil , the chief financial officer, resigned for personal reasons effectiveOctober 29, 2021 . We promotedSeline Miller , the Company's controller, to senior vice president, finance. She will serve as the interim chief financial and principal accounting officer while the Company initiates a search for a successor.
Overview of financial operations
Licensing and Collaboration Revenue
License and collaboration revenue consist of revenue earned for performance obligations satisfied pursuant to our license and collaboration agreement with Biogen which was entered into inDecember 2019 . In consideration for the grant of an exclusive license and related know-how, we received an up-front license payment of$15.0 million inJanuary 2020 , which was recorded in license revenue during the year endedDecember 31, 2020 . We recognized collaboration revenue for reimbursable third-party vendor, out-of-pocket and personnel costs pertaining to the Biogen Agreement of$7.3 million and$5.8 million during the years endedDecember 31, 2021 and 2020, respectively. InMarch 2022 , we received notice that Biogen is terminating the license and collaboration agreement. Under the terms of the Biogen Agreement, termination will be effective inMay 2022 .
We have not generated any revenue from the sale of pharmaceuticals and we do not expect to generate revenue from the sale of pharmaceuticals until we obtain regulatory approval and commercialize our product candidates.
Cost of license and collaboration
Cost of license and collaboration revenue consists of fees for research and development services payable to third-party vendors, and personnel costs, corresponding to the recognition of license and collaboration revenue from Biogen. Cost of license and collaboration revenue does not include any allocated overhead costs. In connection with the license revenue recognized from Biogen as discussed above in 2020, we paid Mosaic a$3.0 million sublicense fee and recorded such payment as cost of license. We recognized third-party vendor, out-of-pocket and personnel costs, most of which were reimbursable, pertaining to the Biogen Agreement of$7.4 million and$6.1 million during the years endedDecember 31, 2021 and 2020, respectively, and recorded such costs as cost of collaboration revenue. 68 --------------------------------------------------------------------------------
Research and development costs
Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development costs as they are incurred. Nonrefundable advance payments for goods or services used in research and development are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered or services are performed, or until it is no longer expected that the goods or services will be delivered.
Research and development expenses mainly consist of the following items:
• employee-related expenses, which include salaries, benefits and
stock-based compensation;
• laboratory and supplier expenses, including payments to consultants and
third parties, related to the execution of preclinical, non-clinical and
clinical studies;
• the cost of acquiring and manufacturing preclinical and clinical
materials and developing manufacturing processes;
• clinical trial costs, including third party clinical research costs
organizations;
• performing toxicity and other preclinical studies; and
• facilities and other allocated expenses, which include direct and
charges allocated to rent and maintenance of premises, depreciation
and depreciation and other supplies.
The table below details our internal and external costs for research and
development for the period presented (in thousands). See Overview and Recent
Development Program Updates for further discussion of the current research and
development programs.
Year Ended December 31,
2021
Hemophilia $ 25,791
Complement 24,698
Personnel and other 17,198
Stock-based compensation 1,202
Total research and development expenses $ 68,889
The largest component of our total operating expenses has historically been our
investment in research and development activities, including the clinical and
manufacturing development of our product candidates. We are focusing
substantially all our resources and development efforts on our complement
programs. Costs listed for our hemophilia and complement programs above consist
of clinical trial, manufacturing and research costs. Our internal resources,
employees and infrastructure, identified above as personnel and other, are
generally not directly tied to individual product candidates or development
programs. As such, we do not maintain information regarding these costs incurred
for these research and development programs on a project-specific basis.
We expect our aggregate research and development expenses will fluctuate during
the next year as we continue to explore strategic opportunities for the clinical
and manufacturing development of our programs. The global coronavirus pandemic
may also delay and increase costs of our current development plans.
On May 20, 2016 , we signed a development and manufacturing services agreement
with AGC, formerly known as CMC ICOS Biologics, Inc. , pursuant to which AGC will
conduct manufacturing development of agreed upon product candidates. We will own
all intellectual property developed in such manufacturing development activities
that are specifically related to our product candidates and will have a
royalty-free and perpetual license to use AGC's intellectual property to the
extent reasonably necessary to make these product candidates, including
commercial manufacturing. As of December 31, 2021 , six GMP batches have been
manufactured at AGC in addition to an engineering batch.
The initial term of the agreement is ten years or, if later, until all stages
under outstanding statements of work have been completed. Either party may
terminate the agreement in its entirety upon written notice of a material
uncured breach or upon the other party's bankruptcy, and we may terminate the
agreement upon prior notice for any reason. In addition, each party may
terminate the agreement in the event that the manufacturing development
activities
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cannot be completed for technical or scientific reasons. We had firm work orders
with AGC to manufacture MarzAA and DalcA to support clinical trials totaling
$15.8 million . The payment obligations were fully paid off as of December 31,
2021 . We also have firm work orders with AGC to perform certain manufacturing
services related to our collaboration agreement with Biogen totaling $0.7
million and the payment obligations remaining as of December 31, 2021 were $0.3
million .
In July 2021 , we entered into two separate agreements, one for additional
clinical trial services for MarzAA, and another for our screening and natural
history of disease clinical studies related to CFI deficiency, with total
payments of up to $3.2 million and $6.5 million , respectively. In November 2021 ,
we provided notice of intent to terminate our MarzAA manufacturing agreements
and incurred charges of $3.8 million to write-off prepaid manufacturing costs
that will no longer be used for the clinical development of MarzAA. We can
terminate the CFI agreement at our discretion and upon termination will be
responsible to pay for those services incurred prior to termination plus
reasonable wind-down expenses.
On September 16, 2021 , we signed a Manufacturing and Research and Development
Studies Agreement to support the lyophilized drug product, CB 4332. The
agreement will cover analytical method qualification to support GMP
manufacturing. We have firm work orders related to this agreement totaling $0.2
million and the payment obligations were fully paid off as of December 31, 2021 .
We also have a long-term clinical supply services agreement with Catalent
Indiana, LLC ("Catalent"). Catalent has facilities in the U.S. and Europe and
conducts drug product development and manufacturing for MarzAA and DalcA. We
successfully completed development work for a variety of vial sizes which
supports flexible dosing.
The process of conducting clinical trials necessary to obtain regulatory
approval is costly and time consuming. We may never succeed in achieving
marketing approval for our product candidates. The probability of success of
each product candidate may be affected by numerous factors, including clinical
data, competition, manufacturing capability and commercial viability. As a
result, we are unable to determine the duration of and costs to complete 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.
Successful development of current and future product candidates is highly
uncertain. Completion dates and costs for our research programs can vary
significantly for each current and future product candidate and are difficult to
predict. Thus, we cannot estimate with any degree of certainty the costs we will
incur in the development of our product candidates. We anticipate we will
determine which programs and product candidates to pursue and how much funding
to direct to each program and product candidate on an ongoing basis in response
to the scientific success of early research programs, results of ongoing and
future clinical trials, our ability to enter into collaborative agreements with
respect to programs or potential product candidates, as well as ongoing
assessments as to each current or future product candidate's commercial
potential.
General and administrative expenses
General and administrative expenses consist of personnel costs, allocated expenses and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, bonus, benefits and stock-based compensation. We incur expenses associated with operating as a public company, including expenses related to compliance with the rules and regulations of theSecurities and Exchange Commission ("SEC") andNasdaq Stock Market LLC ("Nasdaq"), insurance expenses, audit expenses, investor relations activities, Sarbanes-Oxley compliance expenses and other administrative expenses and professional services. We expect such expenses to fluctuate as we continue to explore strategic opportunities for our programs. 70 --------------------------------------------------------------------------------
Operating results
The following tables present our results of operations for the periods presented (in thousands, except percentages):
Year Ended December 31,
2021 2020 Change ($) Change (%)
Revenue:
License $ - $ 15,100 $ (15,100 ) *
Collaboration 7,338 5,848 1,490 25 %
License and collaboration revenue 7,338 20,948 (13,610 ) (65 )%
Operating expenses:
Cost of license - 3,102 (3,102 ) *
Cost of collaboration 7,380 6,061 1,319 22 %
Research and development 68,889 52,975 15,914 30 %
General and administrative 18,963 16,180 2,783 17 %
Total operating expenses 95,232 78,318 16,914 22 %
Loss from operations (87,894 ) (57,370 ) (30,524 ) 53 %
Interest and other income (expense), net (39 ) 1,129 (1,168 ) *
Net loss $ (87,933 ) $ (56,241 ) $ (31,692 ) 56 %
*Not meaningful
Licensing and Collaboration Revenue
License and collaboration revenues were$7.3 million and$20.9 million for the years endedDecember 31, 2021 and 2020, respectively. In the year endedDecember 31, 2021 , revenue consisted primarily of reimbursable collaboration expenses from our Biogen Agreement. In the year endedDecember 31, 2020 , revenue consisted primarily of a license payment of$15.0 million and reimbursable collaboration expenses of$5.8 million from our Biogen Agreement.
Cost of license and collaboration
Cost of license and collaboration revenues were$7.4 million and$9.2 million during the years endedDecember 31, 2021 and 2020, respectively. Cost of collaboration for the year endedDecember 31, 2021 was primarily related to reimbursable third-party vendor and personnel costs we incurred pertaining to the Biogen Agreement. Cost of license for the year endedDecember 31, 2020 was primarily the$3.0 million sublicense fee we paid to Mosaic in connection with the recognition of the license revenue from Biogen. Cost of collaboration revenue for the year endedDecember 31, 2020 was primarily reimbursable third-party vendor, out-of-pocket and personnel related costs we incurred pertaining to the Biogen Agreement.
Research and development costs
Research and development expenses were$68.9 million and$53.0 million during the years endedDecember 31, 2021 and 2020, respectively, an increase of approximately$15.9 million , or 30%. The increase was due primarily to an increase of$9.3 million in clinical manufacturing costs of which$3.8 million related to the write-off of prepaid manufacturing costs as part of our restructuring, an increase of$3.9 million in preclinical research, an increase of$2.1 million in personnel-related costs which includes approximately$0.3 million related to one-time severance costs associated with our restructuring, and an increase of$0.6 million in facilities costs.
General and administrative expenses
General and administrative expenses were
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Interest and other income (expenses), net
The$1.2 million decrease in interest and other income (expense), net for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 was primarily due to a decrease in interest income and due to the payment received in the first quarter of 2020 under an agreement associated with neuronal nicotinic receptor asset sold in 2016.
Recent accounting pronouncements
Refer to Note 3, Summary of Significant Accounting Policies, to our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K for a description of recent accounting pronouncements adopted and not yet adopted for the year endedDecember 31, 2021 .
Cash and capital resources
As ofDecember 31, 2021 , we had$46.9 million of cash, cash equivalents and short-term investments. During the year endedDecember 31, 2021 , we had a$87.9 million net loss and$83.8 million cash used in operating activities. We have an accumulated deficit of$402.7 million as ofDecember 31, 2021 . Our primary uses of cash are to fund operating expenses, including 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 accrued expenses. We believe that our existing capital resources, including cash, cash equivalents and investments will be sufficient to meet our projected operating requirements for at least the next 12 months from the date of this filing. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We plan to continue to fund losses from operations and capital funding needs through future equity and/or debt financings, as well as potential additional asset sales, licensing transactions, collaborations or strategic partnerships with other companies. At the year endedDecember 31, 2021 , we had effective registration statements on Form S-3 that enable us to sell up to$150.0 million in securities subject to limitations underSEC rules. The sale of additional equity or convertible debt could result in additional dilution to our stockholders. The incurrence of indebtedness would result in debt service obligations and could result in operating and financing covenants that would restrict our operations. Licensing transactions, collaborations or strategic partnerships may result in us relinquishing valuable rights. We can provide no assurance that financing will be available in the amounts we need or on terms acceptable to us, if at all. If we are not able to secure adequate additional funding we may be forced to delay, make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially harm our business. InOctober 2021 , we entered into the ATM Agreement with Piper Sandler, which provides that, upon the terms and subject to the conditions and limitations set forth in the ATM Agreement, we may elect to issue and sell, from time to time, shares of our common stock having an aggregate offering price of up to$50.0 million through Piper Sandler acting as our sales agent. Under the ATM Agreement, Piper Sandler may sell the shares of common stock by methods deemed to be an "at the market" offering as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on theNasdaq Capital Market or any other trading market for the common stock. Piper Sandler will use commercially reasonable efforts to sell the shares of common stock subject to the ATM Agreement from time to time, based upon our instructions (including any price, time or size limits or other customary parameters or conditions that we may impose). We will pay Piper Sandler a commission of 3.0% of the gross proceeds of any shares sold through Piper Sandler under the ATM Agreement; however, we are not obligated to make any sales of common stock. For the year endedDecember 31, 2021 , no shares of common stock were sold under the ATM Agreement. 72 --------------------------------------------------------------------------------
The following table summarizes our cash flows for the periods presented (in thousands):
Year Ended December 31,
2021 2020
Cash used in operating activities $ (83,755 ) $ (55,048 )
Cash provided by investing activities 48,189 9,663
Cash provided by financing activities 49,553 60,376
Net increase in cash and cash equivalents
Cash flow from operating activities
Cash used in operating activities for the year endedDecember 31, 2021 was$83.8 million . The most significant component of our cash used was a net loss of$87.9 million . This included non-cash expense related to stock-based compensation of$3.4 million and depreciation and amortization of$0.3 million . In addition, cash inflow of$0.5 million was attributable to the change in our net operating assets and liabilities primarily as a result of a$3.9 million decrease in prepaid and other assets, a$1.5 million decrease in accounts receivable, and a$0.5 million increase in accounts payable, offset by a$3.7 million decrease in accrued compensation and other accrued liabilities and a$1.8 million decrease in deferred revenue related to the Biogen Agreement. Cash used in operating activities for the year endedDecember 31, 2020 was$55.0 million , due primarily to a net loss of$56.2 million and a net change in our operating assets and liabilities of$2.6 million , due primarily to a$11.7 million decrease in accounts receivable and a$1.7 million increase in accounts payable, partially offset by a$13.0 million decrease in deferred revenue related to the Biogen Agreement and a$3.0 million increase in prepaid and other assets. This is partially offset by non-cash charges of$3.8 million .
Cash flow from investing activities
Cash provided by investing activities for the year endedDecember 31, 2021 was$48.2 million , due to$49.0 million in proceeds from maturities of investments, offset by$0.8 million in purchases of property and equipment. Cash provided by investing activities for the year endedDecember 31, 2020 was$9.7 million , due to$107.6 million in proceeds from maturities of investments, offset by$97.6 million in purchases of short-term and long-term investments and$0.3 million in purchases of property and equipment.
Cash flow from financing activities
Cash provided by financing activities for the year endedDecember 31, 2021 was$49.6 million , due to$49.3 million in net proceeds from the issuance of common stock related to our public offering in the first quarter of 2021 and$0.3 million in proceeds from ESPP purchases of common stock and stock option exercises. Cash provided by financing activities for the year endedDecember 31, 2020 was$60.4 million , due to$32.0 million in net proceeds from the issuance of common stock related to our public offering inFebruary 2020 ,$28.0 million in net proceeds from the issuance of common stock related to our public offering inJune 2020 , and$0.4 million in proceeds from ESPP purchases of common stock and stock option exercises.
Critical accounting policies and estimates
The preparation of the consolidated financial statements and related disclosures in conformity withU.S. generally accepted accounting principles ("GAAP") and the Company's discussion and analysis of its financial condition and operating results require the Company's management to make judgments, assumptions and estimates that affect the amounts reported in its consolidated financial statements and accompanying notes. Our significant accounting policies and methods used in preparation of the Company's consolidated financial statements are described in Note 3, "Summary of Significant Accounting Policies," of the Notes to the Consolidated Financial Statements of this Annual Report on Form 10-K. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material. 73 -------------------------------------------------------------------------------- Management believes the Company's critical accounting policies and estimates discussed below are critical to understanding its historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
Revenue recognition
License and collaboration agreements
We may enter into collaboration arrangements that fall under the scope
Collaborative Arrangements (Topic 808) ("ASC 808"). We analyze collaboration
arrangements to assess whether they are within the scope of ASC 808 to determine
whether such arrangements involve joint operating activities performed by
parties that are both active participants in the activities and exposed to
significant risks and rewards dependent on the commercial success of such
activities. This assessment is performed throughout the life of the arrangement
based on changes in the responsibilities of all parties in the arrangement. The
accounting for some of the activities under collaboration arrangements may be
analogized to ASC 606 for distinct units of accounting that are reflective of a
vendor-customer relationship.
Under ASC 606, in determining the appropriate amount of revenue to be recognized
as we fulfill our obligations under its agreements, we perform the following
steps: (i) identification of the promised goods or services in the contract;
(ii) determination of whether the promised goods or services are performance
obligations including whether they are distinct in the context of the contract;
(iii) measurement of the transaction price, including the constraint on variable
consideration; (iv) allocation of the transaction price to the performance
obligations based on estimated selling prices; and (v) recognition of revenue
when we satisfy each performance obligation.
If a license to our intellectual property is determined to be distinct from the
other performance obligations identified in the arrangement, we recognize
revenues attributed to the license when the license is transferred to the
customer and the customer is able to use and benefit from the license. For
licenses that are bundled with other promises, we use our judgement to assess
the nature of the combined performance obligation to determine whether the
combined performance obligation is satisfied over time or at a point in time.
At the inception of each arrangement that contains development milestones, we
evaluate whether the development milestones included are considered probable of
being reached and estimate the amount to be included in the transaction price
using the most likely amount method. If it is probable that a significant
revenue reversal would not occur, the associated milestone value is included in
the transaction price. Milestone payments that are not within our control or the
licensee, such as regulatory approvals, are not generally considered probable of
being achieved until those approvals are received.
At the end of each reporting period, we re-evaluate the probability of
achievement of any development milestones, and if necessary, adjust its estimate
of the transaction price. Any such adjustments would be recorded on a cumulative
catch-up basis, which would affect revenues and earnings in the period of
adjustment.
For research and development services, the Company elected the practical
expedient to recognize revenue as the research and development services are
invoiced. As the Company has a right to consideration from the collaboration
agreement with Biogen, in an amount that corresponds directly with the value of
the Company's performance completed to date for the research services, the
Company recognized revenue related to the research services as invoiced, in line
with the practical expedient in ASC 606-10-55-18.
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The transaction price is allocated to each performance obligation on a relative
stand-alone selling price ("SSP") basis. We recognize revenue as or when the
performance obligations under the contract are satisfied. As part of the
accounting for these arrangements, we must develop assumptions that require
judgment to determine the timing of recognition and the SSP for each performance
obligation identified in the contract.
The SSP for licenses are calculated using the residual approach if we have not
yet established a price for such license and the license has not previously been
sold on a standalone basis. Otherwise, selling prices for licenses are
determined using an income approach model and include key assumptions such as:
development timeline, revenue forecast, commercialization expenses, discount
rate and probabilities of technical and regulatory success. To estimate the SSP
for research and development services, we use a cost-plus margin approach.
We record accrued expenses for estimated costs of our research and development
activities conducted by external service providers, which include the conduct of
preclinical studies and clinical trials and contract manufacturing activities.
We record the estimated costs of research and development activities based upon
the estimated amount of services provided but not yet invoiced and includes
these costs in other accrued liabilities in the consolidated balance sheet and
within research and development expense in the consolidated statement of
operations. These costs are a significant component of our research and
development expenses. We record accrued expenses for these costs based on the
estimated amount of work completed and in accordance with agreements established
with these external service providers.
We estimate the amount of work completed through discussions with internal
personnel and external service providers as to the progress or stage of
completion of the services and the agreed-upon fee to be paid for such services.
We make significant judgments and estimates in determining the accrued balance
in each reporting period. As actual costs become known, we adjust its accrued
estimates.
Stock-based Compensation
We measure the cost of employee and director services received in exchange for
an award of equity instruments based on the fair value-based measurement of the
award on the date of grant and recognize the related expense over the period
during which an employee or director is required to provide service in exchange
for the award on a straight-line basis. The estimated fair value of equity
awards that contain performance conditions is expensed over the term of the
award once we have determined that it is probable that performance conditions
will be satisfied.
Determining the fair value of stock-based awards at the grant date requires
judgment. We use the Black-Scholes option-pricing model to determine the fair
value of stock options. The determination of the grant date fair value of
options using an option-pricing model is affected by our assumptions regarding a
number of variables including the fair value of our common stock, our expected
common stock price volatility over the expected life of the options, expected
term of the stock option, risk-free interest rates and expected dividends. We
record stock-based compensation as a compensation expense, net of the forfeited
awards. We elected to account for forfeitures when they occur. As such, we
recognize stock-based compensation expense only for those stock-based awards
that are expected to vest, over their requisite service period, based on the
vesting provisions of the individual grants. See Note 10, Stock Based
Compensation, to our consolidated financial statements included in this Annual
Report on Form 10-K for more information.
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