APEXIGEN, INC. References included in this section to "
Overview
In 2022,
We are a clinical-stage biopharmaceutical company focusing on discovering and
developing a new generation of antibody therapies for oncology, with an emphasis
on new immuno-oncology agents designed to harness the patient's immune system to
combat and eradicate cancer. We do not have any products approved for sale and
have not generated any revenue from product sales. We have funded our operations
primarily through the issuance of stock as well as through proceeds from license
agreements and borrowings under a debt arrangement. Our net losses were
We expect our operating expenses to increase as we continue to discover, develop, seek regulatory approvals for and prepare for potential commercialization of our product candidates, in particular to advance sotiga into additional and potentially registration-enabling clinical trials and, if we successfully execute a collaboration for the development and commercialization of sotiga. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.
We will need substantial additional funding to support our continuing
operations, in addition to proceeds of
Legacy
Business Combination Agreement and Related Agreements
On
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As a result, the Combined Company received approximately
The merger is accounted for as a reverse recapitalization in accordance with
accounting principles generally accepted in
Components of Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the development of sotiga, our lead product candidate, as well as APX601 and other preclinical product candidates. We expense research and development costs as incurred. Nonrefundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. We expense the prepaid amounts as the related goods are delivered or the services are performed.
Research and development expenses include:
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Expenses incurred under agreements with third-party contract research organizations for clinical development;
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Costs related to production of drug substance, drug product and clinical supply, including fees paid to third-party contract manufacturers;
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Laboratory and vendor expenses related to the execution of preclinical activities;
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Employee-related expenses, which include salaries, benefits and stock-based compensation; and
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Facilities, depreciation and amortization, insurance and other direct and allocated expenses incurred in our research and development activities
The following table summarizes our research and development expenses incurred for the periods presented (in thousands):
Year Ended December 31,
2022 2021
Clinical development $ 5,982 $ 7,745
Contract manufacturing 9,693 5,344
Discovery and non-clinical 1,120 2,907
Personnel costs 4,840 4,444
Other allocated indirect costs 1,400 1,224
Total research and development expenses
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We expect our research and development expenses to decrease in the near-term as we complete the clinical trials that have been ongoing and we begin to realize the effects of cost-reduction efforts in personnel costs, discovery and nonclinical expenses undertaken in 2022 and early 2023. Also, we expect our contract manufacturing costs in the near-term to be lower than in 2022 and 2021 as we have completed the drug substance and drug product manufacturing activities for sotiga and APX601 that were underway in 2022 and 2021, and we do not expect to initiate any new drug substance or drug product manufacturing runs in the near term. We anticipate the clinical development of sotiga, including potentially into a registration-enabling clinical trial, will involve significant costs. To support the advancement of the sotiga clinical development program, we are actively seeking a global development and commercialization collaboration partner. We believe that such a global collaboration would substantially reduce our development and manufacturing costs related to the sotiga program, which would provide us with the opportunity to advance certain other product candidates in our pipeline. If we successfully execute such a collaboration for the development and commercialization of sotiga, we expect to then invest in advancing APX601 through an IND filing and into Phase 1 clinical development, and begin IND-enabling activities for our APX801 program.
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.
General and Administrative Expenses
General and administrative expenses consist of salaries, benefits, and stock-based compensation expense for personnel in executive, operations, legal, human resources, finance and administrative functions, professional fees for legal, patent, consulting, accounting and audit services, and allocated expenses for technology and facilities. We expense general and administrative costs in the periods which they are incurred.
We expect that our general and administrative expenses will increase as we
anticipate to incur expenses related to compliance with the rules and
regulations of the
Other Income, Net
Other income, net primarily relates to interest income on our cash, cash equivalents and short-term investments, change in fair value of derivative warrant liabilities, change in fair value of common stock liability, and fees related to our short-term investments.
Results of Operations
Comparison of the Years Ended
The following table presents our consolidated statement of operations data for
the years ended
Year Ended December 31,
2022 2021 $ Change % Change
Operating expenses:
Research and development $ 23,035 $ 21,664 $ 1,371 6 %
General and administrative 9,651 7,293 2,358 32 %
Total operating expenses 32,686 28,957 3,729 13 %
Loss from operations (32,686 ) (28,957 ) (3,729 ) 13 %
Other income, net 617 41 576 1405 %
Net loss $ (32,069 ) $ (28,916 ) $ (3,153 ) 11 %
Costs and Expenses
Research and Development
Research and development expenses increased by
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The
General and Administrative
General and administrative expenses increased by
Other Income, Net
Other income, net, increased by
Liquidity and Capital Resources
Since inception through
Funding Requirements
Our primary use of cash, cash equivalents, and short-term investments is to fund operating expenses, which consist primarily of research and development expenditures related to our programs, and to a lesser extent, general and administrative expenditures. We plan to increase our research and development expenses for the foreseeable future as we continue the clinical development of our current and future product candidates. At this time, due to the inherently unpredictable nature of clinical development and the impact of the COVID-19 pandemic, we cannot reasonably estimate the costs we will incur and the timelines required to complete development, obtain marketing approval, and commercialize our current product candidate or any future product candidates. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or our current or any future license agreements that we may enter into or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we cannot forecast the timing and amounts of milestone, royalty and other revenue from licensing activities, which future product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our future funding requirements will depend on many factors, including the following:
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the progress, timing, scope, results and costs of our clinical trials and preclinical studies for our product candidates, including the ability to enroll patients in a timely manner for our clinical trials;
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the costs of obtaining clinical and commercial supplies and validating the commercial manufacturing process for sotigalimab and any other product candidates;
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our ability to successfully commercialize sotigalimab and any other product candidates;
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the cost, timing and outcomes of regulatory approvals;
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the extent to which we may acquire or in-license other product candidates and technologies;
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the timing and amount of any milestone, royalty or other payments we are required to make pursuant to any current or future collaboration or license agreement;
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the extent to which we receive royalty payments though our current or any future partnership arrangements;
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our ability to attract, hire and retain qualified personnel;
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the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; and
Due to our significant research and development expenditures, we have generated operating losses in all periods presented. We expect to incur substantial additional losses in the future as we expand our research and development activities. Based on our research and development plans, there is uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt as to our ability to continue as a going concern. There can be no assurance that such additional capital, whether in the form of debt or equity financing, will be sufficient or available and, if available, that such capital will be offered on terms and conditions acceptable to us.
In addition to the proceeds that we received from the private placement in
To the extent that we raise additional capital through strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams or research programs or to grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our then-existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Cash Flows
The following table summarizes our cash flow data for the periods presented (in
thousands):
Year Ended
December 31,
2022 2021
Net cash used in operating activities
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Comparison of the Years Ended
Operating Activities
For the year ended
For the year ended
The change in cash flows from operating activities was principally from the increase in net losses, decrease in accrued expense offset by the increase in stock-based compensation expense. Changes in prepaid expenses and other current assets, accounts payable and accrued liabilities were generally due to the advancement of our research programs and the timing of vendor payments.
Investing Activities
For the years ended
Financing Activities
Net cash provided by financing activities for the year ended
Contractual Obligations
We lease our principal facility under a non-cancelable operating lease agreement
with a lease term ending on
In addition, we have entered into certain licensing agreements pursuant to which we will owe royalty payments if and when we sublicense or commercialize certain of our products, as well as certain collaboration agreements pursuant to which we may in the future owe certain amounts to our collaboration partners upon the achievement of certain milestones. Because these obligations are uncertain, and their timing and amount are not known, they are not included in the table above. These agreements are described in more detail in the section titled "Licensing and Other Arrangements" below.
We also enter into agreements in the normal course of business with contract research organizations for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes, which are generally cancelable upon written notice. These obligations and commitments are also not included in the table above.
Licensing and Other Arrangements
We have entered into royalty-bearing license agreements and partnership agreements. Under the terms of these agreements described below, we have the right to collect, or are obligated to pay, certain milestone payments upon the achievement of specified pre-clinical, clinical or commercial milestones.
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Beovu® and Antibody Candidate Discovery and Development Agreement with Novartis
We have an agreement with Novartis relating to antibodies that
In
Other Agreements
We have entered into certain other partnership program agreements that may eventually lead to royalty payments or other payments to us, but we do not anticipate any potential payments under these agreements in the foreseeable future, if at all.
Clinical Collaborations
We have entered into a number of collaboration arrangements for the clinical development of sotigalimab with companies and academic and non-profit institutions. These arrangements specify whether we or the collaborator bears the cost of the clinical trials, and in the case of combination therapies, typically the collaborators provide the supply of such drug products while we supply sotigalimab. Our applicable share of the costs of these clinical collaborations are reflected as research and development expenses.
Upon achievement of certain regulatory and clinical milestones related to the
development of sotigalimab in pancreatic cancer, we will be obligated to pay an
aggregate of up to
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future significant effect on our financial condition, results of operations, liquidity or cash flows.
Major Vendor
We had a major vendor that accounted for approximately 39.9% and 23.2% of the
research and development expenses for the years ended
We had an additional vendor in 2021 that accounted for approximately 12.4% of
the research and development expenses for the year ended
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Emerging Growth Company
We are an "emerging growth company," as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"). We may take advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not emerging growth companies. Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our consolidated financial statements with another public company, which is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used.
Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in accordance with GAAP. The preparation of the consolidated financial statements in conformity with GAAP requires our management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the period. We evaluate our significant estimates on an ongoing basis, including estimates related to accruals for research and development costs, stock-based compensation and uncertain tax positions. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
We believe that the accounting policies described below involve a significant degree of judgment and complexity. Accordingly, we believe these are the most critical to aid in fully understanding and evaluating our financial condition and results of operations. For further information, see Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Revenue Recognition
Under
We have other license agreements with third parties, under which we may also earn contingent fees including milestone payments based on counterparty performance and royalties on sales. We recognize milestone payments as revenue once the underlying events are probable of being met and there is not a significant risk of reversal. We recognize sales-based royalties as revenue when the underlying sales occur.
For more information on revenue recognition, see Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Research and Development Expenses
We expense research and development costs as incurred. Research and development consist of costs incurred for the development of sotiga, our lead product candidate, as well as APX601 and other preclinical product candidates. Research and development costs consist primarily of external costs related to clinical development, contract manufacturing, preclinical development and discovery as well as personnel costs and allocated overhead, such as rent, equipment, depreciation and utilities. Personnel costs consist of salaries, employee benefits and stock-based compensation.
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We estimate external research and development expenses based on the services performed, pursuant to contracts with commercial and academic institutions that conduct and manage research and development services on our behalf. We record the costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and includes these costs in accrued liabilities in the consolidated balance sheets. These costs are a component of our research and development expenses. We accrue these costs based on factors such as the number of subject visits, the number of active patients, the number of patients enrolled, and estimates of the work completed and other measures in accordance with agreements established with our third-party service providers. As actual costs become known, we adjust our accrued liabilities. We have not experienced any significant differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed may vary from our estimates, resulting in adjustments to expenses in future periods. Changes in these estimates that result in significant changes to our accruals could significantly affect our results of operations.
Nonrefundable advance payments for goods or services to be received in the future for use in research and development are capitalized and then expensed as the related goods are delivered or the services are performed. We evaluate such payments for current or long-term classification based on when they will be realized.
Stock-based Compensation
Stock-based compensation, inclusive of stock options with only a service condition, and stock options with performance conditions, are awarded to our officers, directors, employees, and certain non-employees, in addition to the estimated shares of common stock to be purchased under our Employee Stock Purchase Plan.
We account for stock-based compensation in accordance with ASC Topic 718, "Compensation-Stock Compensation." We measure all equity awards granted to employees and non-employees based on the estimated grant date fair value. For awards subject to service-based vesting conditions, we recognize stock-based compensation expense on a straight-line basis over the requisite service period, which is generally the vesting term. For awards subject to performance-based vesting conditions, we recognize stock-based compensation expense using the accelerated attribution method when it is probable that the performance condition will be achieved. We recognize forfeitures as they occur.
We calculate the fair value of stock options using the Black-Scholes option pricing model and recognize expense using the straight-line attribution approach. The Black-Scholes option pricing model requires inputs based on certain subjective assumptions, including the fair value of our common stock, the expected term of the awards, expected stock price volatility, the risk-free interest rate for a period that approximates the expected term of the awards and our expected dividend yield.
Expected Term-We determine the expected life of options granted using the "simplified" method. Under this approach, we presume the expected terms to be the mid-point between the weighted-average vesting term and the contractual term of the option. The simplified method makes the assumption that the award recipient will exercise share options evenly over the period when the share options are vested and ending on the date when the share options would expire.
Risk-Free Interest Rate-We base the risk-free interest rate from the
Expected Volatility-Because our stock is recently traded in an active market, we calculate volatility by using the historical volatilities of the common stock of comparable publicly traded companies. The historical volatility data was computed using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of the stock-based awards. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.
Expected Dividends-We have never paid cash dividends on our common stock and do not have plans to pay cash dividends in the future. Therefore, we use an expected dividend yield of zero.
As of
For more information, see Note 9, Equity Plans and Related Equity Activities, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
New Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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