ERASCA, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties, including those described in the section titled "Special Note Regarding Forward Looking Statements." As a result of many factors, including those factors set forth in the "Risk Factors" section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage precision oncology company singularly focused on discovering, developing, and commercializing therapies for patients with RAS/MAPK pathway-driven cancers. Molecular alterations in RAS, the most frequently mutated oncogene, and the MAPK pathway, one of the most frequently altered signaling pathways in cancer, account for approximately 5.5 million new patients diagnosed with cancer globally each year. Our company was co-founded by leading pioneers in precision oncology and RAS targeting to create novel therapies and combination regimens designed to comprehensively shut down the RAS/MAPK pathway for the treatment of cancer. We have assembled what we believe to be the deepest, wholly-owned or controlled RAS/MAPK pathway-focused pipeline in the industry, including 12 disclosed modality-agnostic programs aligned with our three therapeutic strategies of: (1) targeting key upstream and downstream signaling nodes in the RAS/MAPK pathway; (2) targeting RAS directly; and (3) targeting escape routes that emerge in response to treatment.
The following figure shows the RAS/MAPK pathway and how the three therapeutic strategies listed above attempt to comprehensively and synergistically shut down the RAS/MAPK pathway.
[[Image Removed: img197792427_58.jpg]]
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The target breadth and molecular diversity represented in our pipeline enable us
to pursue a systematic, data-driven clinical development effort to identify
single agent and combination approaches with the goal of prolonging survival in
numerous patient populations with high unmet medical needs. Our
modality-agnostic approach aims to allow us to selectively and potently inhibit
or degrade critical signaling nodes with small molecule therapeutics, large
molecule therapeutics, and protein degraders. Our purpose-built pipeline
includes five clinical-stage programs (a pan-RAF inhibitor, ERK and
We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial manufacture if any of our product candidates obtain marketing approval. We are working with our current manufacturers to ensure that we will be able to scale up our manufacturing capabilities to support our clinical plans. We are also in the process of locating and qualifying additional manufacturers to build redundancies into our supply chain. In addition, we rely on third parties to package, label, store, and distribute our product candidates, and we intend to continue to rely on third parties with respect to our commercial products if marketing approval is obtained. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the design and development of our product candidates.
In
In
In
Since our inception in 2018, we have devoted substantially all of our resources
to organizing and staffing our company, business planning, raising capital,
identifying, acquiring, and in-licensing our product candidates, establishing
our intellectual property portfolio, conducting research, preclinical studies
and clinical trials, establishing arrangements with third parties for the
manufacture of our product candidates and related raw materials, and providing
general and administrative support for these operations. We do not have any
products approved for sale and have not generated any revenue. As of
We have incurred significant operating losses since inception. Our net losses
were
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Based upon our current operating plans, we believe that our cash, cash
equivalents and marketable securities as of
The COVID-19 worldwide pandemic has presented substantial public health and economic challenges and affected our employees, patients, physicians and other healthcare providers, communities and business operations, as well as the US and global economies and financial markets. To date, we have not experienced material disruptions in our business operations. However, while it is not possible at this time to estimate the impact that COVID-19 could have on our business in the future, particularly as we advance our product candidates through clinical development, the continued spread of COVID-19 and the measures taken by the governmental authorities, and any future epidemic disease outbreaks, could delay our clinical trials and preclinical studies and increase our development costs, and have a material adverse effect on our business, financial condition and results of operations. The extent to which the COVID-19 pandemic and any future epidemic disease outbreak impacts our results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact.
Additionally, inflation generally affects us by increasing our employee-related
costs and other expenses. Our financial condition and results of operations may
also be impacted by other factors we may not be able to control, such as global
supply chain disruptions, uncertain global economic conditions, financial
institution instability, global trade disputes or political instability. We do
not believe that such factors had a material adverse impact on our results of
operations during the year ended
Our acquisition and license agreements
We have entered into in-license and acquisition agreements pursuant to which we in-licensed or acquired certain intellectual property rights related to our product candidates and development programs.
For additional information regarding these agreements, see the section titled "Business-Our acquisition and license agreements" in this Annual Report on Form 10-K.
Components of results of operations
Revenue
We do not expect to generate any revenue from the sale of products unless and until such time that our product candidates have advanced through clinical development and obtained regulatory approval, if ever. If we fail to complete preclinical and clinical development of product candidates or obtain regulatory approval for them, our ability to generate future revenues, and our results of operations and financial position would be adversely affected.
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Operating expenses Research and development
Research and development expenses consist of external and internal costs associated with our research and development activities, including our discovery and research efforts and the preclinical and clinical development of our product candidates. Research and development costs are expensed as incurred. Our research and development expenses include:
• external costs, including expenses incurred under arrangements with third parties, such as CROs, CMOs, consultants and our scientific advisors; and
• internal costs, including:
• employee-related expenses, including salaries, benefits, and stock-based compensation for those individuals involved in research and development efforts;
• the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study materials; and
• facilities and depreciation, which include direct and allocated expenses for rent of facilities and depreciation.
The following table summarizes our research and development expenses incurred for the following periods (in thousands):
Year Ended December 31,
2022 2021
Naporafenib(1) $ 142 $ -
ERAS-007 36,025 22,717
ERAS-601 20,877 15,312
Other clinical programs 18,365 -
Other discovery and preclinical programs 37,048 35,893
Total research and development expenses
(1) We in-licensed Naporafenib in
We expect our research and development expenses to increase substantially for the foreseeable future as we continue to conduct our ongoing research and development activities, conduct clinical trials and advance our preclinical research programs toward clinical development, particularly as more of our product candidates move into later stages of development, which typically cost more. The process of conducting clinical trials and preclinical studies necessary to obtain regulatory approval is costly and time-consuming. We may never succeed in achieving marketing approval for any of our product candidates.
The timelines and costs with research and development activities are uncertain, can vary significantly for each product candidate and program and are difficult to predict. We anticipate we will make determinations as to which product candidates and programs to pursue and how much funding to direct to each product candidate and program on an ongoing basis in response to preclinical and clinical results, regulatory developments, ongoing assessments as to each product candidate's and program's commercial potential, and our ability to enter into collaborations, licenses or other similar agreements to the extent we determine the resources or expertise of a third-party would be beneficial for a given product candidate or program. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which product candidates and programs may be subject to future collaborations, licenses or other agreements, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our development costs may vary significantly based on factors such as:
• the number and scope of preclinical and IND-enabling studies and clinical trials;
• per patient trial costs;
• the number of trials required for approval;
• the number of sites included in the trials;
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• the countries in which the trials are conducted;
• the length of time required to enroll eligible patients;
• the number of patients that participate in the trials;
• the number of doses that patients receive;
• the drop-out or discontinuation rates of patients;
• potential additional safety monitoring requested by regulatory agencies;
• the duration of patient participation in the trials and follow-up;
• the cost and timing of manufacturing our product candidates;
• the phase of development of our product candidates;
• the efficacy and safety profile of our product candidates;
• the timing, receipt and terms of any approvals from applicable regulatory authorities;
• maintaining a continued acceptable safety profile of our products following approval, if any;
• significant and changing government regulation and regulatory guidance;
• the impact of any interruptions to our operations or to those of the third
parties with whom we work due to the ongoing COVID-19 pandemic and other
geopolitical and economic events (such as the ongoing conflict between
• the extent to which we establish additional collaboration, license or other arrangements.
In-process research and development
In-process research and development expenses include rights acquired as part of asset acquisitions or in-licenses to develop and commercialize product candidates. Upfront payments that relate to the acquisition of a new product candidate, as well as pre-commercial milestone payments, are immediately expensed as in-process research and development in the period in which they are incurred, provided that the new product candidate did not also include processes or activities that would constitute a "business" as defined under US generally accepted accounting principles (US GAAP), the product candidate has not achieved regulatory approval for marketing and, absent obtaining such approval, has no established alternative future use.
In-process research and development expenses consist primarily of our upfront payments, milestone payments, and our stock issuances in connection with our acquisition and in-license agreements.
General and administrative
General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation, for employees in our finance, accounting, legal, information technology, business development and support functions. Other general and administrative expenses include allocated facility and depreciation related costs not otherwise included in research and development expenses and professional fees for auditing, tax, intellectual property and legal services. Costs related to filing and pursuing patent applications are recognized as general and administrative expenses as incurred since recoverability of such expenditures is uncertain.
We expect our general and administrative expenses will increase substantially for the foreseeable future as we continue to increase our general and administrative headcount to support our continued research and development activities and, if any product candidates receive marketing approval, commercialization activities, as well as to support our operations generally.
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Other income (expense), net Interest income
Interest income consists primarily of interest earned on our cash, cash equivalents and marketable securities.
Change in fair value of preferred stock purchase right liability
Our issuance of shares of our Series B-1 convertible preferred stock in April
and
Results of operations
Comparison of the years ended
The following table summarizes our results of operations for the years ended
Year Ended December 31,
2022 2021 Change
Operating expenses:
Research and development $ 112,457 $ 73,922 $ 38,535
In-process research and development 102,000 10,848 91,152
General and administrative 32,993 22,616 10,377
Contribution of common stock to Erasca
Foundation - 17,497 (17,497 )
Total operating expenses 247,450 124,883 122,567
Loss from operations (247,450 ) (124,883 ) (122,567 )
Total other income (expense), net 4,645 2,119 2,526
Net loss $ (242,805 ) $ (122,764 ) $ (120,041 ) Research and development expenses
Research and development expenses were
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In-process research and development expenses
In-process research and development expenses were
General and administrative expenses
General and administrative expenses were
Contribution of common stock to the
Expenses of
Other income (expense), net
Other income (expense), net was
Liquidity and capital resources
Sources of liquidity
In
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In
In
Future capital requirements
As of
Our future capital requirements are difficult to forecast and will depend on many factors, including but not limited to:
• the type, number, scope, progress, expansions, results, costs and timing of discovery, preclinical studies and clinical trials of our product candidates that we are pursuing or may choose to pursue in the future, including the costs of any third-party products used in our combination clinical trials that are not covered by such third party or other sources;
• the costs and timing of manufacturing for our product candidates with CMOs, including commercial manufacturing, if any product candidate is approved;
• the costs, timing and outcome of regulatory review of our product candidates;
• the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;
• our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;
• the costs associated with hiring additional personnel, consultants, and CROs as our preclinical and clinical activities increase;
• the timing and amount of the milestone or other payments we must make to the licensors and other third parties from whom we have in-licensed or acquired our product candidates or technologies;
• the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;
• our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
• patients' willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;
• any delays and cost increases that result from the COVID-19 pandemic and other
geopolitical and economic events (such as the ongoing conflict between
• the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; and
• costs associated with any products or technologies that we may in-license or acquire.
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We have no other committed sources of capital. Until we can generate a sufficient amount of product revenue to finance our cash requirements, if ever, we expect to finance our future cash needs primarily through equity offerings (including through the Sale Agreement), debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, licensing, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our research and development programs or other operations, or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.
Cash flows
The following table shows a summary of our cash flows for the periods presented (in thousands):
Year Ended December 31,
2022 2021
Net cash (used in) provided by:
Operating activities $ (103,264 ) $ (79,600 )
Investing activities (71,081 ) (64,590 )
Financing activities 98,075 439,397
Net (decrease) increase in cash, cash equivalents and
restricted cash $ (76,270 ) $ 295,207
Operating activities
Cash used in operating activities was
Cash used in operating activities was
Investing activities
Net cash used in investing activities was
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Financing activities
Net cash generated from financing activities was
Cash requirements due to contractual obligations and other commitments
We lease office and laboratory space and certain laboratory equipment under
lease agreements with varying expiration dates through 2032. As of
We enter into contracts in the normal course of business for contract research services, contract manufacturing services, professional services and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts and not included in the table above.
Additionally, there are additional potential development and sales milestone payments and royalty payments we may be required to make under license and acquisition agreements we have entered into pursuant to which we have in-licensed and acquired certain intellectual property. For additional information regarding these agreements, see the section titled "Business-Our acquisition and license agreements" in this Annual Report on Form 10-K. The timing of when these additional payments will actually be made is uncertain as these payments are contingent upon the completion of future activities.
Critical accounting policies and estimates
This management discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, we evaluate these estimates and judgments. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue and expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are the most critical to understanding and evaluating our historical and future performance.
Accrued research and development expenses
We are required to make estimates of our accrued expenses resulting from our obligations under contracts with CROs, manufacturers, vendors and consultants, in connection with conducting research and development activities. The financial terms of these contracts vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. We reflect research and development expenses in our consolidated financial statements by matching those expenses with the period in which services and efforts are expended.
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We account for these expenses by reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced.
We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Stock-based compensation
Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. We estimate the fair value of stock option awards using the Black-Scholes option pricing model and recognize forfeitures as they occur.
The Black-Scholes option pricing model requires the use of subjective
assumptions, including the risk-free interest rate, the expected stock price
volatility, the expected term of stock options, the expected dividend yield and
the fair value of the underlying common stock on the date of grant. Changes in
these assumptions can materially affect the fair value and ultimately how much
stock-based compensation expense is recognized. These inputs are subjective and
generally require judgment to develop. See Note 10 to our consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for information
concerning certain of the specific assumptions we used in applying the
Black-Scholes option pricing model to determine the estimated fair value of our
stock options granted in the years ended
Prior to our IPO, since there was no public market for our common stock, we were
required to estimate the fair value of the common stock underlying our equity
awards when performing fair value calculations. The fair value of the common
stock underlying our equity awards was determined on each grant date by our
board of directors, taking into account input from management and independent
third-party valuation analyses. All options to purchase shares of our common
stock are intended to be granted with an exercise price per share no less than
the fair value per share of our common stock underlying those options on the
date of grant, based on the information known to us on the date of grant. In the
absence of a public trading market for our common stock, on each grant date we
developed an estimate of the fair value of our common stock in order to
determine an exercise price for the option grants. Our determinations of the
fair value of our common stock were made using methodologies, approaches and
assumptions consistent with the
Following our IPO, the fair value of our common stock is based on the closing price as reported on the date of grant.
Recently issued and adopted accounting pronouncements
See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for recently issued and adopted accounting pronouncements.
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Emerging growth company and smaller reporting company status
As an emerging growth company under the JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We also intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley.
We will remain an emerging growth company until the earliest of (i) the last day
of the fiscal year following the fifth anniversary of the consummation of our
IPO; (ii) the last day of the fiscal year in which we have total annual gross
revenue of at least
We are also a smaller reporting company as defined in the Exchange Act. We may
continue to be a smaller reporting company even after we are no longer an
emerging growth company. We may take advantage of certain of the scaled
disclosures available to smaller reporting companies and will be able to take
advantage of these scaled disclosures for so long as our voting and non-voting
common stock held by non-affiliates is less than
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