FINCH THERAPEUTICS GROUP, INC. You should read the following discussion and analysis of our financial condition
and results of operations together with (1) our condensed consolidated financial
statements and the related notes and other financial information included
elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated
financial statements and the related notes and management's discussion and
analysis of financial condition and results of operations for the fiscal year
ended
Overview
We are a clinical-stage microbiome therapeutics company leveraging our Human-First Discovery platform to develop a novel class of orally administered biological drugs. The microbiome consists of trillions of microbes that live symbiotically in and on every human and are essential to our health. When key microbes are lost, the resulting dysbiosis can increase susceptibility to immune disorders, infections, neurological conditions, cancer and other serious diseases. We are developing novel therapeutics designed to deliver missing microbes and their clinically relevant biochemical functions to correct dysbiosis and the diseases that emerge from it. Our Human-First Discovery platform uses reverse translation to identify diseases of dysbiosis and to design microbiome therapeutics that address them. We believe that our differentiated platform and pipeline and the broad therapeutic potential of this new field of medicine position us to transform care for a wide range of unmet medical needs.
Our lead product candidate, CP101, is an orally administered complete microbiome
therapeutic in development for the prevention of recurrent Clostridioides
difficile infection, or CDI. In
Following a recent strategic review of our pipeline, we have decided to suspend efforts to initiate a Phase 1 clinical trial of FIN-211 in autism spectrum disorder, or ASD. We are exploring strategic options to advance our ASD program, including opportunities to leverage clinical data generated by ongoing third-party studies.
Effective
Since our inception, we have focused primarily on developing and progressing our product candidates through clinical development, organizing and staffing our company, research and development activities, establishing and protecting our intellectual property portfolio, including for our Human-First Discovery platform, and raising capital. We do not have any product candidates approved for sale and have not generated any revenue from product sales. Since our inception, we have funded our operations primarily with proceeds from our initial public offering, or the IPO, the sale of convertible preferred stock, our loan agreement with Hercules Capital and from collaboration revenue.
We will not generate any revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution.
As a result, we will need substantial additional funding to support our operating activities as we advance our product candidates through clinical development, seek regulatory approval and prepare for and, if any of our product candidates are approved, proceed to
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commercialization. Until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms, if at all.
If we are unable to obtain additional funding, we will be forced to delay, reduce or eliminate our research and development efforts, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.
We believe that our existing cash and cash equivalents of
COVID-19 Business Update
We continue to closely monitor the COVID-19 pandemic as we evolve our business continuity plans, clinical development plans and response strategy. The extent of the impact of the COVID-19 pandemic, including variants of COVID-19, on our business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on our clinical trial enrollment, trial sites, contract research organizations, or CROs, contract manufacturing organizations, and other third parties with whom we do business, as well as regulatory authorities and our key scientific and management personnel.
Components of Our Results of Operations
Revenue
We have no products approved for commercial sale. We have not generated any
revenue from product sales and do not expect to generate any revenue from the
sale of licensed products for the foreseeable future. Our revenue to date has
been generated primarily through collaboration and license agreements. We
recognize revenue over our expected performance period under each agreement. We
expect that our revenue for the next several years will be derived primarily
from collaboration agreements that we may enter into in the future, and any
collaboration revenue we generate will fluctuate from period to period as a
result of the timing and amount of milestones and other payments. Additionally,
we will continue to earn royalties under our Asset Purchase Agreement, dated as
of
Collaboration and License Agreement with Takeda
In
In
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recognized as our research and development services are provided and is recorded as collaboration revenue on our condensed consolidated statement of operations.
In connection with entry into the Takeda Agreement, we received a one-time,
upfront payment from Takeda in the amount of
Agreements with OpenBiome
We have historically collaborated with OpenBiome under several agreements related to, among other things, the license of various technology and intellectual property rights, and the supply of certain materials, as further described below.
On
Also on
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates. We expense research and development costs as incurred, which include:
•
salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
•
upfront, milestone and maintenance fees incurred under license, acquisition and other third-party agreements;
•
costs of laboratory supplies and acquiring, developing and manufacturing study materials;
•
facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs; and
•
costs of outside consultants, including their fees and related travel expenses engaged in research and development functions.
Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our condensed consolidated financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for
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use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed. We do not allocate certain employee-related costs, external costs directly related to our Human First Discovery platform, and other indirect costs to specific research and development programs because these costs are deployed across multiple product programs under development and, as such, are classified as costs of our platform research.
Research and development activities are central to our business model. We expect
that our research and development expenses will decrease in the foreseeable
future due to our reduced headcount and our decision to suspend our hepatitis B,
or HBV program, announced on
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services, travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expect that our general and administrative expenses will decrease in the foreseeable future due to headcount reductions as we have optimized operations to support our continued research and development and potential commercialization of CP101. We expect to continue to incur increased expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax compliance services, director and officer insurance costs, and investor and public relations costs.
Impairment of
To conduct impairment tests of goodwill, the fair value of the Company's single reporting unit is compared to its carrying value. If the reporting unit's carrying value exceeds its fair value, the Company records an impairment loss to the extent that the carrying value of goodwill exceeds its fair value.
Restructuring Expense
Restructuring expense consists of costs directly incurred as a result of restructuring initiatives, and includes one-time severance payments, healthcare coverage, outplacement services and related expenses.
Total Other Income (Expense), Net
Other Income (Expense), Net
Other income (expense), net consists of sublease income as well as realized gains and losses on foreign exchange.
Interest Income (Expense)
Interest income primarily consists of interest earned on our cash and cash equivalents. Interest expense consists primarily of interest on borrowings under our Loan Agreement with Hercules Capital, Inc., or the Loan Agreement.
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Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
THREE MONTHS ENDED
SEPTEMBER 30,
2022 2021
REVENUE:
Collaboration revenue $ 138 $ 11,343
Total revenue 138 11,343
OPERATING EXPENSES:
Research and development (11,859 ) (15,537 )
General and administrative (9,584 ) (5,739 )
Impairment of goodwill (18,057 ) -
Restructuring expense (1,270 ) -
Total operating expenses (40,770 ) (21,276 )
Net operating loss (40,632 ) (9,933 )
OTHER INCOME (EXPENSE):
Interest income, net 45 8
Other income (expense), net 216 (30 )
Total other income (expense) 261 (22 )
Net loss $ (40,371 ) $ (9,955 )
Revenue
Revenue of
Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended
THREE MONTHS ENDED SEPTEMBER 30,
Increase
2022 2021 (Decrease)
CDI $ 3,661 $ 5,491 $ (1,830 )
Inflammatory Bowel Diseases (IBD) 124 596 (472 )
Autism Spectrum Disorder (ASD) 1,273 1,505 (232 )
Hepatitis B (HBV) (36 ) 912 (948 )
Platform 5,735 6,131 (396 )
Unallocated 1,102 902 200
$ 11,859 $ 15,537 $ (3,678 ) Research and development expenses for the three months ended
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clinical trial in ASD. In addition, there was a decrease in platform-related
costs of
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the
three months ended
THREE MONTHS ENDED SEPTEMBER 30,
Increase
2022 2021 (Decrease)
Personnel expenses (including stock-based
compensation) $ 2,601 $ 3,276 $ (675 )
Facilities and supplies 1,395 83 1,312
Professional fees 3,964 992 2,972
Other expenses 1,624 1,388 236
$ 9,584 $ 5,739 $ 3,845 General and administrative expenses were
Other Income (Expense), Net
Total other income, net for the three months ended
Impairment of
For the three months ended
Restructuring Expense
Restructuring expense for the three months ended
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Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
NINE MONTHS ENDED
SEPTEMBER 30,
2022 2021
REVENUE:
Collaboration revenue $ 853 $ 17,726
Total revenue 853 17,726
OPERATING EXPENSES:
Research and development (41,312 ) (42,476 )
General and administrative (27,152 ) (16,173 )
Impairment of goodwill (18,057 ) -
Restructuring expense (2,173 ) -
Total operating expenses (88,694 ) (58,649 )
Net operating loss (87,841 ) (40,923 )
OTHER INCOME (EXPENSE), NET:
Gain on extinguishment of PPP Loan - 1,827
Interest (expense) income, net (7 ) 14
(Loss) gain on disposal of fixed assets, net (6 ) 28
Other income (expense), net 216 (51 )
Total other income, net 203 1,818
Net loss $ (87,638 ) $ (39,105 ) Revenue of
Research and Development Expenses
The following table summarizes our research and development expenses for the
nine months ended
NINE MONTHS ENDED SEPTEMBER 30,
Increase
2022 2021 (Decrease)
CDI $ 11,257 $ 13,525 $ (2,268 )
Inflammatory Bowel Diseases (IBD) 1,014 5,498 (4,484 )
Autism Spectrum Disorder (ASD) 4,548 4,735 (187 )
Hepatitis B (HBV) 259 2,364 (2,105 )
Platform 20,881 14,596 6,285
Unallocated 3,353 1,758 1,595
$ 41,312 $ 42,476 $ (1,164 ) Research and development expenses for the nine months ended
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costs related to our ASD program decreased by
The decrease in research and development expenses was offset by a
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the
nine months ended
NINE MONTHS ENDED SEPTEMBER 30,
2022 2021 Increase
Personnel expenses (including stock-based
compensation) $ 9,492 $ 8,633 $ 859
Facilities and supplies 2,056 200 1,856
Professional fees 10,250 4,300 5,950
Other expenses 5,354 3,040 2,314
$ 27,152 $ 16,173 $ 10,979 General and administrative expenses were
Other Income (Expense), Net
Total other income, net for the nine months ended
Impairment of
For the nine months ended
Restructuring Expense
Restructuring expense for the nine months ended
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Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not recognized any product revenue and have
incurred operating losses and negative cash flows from our operations. We have
not yet commercialized any product and we do not expect to generate revenue from
sales of any products for several years, if at all. We have funded our
operations primarily through equity financings, the Loan Agreement, and from
collaboration revenue. We have raised an aggregate of approximately
Cash Flows
The following table summarizes our cash flows for the nine months ended
NINE MONTHS ENDED
SEPTEMBER 30,
2022 2021
Net cash used in operating activities $ (60,579 ) $ (53,346 )
Net cash used in investing activities (2,131 ) (13,919 )
Net cash provided by financing activities 14,821 119,040
Net (decrease) increase in cash and cash equivalents,
and restricted cash $ (47,889 ) $ 51,775
Operating Activities
During the nine months ended
During the nine months ended
Investing Activities
During the nine months ended
Financing Activities
During the nine months ended
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During the nine months ended
Funding Requirements
As of
Since our inception, we have incurred significant operating losses. Our net
losses were
•
continue the research and development of our product candidates;
•
initiate and conduct clinical trials for, or additional preclinical development of, our product candidates;
•
further develop and refine the manufacturing process for our product candidates;
•
change or add manufacturers or suppliers of product candidate materials;
•
seek regulatory and marketing authorizations for any of our product candidates that successfully complete development;
•
seek to identify and validate additional product candidates;
•
acquire or license other product candidates, technologies or biological materials;
•
make milestone, royalty or other payments under any current or future license agreements;
•
obtain, maintain, protect and enforce our intellectual property portfolio;
•
seek to attract and retain new and existing skilled personnel;
•
incur lease expenses in connection with the expansion of our corporate headquarters;
•
create additional infrastructure to support our operations and incur increased legal, accounting, investor relations and other expenses; and
•
experience delays or encounter issues with any of the above.
Material Cash Requirements
During the nine months ended
Critical Accounting Policies and Significant Judgments and Estimates
Our unaudited interim condensed consolidated financial statements are prepared
in accordance with generally accepted accounting principles in
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There have been no significant changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in the 2021 10-K.
Recently Issued Accounting Pronouncements
See Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.
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Emerging Growth Company Status and Smaller Reporting Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company and, as a result, we will not adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.
We will remain an emerging growth company until
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