FULCRUM THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. 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 biopharmaceutical company focused on improving the lives
of patients with genetically defined rare diseases in areas of high unmet
medical need. Our most advanced clinical product candidate, losmapimod, is being
developed for the potential treatment of FSHD. Our other clinical product
candidate is FTX-6058, which is being developed for the potential treatment of
certain hemoglobinopathies, including SCD. We initiated REACH, a randomized,
double-blind, placebo-controlled, multi-national Phase 3 clinical trial of
losmapimod in the second quarter of 2022 and plan to complete enrollment in the
second half of 2023. In
We have developed a proprietary product engine, FulcrumSeek, that we employ to systematically identify and validate cellular drug targets that can potentially modulate gene expression to treat known root causes of genetically defined diseases. Our product engine integrates patient-derived tissue- and disease-relevant cell models that we interrogate using our pharmacologically diverse and highly annotated small-molecule compound library and customized CRISPR and RNAi libraries. These screens generate tens of millions of data points and high-content imaging. We then apply computational biology and analytics to identify targets with specificity and selectivity accompanied by a comprehensive data set that significantly accelerates development. This approach led to the identification of both losmapimod for FSHD and FTX-6058 for hemoglobinopathies, as well as a robust discovery pipeline.
Since inception, our operations have focused on organizing and staffing our company, business planning, raising capital, establishing our intellectual property, building our discovery platform, including our proprietary compound library and product engine, identifying drug targets and potential product candidates, in-licensing assets, producing drug substance and drug product material for use in clinical trials and conducting preclinical studies and clinical trials. To date, we have funded our operations primarily from the sale of shares of our capital stock and from upfront payments received under our collaboration and license agreements.
In
In
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We have incurred significant operating losses since our inception and we expect
to continue to incur significant operating losses for the foreseeable future.
Our ability to generate product revenue sufficient to achieve profitability, if
ever, will depend heavily on the successful development and eventual
commercialization of one or more of our product candidates. Our net losses were
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continue our clinical development of losmapimod and FTX-6058, including efforts to resolve the clinical hold on FTX-6058;
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continue our ongoing preclinical studies;
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advance clinical-stage product candidates into later stage trials;
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pursue the discovery of drug targets for other genetically-defined rare diseases and the subsequent development of any resulting product candidates;
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seek regulatory approvals for any product candidates that successfully complete clinical trials;
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scale up our manufacturing processes and capabilities, or arrange for a third party to do so on our behalf, to support our clinical trials of our product candidates and commercialization of any of our product candidates for which we obtain marketing approval;
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establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval;
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acquire or in-license products, product candidates, technologies and/or data referencing rights;
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make any milestone payments to affiliates of GSK under our right of reference and license agreement with GSK upon the achievement of specified clinical or regulatory milestones;
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maintain, expand, enforce, defend and protect our intellectual property;
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hire additional clinical, quality control and scientific personnel; and
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add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts and our operations as a public company.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates, or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
Because of the numerous risks and uncertainties associated with drug development, we are unable to predict the timing or amount of increased expenses or the timing of when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of
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Components of Results of Operations
Revenue
We have not generated any revenue from product sales and do not expect to generate revenue from the sale of products for several years, if at all. If our development efforts for our current or future product candidates are successful and result in marketing approval, we may generate revenue in the future from product sales. We cannot predict if, when or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.
In
For the years ended
On
Under the terms of the
For the years ended
In the future, we will recognize additional revenue associated with the
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milestones and royalty payments under the
We may also in the future enter into additional license or collaboration agreements for our product candidates or intellectual property, and we may generate revenue in the future from payments as a result of such license or collaboration agreements.
Operating Expenses
Research and Development Expenses
Research and development expenses represent costs incurred by us for the discovery, development, and manufacture of our product candidates and include:
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external research and development expenses incurred under agreements with contract research organizations, contract manufacturing organizations, and consultants;
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salaries, payroll taxes, employee benefits and stock-based compensation expenses for individuals involved in research and development efforts;
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laboratory supplies;
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costs related to compliance with regulatory requirements;
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facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, insurance and other operating costs; and
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milestone expenses associated with our right of reference and license agreement with GSK.
We expense research and development costs as incurred. We recognize expenses for certain development activities, such as clinical trials and manufacturing, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment or other 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 expenses incurred. Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. These amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.
External costs represent a significant portion of our research and development expenses, which we track on a program-by-program basis following the nomination of a development candidate. Our internal research and development expenses consist primarily of personnel-related expenses, including stock-based compensation expense. We do not track our internal research and development expenses on a program-by-program basis as the resources are deployed across multiple projects.
The following table summarizes our external research and development expenses by
program following nomination as a development candidate for the years ended
Year Ended
December 31,
(in thousands) 2022 2021
Losmapimod external expenses $ 26,260 $ 19,128
FTX-6058 external expenses 15,133 14,041
Pre-development candidate expenses and unallocated expenses 14,964 16,100 Internal research and development expenses
20,425 20,432
Total research and development expenses $ 76,782 $ 69,701
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The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the remainder of the development of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from our product candidates, if approved. This is due to the numerous risks and uncertainties associated with developing our product candidates, including the uncertainty related to:
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the timing and progress of preclinical and clinical development activities, including in light of the ongoing COVID-19 pandemic as well as our efforts to resolve the clinical hold on FTX-6058;
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the number and scope of preclinical and clinical programs we decide to pursue;
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our ability to raise additional funds necessary to complete clinical development of and commercialize our product candidates;
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our ability to maintain our current research and development programs and to establish new ones;
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our ability to establish new licensing or collaboration arrangements;
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the progress of the development efforts of parties with whom we may enter into collaboration arrangements;
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the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;
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the receipt and related terms of regulatory approvals from applicable regulatory authorities;
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the availability of raw materials and active pharmaceutical ingredient, or API, for use in production of our product candidates;
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our ability to establish and operate a manufacturing facility, or secure manufacturing supply through relationships with third parties;
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our ability to consistently manufacture our product candidates in quantities sufficient for use in clinical trials;
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our ability to obtain and maintain intellectual property protection and
regulatory exclusivity, both in
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our ability to maintain, enforce, defend and protect our rights in our intellectual property portfolio;
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the commercialization of our product candidates, if and when approved;
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our ability to obtain and maintain third-party coverage and adequate reimbursement for our product candidates, if approved;
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the acceptance of our product candidates, if approved, by patients, the medical community and third-party payors;
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competition with other products; and
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a continued acceptable safety profile of our products following receipt of any regulatory approvals.
A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate, and potentially other candidates.
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Research and development activities account for a significant portion of our operating expenses. We expect our research and development expenses to increase significantly in future periods as we continue to implement our business strategy, which includes advancing losmapimod for the treatment of FSHD, advancing FTX-6058 for the treatment of certain hemoglobinopathies, including SCD, if we are able to resolve the current clinical hold, expanding our research and development efforts, including hiring additional personnel to support our research and development efforts, and seeking regulatory approvals for our product candidates that successfully complete clinical trials. In addition, product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect our research and development expenses to increase as our product candidates advance into later stages of clinical development. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.
General and Administrative Expenses
General and administrative expenses consist of personnel-related costs, including salaries, benefits and stock-based compensation expense, for our personnel in executive, finance and accounting, human resources, business operations and other administrative functions, legal fees related to patent, intellectual property and corporate matters, fees paid for accounting and tax services, consulting fees and facility-related costs not otherwise included in research and development expenses.
We expect our general and administrative expenses will increase for the
foreseeable future to support our expanded infrastructure and increased costs of
expanding our operations and operating as a public company. These increases will
likely include increased expenses related to accounting, audit, legal,
regulatory and tax-related services associated with maintaining compliance with
exchange listing and
Restructuring Expenses
In
Other Income, Net
Other income, net consists primarily of interest income related to our investments in cash equivalents and marketable securities.
Results of Operations
Comparison of the Years Ended
The following summarizes our results of operations for the years ended
Year Ended
December 31, Change
(in thousands) 2022 2021 $
Collaboration revenue $ 6,342 $ 19,163 $ (12,821 )
Operating expenses:
Research and development 76,782 69,701 7,081
General and administrative 41,694 30,516 11,178
Restructuring expenses 427 - 427
Total operating expenses 118,903 100,217 18,686
Loss from operations (112,561 ) (81,054 ) (31,507 )
Other income, net 2,690 207 2,483
Net loss $ (109,871 ) $ (80,847 ) $ (29,024 )
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Collaboration Revenue
Collaboration revenue decreased by
Research and Development Expenses
The following table summarizes our research and development expenses for the
years ended
Year Ended
December 31, Change
(in thousands) 2022 2021 $
External research and development
20,425 20,432 (7 )
Laboratory supplies 4,242 5,115 (873 )
Facility costs 5,593 5,552 41
Other 1,578 1,668 (90 )
Total research and development expenses
Research and development expense increased by
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General and Administrative Expenses
The following table summarizes our general and administrative expenses for the
years ended
Year Ended
December 31, Change
(in thousands) 2022 2021 $
Employee compensation $ 23,488 $ 14,801 $ 8,687
Professional services 13,278 12,488 790
Facility costs 2,206 960 1,246
Other 2,722 2,267 455
Total general and administrative expenses
General and administrative expenses increased by
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Restructuring Expenses
Restructuring charges were
Other Income, Net
Other income, net increased by
Liquidity and Capital Resources
Sources of Liquidity
We have incurred significant operating losses since our inception and expect to
continue to incur significant operating losses for the foreseeable future and
may never become profitable. We have not yet commercialized any of our product
candidates, which are in various phases of preclinical and clinical development,
and we do not expect to generate revenue from sales of any products for several
years, if at all. As of
In
In
Cash Flows
The following table provides information regarding our cash flows for the years
ended
Year Ended
December 31,
(in thousands) 2022 2021
Net cash used in operating activities $ (97,050 ) $ (78,478 )
Net cash provided by (used in) investing activities 12,413 (129,669 )
Net cash provided by financing activities 84,323 186,507
Net decrease in cash, cash equivalents, and
restricted cash $ (314 ) $ (21,640 )
Net cash used in operating activities was
Net Cash Provided by (Used in) Investing Activities
Net cash provided by investing activities was
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Net Cash Provided by Financing Activities
Net cash provided by financing activities was
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we continue the research and development of, initiate clinical trials of, and seek marketing approval for, our product candidates. In addition, we expect to incur additional costs to support the growth of our organization. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.
Based on our current operating plan, we believe that our existing cash, cash
equivalents, and marketable securities as of
Our funding requirements and timing and amount of our operating expenditures will depend largely on:
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the progress, costs and results of our clinical trials of losmapimod and FTX-6058, including our efforts to resolve the clinical hold on FTX-6058;
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the scope, progress, costs and results of discovery research, preclinical development, laboratory testing and clinical trials for our current product candidates in additional indications or for any future product candidates that we may pursue;
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the impact of the ongoing COVID-19 pandemic on our business and operations;
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the number of and development requirements for other product candidates that we pursue;
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the costs, timing and outcome of regulatory review of our product candidates;
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our ability to enter into contract manufacturing arrangements for supply of API and manufacture of our product candidates and the terms of such arrangements;
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the success of our collaboration with
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our ability to establish and maintain additional strategic collaborations, licensing or other arrangements and the financial terms of such arrangements;
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the payment or receipt of milestones, royalties and other collaboration-based revenues, if any;
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the costs and timing of future commercialization activities, including product manufacturing, sales, marketing and distribution, for any of our product candidates for which we may receive marketing approval;
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the amount and timing of revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;
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the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property-related claims; and
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the extent to which we acquire or in-license other products, product candidates, technologies or data referencing rights.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We will need to continue to rely on additional financing to achieve our business objectives.
In addition to the variables described above, if and when any of our product candidates successfully complete development, we will incur substantial additional costs associated with regulatory filings, marketing approval, post-marketing requirements, maintaining our intellectual property rights, and regulatory protection, in addition to other commercial costs. We cannot reasonably estimate these costs at this time.
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Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaboration arrangements, strategic alliances and marketing, distribution or licensing arrangements. We currently have no credit facility or committed sources of capital. To the extent that we raise additional capital through the future sale of equity securities, the ownership interests of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through the issuance of debt securities, these securities could contain covenants that would restrict our operations. We may require additional capital beyond our currently anticipated amounts, and additional capital may not be available on reasonable terms, or at all. If we raise additional funds through collaboration arrangements, strategic alliances or marketing, distribution or licensing arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams 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 development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations are based on our consolidated financial statements, which have
been prepared in accordance with generally accepted accounting principles in
We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the most significant areas involving management's judgments and estimates. See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for a description of our other significant accounting policies.
Revenue Recognition
We account for revenue recognition under the Financial Accounting Standards Board Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers. We recognize revenue pursuant to ASC 606 when our customer obtains control of promised goods or services in an amount that reflects the consideration which we expect to receive in exchange for those goods or services.
At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within the contract and determine those that are performance obligations. We then determine the transaction price and allocate it to the identified performance obligations. As part of the accounting for these arrangements, we must use significant judgment to determine the number of performance obligations and the transaction price, including the determination of whether milestones or other variable consideration should be included in the transaction price.
We use judgment to determine whether milestones or other variable consideration should be included in the transaction price. As part of management's evaluation of the transaction price, we consider numerous factors, including whether the achievement of the milestones is outside of our control, contingent upon the efforts of others or subject to the risks of success. If we conclude it is probable that a significant revenue reversal would not occur, the associated milestone payment is included in the transaction price. Milestone payments that are based on the occurrence of events not within our control, such as regulatory approvals, are generally not considered probable of being achieved until the underlying events occur or the associated approvals are received. At the end of each reporting period, we re-evaluate the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjust the estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment. Changes to the constraint of variable consideration can have a material effect on the amount of revenue recognized in the period.
If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis, except for any variable consideration that meets the criteria to be allocated entirely to a single performance obligation or to a distinct service that forms part of a single performance obligation.
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We recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied, either at a point in time or over time. If the performance obligation is satisfied over time, we recognize revenue based on the use of either an output or input method. The estimation of measure of progress is complex, involves significant judgment, and is affected by our estimates of the total costs required to complete the performance obligations, including the total internal personnel costs and external costs to be incurred. Changes in these estimates can have a material effect on our revenue recognition. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer.
For further description of our revenue recognition policy, see Note 2 "Summary
of Significant Accounting Policies-Revenue Recognition" to our audited
consolidated financial statements included elsewhere in this Annual Report on
Form 10-
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves 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. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. 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. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. 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. Non-refundable 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
We measure stock-based compensation expense related to all restricted stock awards, restricted stock units, and stock options based on the fair value of the award on the date of grant. We recognize compensation expense for these awards over the requisite service period, which is generally the vesting period of the respective award. Generally, we issue awards with only service-based vesting conditions and record the expense for these awards using the straight-line method. We have also granted certain stock-based awards with performance-based vesting conditions. We recognize compensation expense for awards with performance-based vesting conditions over the remaining service period using an accelerated attribution method when management determines that achievement of the performance condition is probable. At each reporting date, we evaluate if the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions.
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We determine the fair value of restricted stock awards and restricted stock
units based on the estimated fair value of our common stock on the date of
grant, less any applicable purchase price. We estimate the fair value of stock
options granted using the Black-Scholes option-pricing model. The determination
of the grant date fair value of stock options using an option pricing model is
affected principally by our estimated fair value of our common stock and
requires management to make a number of other assumptions, including the
expected term of the option, the estimated volatility of the underlying shares,
the risk-free interest rate, and expected dividends. The assumptions used in the
determination of the grant date fair value of stock options represent
management's best estimates at the time of measurement. Given the lack of public
market for our common stock prior to the closing of our IPO and a lack of
company-specific historical and implied volatility data, we based the estimate
of expected volatility on the historical volatility of a representative group of
publicly traded companies for which historical information is available. The
historical volatility is calculated based on a period of time commensurate with
the assumption used for the expected term. We use the simplified method to
calculate the expected term for all stock options. We utilize this method as we
do not have sufficient historical exercise data to provide a reasonable basis
upon which to estimate the expected term. The risk-free interest rate is based
on a
In future periods, we expect stock-based compensation expense to increase, due in part to our existing unrecognized stock-based compensation expense and as we grant additional stock-based awards to continue to attract and retain our employees.
Income Taxes
We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in our tax returns. Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of the assets and liabilities using the enacted tax rates in effect in the years in which the differences are expected to reverse. A valuation allowance against deferred tax assets is recorded if, based on the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Potential for recovery of deferred tax assets is evaluated by considering several factors, including estimating the future taxable profits expected, estimating future reversals of existing taxable temporary differences, considering taxable profits in carryback periods, and considering prudent and feasible tax planning strategies.
We account for uncertain tax positions using a more-likely-than-not threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in the law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity, and changes in facts or circumstances related to a tax position. As of each balance sheet date, we did not have any uncertain tax positions.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. 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 will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to "opt out" of such extended transition period or (ii) no longer qualify as an emerging growth company.
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