LIANBIO The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year endedDecember 31, 2020 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our final prospectus (the "IPO Prospectus") datedOctober 31, 2021 and filed with theSecurities and Exchange Commission (the "SEC") onNovember 2, 2021 , pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the "Securities Act"). This discussion, particularly information with respect to our future results of operations or financial condition, business strategy, and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Cautionary Note Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. Investors should review the disclosure under the heading "Risk Factors" in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. Overview We are a global, science-driven biopharmaceutical company dedicated to developing and commercializing innovative medicines for patients with unmet medical needs, with an initial focus on in-licensing assets forGreater China and other Asian markets. We have assembled a pipeline of nine assets across five therapeutic areas, each with its own distinct value proposition and the potential to drive new standards of care across cardiovascular, oncology, ophthalmology, inflammatory disease and respiratory indications. Recent Business Highlights and Clinical Development Updates Initial Public Offering InNovember 2021 , we completed an initial public offering ("IPO") of our ordinary shares through the sale and issuance of 20,312,500 American Depositary Shares ("ADSs"), at a public offering price of$16.00 per ADS. Following the close of the IPO, onDecember 1, 2021 , the underwriters exercised their option to purchase an additional 593,616 ADSs at the initial public offering price of$16.00 per ADS. We received gross proceeds of$334.5 million in connection with the IPO and subsequent exercise of the underwriters' option and aggregate net proceeds of$311.1 million after deducting underwriting discounts and commissions. Mavacamten InNovember 2021 , we initiated and completed enrollment and dosing in a pharmacokinetic ("PK") study of mavacamten in healthy volunteers. We expect to begin treating patients in the Phase 3 EXPLORER-China ("EXPLORER-CN") trial of mavacamten in obstructive hypertrophic cardiomyopathy ("oHCM") in the first quarter of 2022. InNovember 2021 , our partner Bristol-Myers Squibb ("BMS") announced that theU.S. Food and Drug Administration ("FDA") has extended the review of theU.S. New Drug Application ("NDA") for mavacamten for the treatment of patients with symptomatic oHCM toApril 28, 2022 to allow sufficient time to review information pertaining to updates to BMS's proposed Risk Evaluation Mitigation Strategy ("REMS"). We do not anticipate this review extension to impact the timing of our planned clinical development strategy to support the registration of mavacamten in Mainland China. InNovember 2021 , BMS presented data at theAmerican Heart Association Scientific Sessions 2021 from the Phase 2 MAVERICK study demonstrating long-term efficacy and safety of mavacamten in patients with non-obstructive hypertrophic cardiomyopathy. 30 -------------------------------------------------------------------------------- Table of Contents Infigratinib InAugust 2021 , we announced that we began treating patients in a Phase 2a clinical trial of infigratinib in locally advanced or metastatic gastric cancer or gastroesophageal junction adenocarcinoma with fibroblast growth factor receptor-2 ("FGFR2") gene amplification and other advanced solid tumors with FGFR genomic alterations. TP-03 InNovember 2021 , our partner Tarsus Pharmaceuticals, Inc. ("Tarsus") presented data from two studies on the prevalence and impact of Demodex blepharitis ("DB") at theAmerican Academy of Optometry 2021 Annual Meeting. Data from the Titan real-world prevalence study demonstrated that DB accounts for 69% of all blepharitis cases and that current management tools for this disease are largely ineffective. Data from the multi-center observational Atlas impact study demonstrated that DB is associated with a significant symptomatic and psychosocial burden, negatively affecting daily life in 80% of patients. NBTXR3 InOctober 2021 , our partnerNanobiotix S.A. ("Nanobiotix") presented data at the 2021 Annual Meeting of theAmerican Society for Radiation Oncology . The first analysis of overall survival ("OS") and progression-free survival ("PFS") from the ongoing Phase 1 trial of NBTXR3 in elderly and frail locally advanced head and neck squamous cell carcinoma patients ineligible for cisplatin and intolerant to cetuximab (Study 102) demonstrated median OS of 18.1 months and median PFS of 10.6 months in the evaluable population (n=41) from the dose expansion part of the study. NBTXR3 administration was feasible and well-tolerated overall. A total of 8 Grade 3-4 NBTXR3-related adverse events ("AEs") were observed in 8 patients. Of these AEs related to NBTXR3, 5 serious adverse events ("SAEs") were observed including dysphagia, sepsis, soft tissue necrosis, stomatitis, and tumor hemorrhage. Of the SAEs, one death from sepsis assessed by the investigator as possibly related to NBTXR3, radiotherapy, and cancer was observed. LYR-210 InOctober 2021 , our partner Lyra Therapeutics, Inc. ("Lyra") presented new data from the Phase 2 LANTERN clinical trial of LYR-210 in surgically naïve chronic rhinosinusitis patients who had failed previous medical management at the 67th Annual Meeting of theAmerican Rhinologic Society ("ARS"). The data presented at ARS demonstrated that 24 weeks after LYR-210 removal, 50% of treated patients continued to experience durable symptom improvement. LYR-210 continued to show strong safety during the 24-week follow up period with no increased incidence of treatment-related AEs. Omilancor InNovember 2021 , our partner Landos Biopharma, Inc. ("Landos") announced that prior to initiating a pivotal Phase 3 study, the company plans to leverage the results of the prior Phase 2 study of omilancor in mild-to-moderate ulcerative colitis ("UC") patients to design and initiate a Phase 2b study in 2022. The Phase 2b study is expected to provide additional data to inform the pivotal Phase 3 study design. Accordingly, we are evaluating our clinical development strategy within our territories. InOctober 2021 ,Landos presented positive translational data from the Phase 2 trial of omilancor in mild-to-moderate UC at United European Gastroenterology Week. Patients remaining on omilancor after the induction phase of the trial maintained low Mayo scores, an assessment of disease severity in UC, and nearly 90% of patients achieved remission thresholds in stool frequency and rectal bleeding after 36 weeks of open-label treatment. Board of Director Appointments InOctober 2021 , we announced the appointments ofJesse Wu andSusan Silbermann to our Board of Directors.Mr. Wu is the former Chairman ofJohnson & Johnson China .Ms. Silbermann is the former Global President, Emerging Markets at Pfizer. 31 -------------------------------------------------------------------------------- Table of Contents Leadership Team Appointments InAugust 2021 , we announced the appointment ofPascal Qian as China General Manager.Mr. Qian is a member of our executive leadership team and is responsible for building out ourChina operations and commercial infrastructure. InOctober 2021 , we announced the appointment ofMichael Humphries , MBBS, as Chief Scientific Advisor.Dr. Humphries is responsible for guiding our research and development ("R&D") strategy, advancing our pipeline and leading the assessment of new in-licensing opportunities. Factors Affecting our Results of Operations Impact of the COVID-19 pandemic on our operations Beginning inDecember 2019 , the outbreak of the COVID-19 pandemic created business interruptions for companies globally, including us. For example, in the biotechnology sector, companies have experienced delays in their ability to enroll patients at clinical trial sites because of the pandemic, potentially leading to delays in the regulatory approval process. Although we have not been materially impacted by the COVID-19 pandemic to date, other outbreaks may occur, or there could be further resurgences of the COVID-19 pandemic, which could cause business disruptions in the future. Efforts to contain the spread of the COVID-19 pandemic inthe United States (including inNew Jersey , where ourU.S. headquarters is located) have included quarantines, shelter-in-place orders and various other government restrictions in order to control the spread of this virus. We have been carefully monitoring the COVID-19 pandemic and its potential impact on our business. We have taken important steps to ensure the workplace safety of our employees when working within our administrative offices, or when traveling to our clinical trial sites. We may take further actions as may be required by federal, state or local authorities. To date, we have been able to continue our key business activities and advance our clinical programs. However, in the future, it is possible that our clinical development timelines and business plans could be adversely affected. We maintain regular communication with our vendors and clinical sites to appropriately plan for, and mitigate, the impact of the COVID-19 pandemic on our operations. See "Risk Factors" included in this Quarterly Report on Form 10-Q for a further discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition. Key Components of Results of Operations Revenue To date, we have not generated any material revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products in the foreseeable future. Research and development expenses We believe our ability to successfully develop product candidates will be a significant factor affecting our long-term competitiveness, as well as our future growth and development. Developing high quality product candidates requires a significant investment of resources over a prolonged period of time, and a core part of our strategy is to continue making sustained investment in this area. We expect our research and development expense to increase significantly in connection with our ongoing activities, particularly as we advance the clinical development of our product candidates and initiate additional clinical trials of, and seek regulatory approval for, these and other future product candidates. These expenses include:
• payments made under third party licensing and asset acquisition agreements;
32
--------------------------------------------------------------------------------
Table of Contents
• employee-related expense, including salaries, related benefits,
equity-based compensation and travel expenses for employees engaged in
research and development functions;
• expense incurred in connection with the clinical development of our
product candidates, including expenses incurred under agreements with
CROs;
• costs related to compliance with regulatory requirements; and
• facilities, depreciation and amortization, insurance and other direct and
allocated expense incurred as a result of research and development
activities.
The following table sets forth the components of our research and development expenses for the years indicated (in thousands):
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2021 2020 2021 2020
Research and development expenses:
Licensing fees $ - $ 114,375 $ 136,915 $ 114,375
Employee related expense 1,921 780 5,031 1,632
CRO costs 1,952 376 6,521 672
Other costs 782 1,384 2,571 1,494
Total $ 4,655 $ 116,915 $ 151,038 $ 118,173 The following table sets forth a breakdown of licensing fees by program for the years indicated (in thousands):
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2021 2020 2021 2020
Licensing fees:
Mavacamten $ - $ 106,375 $ - $ 106,375
BBP-398 - 8,000 8,500 8,000
Sisunatovir - - 14,000 -
TP-03 - - 64,415 -
BT-11 and NX-13 - - 18,000 -
NBTXR3 - - 20,000 -
LYR-210 - - 12,000 -
Total $ - $ 114,375 $ 136,915 $ 114,375
33-------------------------------------------------------------------------------- Table of Contents General and administrative expenses Our general and administrative expense consists primarily of salaries and other related costs for personnel in executive, finance and administrative functions. General and administrative expense also includes professional fees for legal, consulting, auditing, tax services and insurance costs. We expect that our general and administrative expense will increase in the future to support continued development and commercialization of our product candidates. These increases will likely include increased costs related to hiring additional personnel and fees to outside consultants, attorneys and accountants, among other expenses. Additionally, we have incurred and will continue to incur increased expenses associated with being a public company, including costs of additional personnel, accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing andSEC requirements, director and office insurance costs, and investor and public relations costs. Licensing arrangements Our results of operations have been, and we expect them to continue to be, affected by our licensing, collaboration and development agreements. We are generally required to make upfront payments upon entry into such agreements and milestone payments upon the achievement of certain development, regulatory and commercial milestones for the relevant product candidate under these agreements, as well as tiered royalties based on net sales of the license products. These upfront payments and milestone payments upon the achievement of certain development and regulatory milestones are recorded in research and development expense in our consolidated financial statements and totaled$0.0 million ,$136.9 million ,$114.4 million , and$114.4 million for the three and nine months endedSeptember 31, 2021 and 2020, respectively. Interest (expense) income, net Interest (expense) income, net consists of interest expense from the payment made upon reaching the financing milestone under the exclusive license agreement withMyoKardia ("the MyoKardia Agreement"), offset by interest income received on our cash balances. Other income (expense), net Other income (expense), net consists of unrealized gains on foreign currencies held in ourChina subsidiary,Shanghai LianBio Development Co., Ltd. , offset by bank fees incurred on our cash balances. Income taxes Provision for income taxes consists ofU.S. federal and state income taxes and income taxes in certain foreign jurisdictions in which we conduct business. We recorded income tax (benefit) expense of($0.4) million and$1.6 million for the three and nine months endedSeptember 30, 2021 and income tax expense of$0.0 million and$0.0 million for the three and nine months endedSeptember 30, 2020 . AtDecember 31, 2020 , we had net operating loss ("NOL") carryforwards for federal income tax purposes of approximately$22.7 million , which do not expire. We had foreign NOL carryforwards of$1.4 million , which will expire if unused in 2025. As required by Accounting Standards Codification ("ASC") Topic 740, Income Taxes, our management has evaluated the positive and negative evidence bearing upon the realizability of our deferred tax assets, which are composed principally of NOL carryforwards, intangible assets, share compensation, and accrued expenses. Management has determined that it is more likely than not that we will not realize the benefits of the deferred tax assets. As a result, a valuation allowance of$43.1 million was recorded as ofDecember 31, 2020 . As ofSeptember 30, 2021 , the valuation allowance decreased by approximately$1.2 million fromDecember 31, 2020 . 34 -------------------------------------------------------------------------------- Table of Contents Cayman Islands We are incorporated in theCayman Islands . TheCayman Islands currently levies no taxes on profits, income, gains or appreciation earned by individuals or corporations. In addition, our payment of dividends, if any, is not subject to withholding tax in theCayman Islands .People's Republic of China Our subsidiaries incorporated inChina are governed by the PRC Enterprise Income Tax Law ("EIT Law"), and regulations. Under EIT Law, the standard Enterprise Income Tax ("EIT") rate is 25.0% on taxable profits as reduced by available tax losses. Tax losses may be carried forward to offset any taxable profits for up to following five years. Hong Kong Our subsidiaries incorporated and carrying on a trade or business inHong Kong are generally subject to profits tax at a rate of 16.5%. Tax losses incurred may be carried forward indefinitely to offset any taxable profits in subsequent years.Hong Kong does not levy tax on capital gains or non-Hong Kong sourced income. Payments of dividend and interest are not subject to withholding tax inHong Kong , however, certain payments (such as payment for right to use intellectual properties) made to non-resident persons may be subject to withholding tax. Results of operations Comparison of the three months endedSeptember 30, 2021 and 2020 The following table sets forth a summary of our consolidated results of operations for the periods indicated. Three Months Ended Three Months Ended September 30, 2021 September 30, 2020 Operating expenses (in thousands): Research and development $ 4,655 $ 116,915 General and administrative 8,889 2,129 Total operating expenses 13,544 119,044 Operating loss (13,544 ) (119,044 ) Other income (expense): Interest income (expense), net 32 (1,293 ) Other income, net 3 99 Net loss before income taxes (13,509 ) (120,238 ) Income tax (benefit) (397 ) - Net loss $ (13,112 ) $ (120,238 ) Research and development expenses Research and development expenses decreased by$112.3 million from$116.9 million for the three months endedSeptember 30, 2020 to$4.6 million for the three months endedSeptember 30, 2021 . For the three months endedSeptember 30, 2021 , research and development cost was primarily attributable to$1.9 million in personnel-related expenses and$2.1 million in development activities to support our clinical trials and professional fees. 35 -------------------------------------------------------------------------------- Table of Contents For the three months endedSeptember 30, 2020 , research and development cost was primarily attributable to (i)$72.7 million in upfront and milestone payments and$33.8 million of expenses related to the warrant issued in connection with our exclusive license agreement withMyoKardia (the "MyoKardia Agreement") and (ii) the$8.0 million upfront payment for our exclusive license agreement with Navire (the "Navire Agreement"). General and administrative expenses General and administrative expenses increased by$6.8 million from$2.1 million for the three months endedSeptember 30, 2020 to$8.9 million for the three months endedSeptember 30, 2021 . The increase was primarily attributable to a$3.5 million increase in payroll and personnel-related expenses (including share-based compensation expense) for increased employee headcount and a$2.9 million increase, primarily attributable to legal service costs, consulting costs and accounting services. Interest income (expense) Interest income (expense) decreased by$1.3 million from($1.3) million for the three months endedSeptember 30, 2020 to$0.0 million for the three months endedSeptember 30, 2021 . The decrease was primarily attributable to interest expense in 2020 related to imputed interest related to the achievement of the financing milestone under the MyoKardia Agreement that did not exist in 2021 and$0.6 million interest expense for the three months endedSeptember 30, 2020 related to the conversion inJune 2020 of the$15.0 million convertible promissory notes dueJune 29, 2021 issued to Perceptive (the "2020 Convertible Notes"). Other income, net Other income (expense), net decreased by$0.1 million from$0.1 million for the three months endedSeptember 30, 2020 to$0.0 million for the three months endedSeptember 30, 2021 . The decrease was primarily attributable to unrealized loss on foreign currencies held in ourChina subsidiary and by bank fees incurred on our cash balances. Income taxes Our income benefit was$0.4 million , resulting in an effective income tax rate of 1.0% for the three months endedSeptember 30, 2021 as compared to$0.0 million , or an effective income tax rate of 0.0%, for the same period in 2020. Our income tax benefit for the three months endedSeptember 30, 2021 was primarily due to an increase in pretax losses. Comparison of the Nine Months EndedSeptember 30, 2021 and 2020 The following table sets forth a summary of our consolidated results of operations for the periods indicated. Nine Months Ended Nine Months
Ended
September 30, 2021 September 30 ,
2020
Operating expenses (in thousands):
Research and development $ 151,038 $ 118,173
General and administrative 22,496 7,492
Total operating expenses 173,534 125,665
Operating loss (173,534 ) (125,665 )
Other income (expense):
Interest income (expense), net 171 (1,280 )
Other (expense) income, net (189 ) 81
Net loss before income taxes (173,552 ) (126,864 )
Income taxes 1,553 2
Net loss $ (175,105 ) $ (126,866 )
36-------------------------------------------------------------------------------- Table of Contents Research and development expenses Research and development expenses increased by$32.9 million from$118.2 million for the nine months endedSeptember 30, 2020 to$151.0 million for the nine months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2021 , research and development cost was primarily attributable to (i)$55.0 million upfront and development milestone payments and$9.4 million of expenses related to warrants issued in connection with our development and license agreement with Tarsus, (ii) a$20.0 million upfront payment pursuant to our license, development and commercialization agreement with Nanobiotix, (iii) a$18.0 million upfront payment pursuant to our license and collaboration agreement withLandos , (iv) a$14.0 million upfront payment pursuant to our co-development and license agreement withReViral , (v) a$12.0 million upfront payment pursuant to our license and collaboration agreement with Lyra, and (vi) a$8.5 million development milestone payment pursuant to the Navire Agreement. The remaining increase was attributable to higher personnel-related expenses, including share-based compensation expense, as a result of increased employee headcount, and development activities to support our clinical trials and professional fees. For the nine months endedSeptember 30, 2020 , research and development cost was primarily attributable to (i)$72.7 million in upfront and milestone payments and$33.8 million of expenses related to the warrant issued in connection with the MyoKardia Agreement and (ii) the$8.0 million upfront payment for the Navire Agreement. General and administrative expenses General and administrative expenses increased by$15.0 million from$7.5 million for the nine months endedSeptember 30, 2020 to$22.5 million for the nine months endedSeptember 30, 2021 . The increase was primarily attributable to (i)$7.7 million increase in payroll and personnel-related expenses, including share-based compensation expense, and employee severance, as a result of changes to employee headcount, (ii)$2.9 million increase in consulting costs, and (iii)$2.3 million increase in legal service costs. Interest income (expense, net) Interest income (expense), net decreased by$1.4 million from($1.3) million for the nine months endedSeptember 30, 2020 to$0.1 million for the nine months endedSeptember 30, 2021 . The decrease was primarily attributable to interest expense in 2020 related to the imputed interest related to the achievement of the financing milestone under the MyoKardia Agreement that did not exist in 2021 as well as interest on the 2020 Convertible Note. Other income (expense), net Other income (expense), net decreased by($0.3) million from$0.1 million for the nine months endedSeptember 30, 2020 to($0.2) million for the nine months endedSeptember 30, 2021 . The decrease was primarily attributable to unrealized loss on foreign currencies held in ourChina subsidiary and by bank fees incurred on our cash balances. Income taxes Our income tax expense was$1.6 million , resulting in an effective income tax rate of 0.9% for the nine months endedSeptember 30, 2021 as compared to income tax expense of$0.0 million , or an effective income tax rate of 0.0%, for the same period in 2020. Our income tax expense for the nine months endedSeptember 30, 2021 was primarily due to the effect of cash taxes associated with certain income that cannot be deferred forU.S. income tax purposes. 37 -------------------------------------------------------------------------------- Table of Contents Liquidity and capital resources Sources of liquidity Since our incorporation, our operations have been substantially financed with proceeds from sales of preferred shares as part of the Series Seed financing and the Series A financing, as well as the issuance of the 2020 Convertible Notes. As ofSeptember 30, 2021 , we had cash and cash equivalents of$109.0 million . OnNovember 3, 2021 , the Company completed its initial public offering ("IPO") through an underwritten sale of 20,312,500 ADSs representing 20,312,500 ordinary shares at a price of$16.00 per share. Following the close of the IPO, onDecember 1, 2021 , the underwriters exercised their option to purchase an additional 593,616 ADSs at the initial public offering price of$16.00 per ADS. We received gross proceeds of$334.5 million in connection with the IPO and subsequent exercise of the underwriters' options and aggregate net proceeds of$311.1 million after deducting underwriting discounts and commissions. We are a holding company with no operations of our own and, as such, we may rely on dividends and other distributions on equity paid by our Chinese subsidiaries to fund any cash and financing requirements we may have, including the funds necessary to pay dividends and other cash distributions to our shareholders or holders of our ADSs or to service any debt we may incur. Deterioration in the financial condition, earnings or cash flow of our subsidiaries for any reason, as well as any changes in Chinese laws or regulations, could limit or impair their ability to pay such distributions. See "Risk Factors-We may rely on dividends and other distributions on equity paid by our Chinese subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our Chinese subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business." Funding requirements Our primary use of cash is to fund our operating expenditures, consisting of research and development expense (including activities within our clinical and regulatory initiatives and upfront and milestone payments) and general and administrative expense. Our use of cash is impacted by the timing and extent of the required payments for each of these activities. To date, we have not generated any revenue. We do not expect to generate material product revenue unless and until we (i) complete development of any of our product candidates; (ii) obtain applicable regulatory approvals; and (iii) successfully commercialize or enter into collaborative agreements for our product candidates. We do not know with certainty when, or if, any of these items will ultimately occur. We expect to incur continuing significant losses for the foreseeable future and for our losses to increase as we ramp up our clinical development programs and begin activities related to commercial launch readiness. We may encounter unforeseen expenses, difficulties, complications, delays and other currently unknown factors that could adversely affect our business. Moreover, since the completion of our IPO, we have incurred and will continue to incur additional costs associated with operating as a publicly traded company. We will require additional capital to develop our product candidates and fund our operations into the foreseeable future. We anticipate that we will eventually need to raise substantial additional capital, the requirements for which will depend on many factors, including: • the number and scope of clinical programs we decide to pursue;
• the cost, timing and outcome of preparing for and undergoing regulatory
review of our product candidates;
• the cost and timing associated with commercializing our product
candidates, if they receive regulatory approval;
• the amount of revenue, if any, received from commercial sales of our
product candidates, should any of our product candidates receive
regulatory approval;
• the achievement of milestones or occurrence of other developments that
trigger payments under any collaboration agreements we might have at such
time;
38--------------------------------------------------------------------------------
Table of Contents
• the extent to which we acquire or
in-license
other product candidates and technologies;
• the costs of preparing, filing and prosecuting patent applications,
maintaining and enforcing our intellectual property rights and defending
intellectual property-related claims;
• our ability to establish and maintain collaborations on favorable terms,
if at all;
• our efforts to enhance operational systems and our ability to attract,
hire and retain qualified personnel, including personnel to support the
development of our product candidates and, ultimately, the sale of our
products, following regulatory approval;
• impact of the
COVID-19
pandemic on our clinical development or operations; and
• the costs associated with being a public company.
A change in the outcome of any of these or other variables with respect to the
development and regulatory approval of any of our product candidates could
significantly change the costs and timing associated with the development of
that product candidate. Furthermore, our operating plans may change in the
future, and we will continue to require additional capital to meet operational
needs and capital requirements associated with such operating plans. If we raise
additional funds by issuing equity securities, our shareholders may experience
dilution. Any future debt financing into which we enter may impose upon us
additional covenants that restrict our operations, including limitations on our
ability to incur liens or additional debt, pay dividends, repurchase our
ordinary shares, make certain investments or engage in certain merger,
consolidation or asset sale transactions. Any debt financing or additional
equity that we raise may contain terms that are not favorable to us or our
shareholders.
Adequate funding may not be available to us on acceptable terms or at all. Our
potential inability to raise capital when needed could have a negative impact on
our financial condition and our ability to pursue our additional licensing
opportunities.
Cash flows
The following table sets forth the primary sources and uses of cash and cash
equivalents for each of the periods presented (in thousands):
Nine Months Ended Nine Months Ended
September 30, 2021 September 30, 2020
Net cash (used in) provided by:
Operating activities $ (133,573 ) $ (49,273 )
Investing activities (159 ) (335 )
Financing activities 8,249 14,964
Net cash used in operating activities
During the nine months ended September 30, 2021 , operating activities used
approximately $133.6 million of cash, primarily due to our net loss of
$175.1 million , partially offset by
non-cash
consideration of $9.4 million related to the warrants granted to Tarsus,
$20.0 million of other receivables related to Pfizer
in-licensing
and
co-development
activities, $5.3 million related to share-based compensation expense, and other
changes related to operating assets and liabilities.
During the nine months ended September 30, 2020 , operating activities used
approximately $49.3 million of cash, primarily due to our net loss of
$126.9 million , partially offset by
non-cash
items of $33.8 million related to the warrant granted to MyoKardia ,
$33.2 million related to the MyoKardia sellers' financing and $2.3 million
related to share-based compensation expense, as well as other changes related to
operating assets and liabilities.
39
--------------------------------------------------------------------------------
Table of Contents
Net cash used in investing activities
During the nine months ended September 30, 2021 , investing activities used
approximately $0.2 million , primarily resulting from the purchases of property
and equipment.
During the nine months ended September 30, 2020 , investing activities used
approximately $0.3 million , primarily resulting from the purchases of property
and equipment.
Net cash provided by financing activities
During the nine months ended September 30, 2021 , financing activities provided
approximately $8.2 million in net proceeds due to our issuance of Series A
Preferred shares of $2.9 million and the exercise of share options of
$5.3 million .
During the nine months ended September 30, 2020 , financing activities provided
approximately $15.0 million in net proceeds, primarily resulting from the net
proceeds from the 2020 Convertible Notes.
Contractual obligations
The following table presents our contractual obligations at September 30, 2021
(in thousands):
Payments Due by Period
Less than 1 to 3 3 to 5 More than
1 year years years 5 years Total
(in thousands)
Operating lease obligations(1)
-
(1) The operating lease obligations are related to the facility lease for our
Jersey lease expiring in
in a remeasurement of the previous right of use asset and liability.
We also have obligations to fund clinical trial commitments under the QED License over the remaining term of the QED License. Off-balance sheet arrangements In the ordinary course of our business, we do not enter into transactions involving, or otherwise form relationships with, unconsolidated entities or financial partnerships that are established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Critical accounting policies and significant judgments and estimates The preparation of our financial statements in conformity with accounting principles generally accepted inthe United States ("U.S. GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes to the financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates are different assumptions and conditions. For a discussion of our critical accounting estimates, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the IPO Prospectus, the notes to our audited financial statements appearing in the IPO Prospectus and the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. There have been no material changes to the Company's critical accounting policies and estimates throughSeptember 30, 2021 from those discussed in the IPO Prospectus. 40 -------------------------------------------------------------------------------- Table of Contents Recently issued accounting standards A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows are disclosed in the footnote to which each relates within the financial statements included in this Quarterly Report on Form 10-Q. Qualitative & quantitative disclosures about market risk We are exposed to market risk including foreign exchange risk, credit risk and cash flow interest rate risk. Foreign currency exchange rate risk Our business mainly operates inChina with transactions in renminbi, and our financial statements are presented inU.S. dollars. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge our exposure to such risk. Although, in general, our exposure to foreign exchange risk should be limited, the value of any investment in our ADSs will be affected by the exchange rate between theU.S. dollar and the renminbi because a portion of the value of our business is effectively denominated in renminbi, while the ADSs will be traded inU.S. dollars. Renminbi is not a freely convertible currency.The State Administration of Foreign Exchange , under the authority of thePeople's Bank of China ("PBOC"), controls the conversion of renminbi into foreign currencies. The value of renminbi is subject to changes in the central government policies and to international economic and political developments affect supply and demand in the China Foreign Exchange Trading System market. Translation of the net proceeds that we received from our initial public offering into renminbi will also expose us to currency risk. The value of the renminbi against theU.S. dollar and other currencies may fluctuate and is affect by, among other things, changes inChina's political and economic conditions. To the extent that we need to convertU.S. dollars into renminbi for our operations or if any of our arrangements with other parties are denominated inU.S. dollars and need to be converted into renminbi, appreciation of the renminbi against theU.S. dollar would have an adverse effect on the renminbi amount we receive from the conversion. Conversely, if we decide to convert renminbi toU.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of theU.S. dollar against the renminbi would have a negative effect on theU.S. dollar amounts available to us. 41
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
