VENTYX BIOSCIENCES, INC. The following discussion and analysis of financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and the related notes for the year endedDecember 31, 2021 , which are included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC") onMarch 23, 2022 . In addition to historical financial information, the following discussion and analysis and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, based upon current expectations that involve risks and uncertainties. As a result of many factors, including those factors set forth in Part II, Item 1A (Risk Factors) of this Quarterly Report on Form 10-Q, 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. Please also see the section titled "Special Note Regarding Forward-Looking Statements."
Overview
We are a clinical-stage biopharmaceutical company developing a pipeline of novel small molecule product candidates to address a range of inflammatory diseases with significant unmet need. We leverage the substantial experience of our team in immunology to identify important new targets and to develop differentiated therapeutics against these targets. Our clinical product candidates address therapeutic indications with substantial commercial opportunity for novel small molecules. Our lead clinical product candidate, VTX958, is a selective allosteric tyrosine kinase type 2 (TYK2) inhibitor. InAugust 2022 , we announced positive topline data from a Phase 1 single and multiple ascending dose trial of VTX958 in healthy volunteers. We expect to initiate Phase 2 trials with VTX958 in the fourth quarter of 2022 for psoriasis, psoriatic arthritis and Crohn's disease and continue to evaluate additional indications for clinical development. In addition, we are developing VTX002, a sphingosine 1 phosphate receptor (S1P1R) modulator in Phase 2 development for ulcerative colitis. We initiated a Phase 2 trial with VTX002 in the fourth quarter of 2021 in patients with moderate to severe ulcerative colitis. Our third product candidate, VTX2735, is a peripheral-targeted NOD-like receptor protein 3 (NLRP3) inflammasome inhibitor. InJune 2022 , we announced positive topline data from a Phase 1 single and multiple ascending dose trial of VTX2735 in healthy volunteers. We plan to initiate a Phase 2 trial for VTX2735 in cryopyrin-associated periodic syndrome (CAPS) patients in the fourth quarter of 2022 and continue to evaluate additional indications for clinical development. In addition to VTX2735, we nominated VTX3232, our lead CNS-penetrant NLRP3 inhibitor, as a clinical development candidate in the fourth quarter of 2021. We plan to initiate a Phase 1 trial of VTX3232 in healthy volunteers in the first quarter of 2023. We were incorporated inNovember 2018 . To date, we have focused primarily on organizing and staffing our company, business planning, raising capital and identifying our product candidates and conducting preclinical studies and clinical trials. We have funded our operations primarily through debt and equity financings. We do not have any products approved for sale and have not generated any revenue from product sales. We have incurred significant operating losses since our inception and expect to continue to incur significant operating losses for the foreseeable future. Our net losses were$30.5 million and$12.8 million for the three months endedSeptember 30, 2022 and 2021, respectively. Our net losses were$73.2 million and$66.0 million for the nine months endedSeptember 30, 2022 and 2021, respectively. We had an accumulated deficit of$191.0 million as ofSeptember 30, 2022 . We expect our expenses and operating losses will increase substantially as we conduct our ongoing and planned clinical trials, continue our research and development activities and conduct preclinical studies, and seek regulatory approvals for our product candidates, as well as hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on a variety of factors, including the timing and scope of our preclinical studies and clinical trials and our expenditures on other research and development activities. We do not expect to 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, which we expect will take a number of years. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, until such time as we can generate substantial product revenues to support our cost structure, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate our product candidate development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves. 20 --------------------------------------------------------------------------------
Private Placement
OnSeptember 20, 2022 , the Company issued and sold 5,350,000 shares of common stock through a private placement. The common stock had a purchase price of$33.00 per share for aggregate gross proceeds of approximately$176.6 million . The Company received approximately$165.4 million in net proceeds after deducting fees to the placement agents and offering expenses payable by the Company.
Initial Public Offering
OnOctober 25, 2021 , we completed an initial public offering (IPO) of our common stock in which we issued an aggregate of 10,893,554 shares of our common stock (inclusive of 1,420,898 shares issued pursuant to the underwriters' over-allotment option) at a price of$16.00 per share. The Company received net proceeds of approximately$158.8 million , after deducting underwriting discounts and commissions of$12.2 million and other offering expenses of$3.3 million . In connection with the closing of the initial public offering, all 12.5 million outstanding shares of Series A Convertible Preferred Stock (Series A Preferred Stock), 18.8 million outstanding shares of Series A-1 Convertible Preferred Stock (Series A-1 Preferred Stock) and 4.0 million shares of Series B Convertible Preferred Stock (Series B Preferred Stock) converted into an aggregate of 35.3 million shares of common stock.
Business Update Regarding Conflict in
We are currently conducting a Phase 2 trial of VTX002 in patients with moderate-to-severe UC with enrollment originally projected to include patients at clinical sites inRussia ,Belarus andUkraine . As a result of the military conflict inUkraine , we terminated plans to open clinical trial sites inRussia ,Belarus andUkraine , which impacted our original clinical trial strategy. Our operations at additional sites in the region could also be impacted in the future. Additionally, if our relationships with any of our CROs is terminated, we may be unable to enter into arrangements with alternative CROs on commercially reasonable terms, or at all. Our ability to conduct clinical trials inRussia ,Belarus ,Ukraine and elsewhere in the region may also become restricted under applicable sanctions laws. All of the foregoing creates uncertainty around our ability to project the timing for enrollment of our Phase 2 trial for VTX002 and may lead to increased clinical trial costs as we seek to open additional clinical sites to offset potential impact to our projected enrollment inRussia ,Belarus andUkraine , which could materially harm our business. We have no way to predict the progress or outcome of the situation, as the conflict and government reactions are rapidly developing and beyond our control. Prolonged unrest, military activities, or broad-based sanctions, should they be implemented, could have a material adverse effect on our operations and business outlook. COVID-19 The global COVID-19 pandemic and the related variants continue to rapidly evolve. The extent of the impact of the COVID-19 pandemic 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 operations and those of our CROs, third-party manufacturers and other third parties with whom we do business, as well as its potential impact on regulatory authorities and our ability to attract and retain key scientific and management personnel. We are conducting business as usual, with necessary or advisable modifications, and have modified our business practices, including but not limited to, modifying employee travel and allowing office employees to work remotely. We will continue to actively monitor the rapidly evolving situation related to COVID-19. We may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. 21
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Asset Acquisitions
In connection with our Series A and Series A-1 Convertible Preferred Stock
financing, in
•
Pursuant to the terms of the Share Purchase Agreement (the Oppilan Purchase Agreement), upon closing, we issued to the shareholders of Oppilan 360,854 shares of our common stock valued at$3.06 per share, 4,049,143 shares of our Series A-1 Convertible Preferred Stock valued at$3.06 per share and options to purchase 75,955 shares of our common stock valued at a weighted average fair value of$1.86 per share in exchange for all of the outstanding equity interests of Oppilan. Oppilan's lead candidate, VTX002, is a modulator of the S1P1 receptor that has a unique pharmacokinetic and pharmacodynamic profile. A Phase 2 clinical trial of VTX002 for the treatment of moderate-to-severe ulcerative colitis is currently ongoing.
•
Pursuant to the terms of the Share Purchase Agreement (the Zomagen Purchase Agreement), upon closing, we issued to the shareholders of Zomagen 457,944 shares of our common stock valued at$3.06 per share, 2,003,768 shares of our Series A-1 Convertible Preferred Stock valued at$3.06 per share and options to purchase 30,483 shares of our common stock valued at a weighted average fair value of$2.87 per share in exchange for all of the outstanding equity interests of Zomagen. Zomagen's lead candidate, VTX2735, is a peripheral NLRP3 inhibitor for which we completed a Phase 1 trial in the second quarter of 2022. We plan to initiate a Phase 2 clinical trial of VTX2735 in cryopyrin-associated periodic syndrome ("CAPS") patients in the fourth quarter of 2022 and continue to evaluate additional indications for clinical development. The fair value of total cost of the Asset Acquisitions was$14.0 million and$7.8 million for Oppilan and Zomagen, respectively. The excess of the cost of acquisition over net assets acquired was$12.8 million and$8.9 million for Oppilan and Zomagen, respectively. We determined that there is no alternative future use of the in-process research and development (IPR&D) assets acquired from either acquisition. In accordance with the accounting for Asset Acquisitions, the excess of the cost of acquisition over net assets acquired was expensed as IPR&D at the respective acquisition date. For the year endedDecember 31, 2021 , we recorded the excess IPR&D costs of$21.7 million in research and development costs within our unaudited condensed consolidated statements of operations and comprehensive loss.
Financial Operations Overview
Revenues
We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products for the foreseeable future. We may also generate revenues in the future from payments or royalties associated with potential partnering or collaboration agreements, but have no plans to enter into such arrangements at this time.
Research and Development Expenses
Research and development expense consists of expenses incurred while performing
research and development activities to discover and develop our product
candidates. Research and development costs include salaries, payroll taxes,
employee benefits, and stock-based compensation charges for those individuals
involved in our ongoing research and development efforts; as well as fees paid
to consultants and third party research organizations, and the costs of
laboratory supplies and development compound materials. Costs incurred in our
research and development efforts are expensed as incurred.
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We typically use our employee, consultant and infrastructure resources across
our research and development programs. We track outsourced development costs by
product candidate or development program, but we do not allocate personnel
costs, other internal costs or external consultant costs to specific product
candidates or development programs. These costs are included in unallocated
research and development expenses. The following table summarizes research and
development expenses by product candidate or development program (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
VTX958 $ 8,438 $ 3,536 $ 18,238 $ 8,646
VTX002 7,956 3,945 15,690 6,961
VTX2735 3,050 776 6,862 1,988
Unallocated research and development expenses 6,024 2,288 16,763 27,062
Total research and development expenses $ 25,468 $ 10,545 We did not separately categorize costs related to VTX3232 in the table above due to the early-stage development status of the drug product candidate during the periods presented. Substantially all of our research and development expenses to date have been incurred in connection with the discovery and development of our product candidates. We expect our research and development expenses to increase significantly for the foreseeable future as we advance an increased number of our product candidates through clinical development, including the conduct of our ongoing and planned clinical trials. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. The successful development of product candidates is highly uncertain and subject to numerous risks and uncertainties. Accordingly, at this time, we cannot reasonably estimate the nature, timing or costs required to complete the remaining development of any product candidates and to obtain regulatory approval for one or more of these product candidates.
The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following:
•
per patient trial costs;
•
the number of sites included in the clinical trials;
•
the countries in which the clinical trials are conducted;
•
the length of time required to enroll eligible patients;
•
the number of patients that participate in the clinical trials and the drop-out or discontinuation rates of such patients;
•
the number of doses that patients receive;
•
the cost of comparative agents used in clinical trials;
•
potential additional safety monitoring or other studies requested by regulatory agencies;
•
the duration of patient follow-up; and
•
the efficacy and safety profile of the product candidate.
We do not expect any of our product candidates to be commercially available for the next several years, if ever.
General and Administrative Expenses
General and administrative expenses are related to finance, human resources, legal and patent costs and other administrative activities. These expenses consist primarily of personnel costs, including stock-based compensation expenses, outside services, legal expenses, management fees and other general and administrative costs. We expect that our general and administrative expenses will increase for the foreseeable future as we expand operations, increase our headcount to support our continued research and development activities and operate as a public reporting company (including increased fees for outside consultants, lawyers and accountants, as well as increased directors' and officers' liability insurance premiums). We have also incurred, and expect to continue to incur, increased costs to comply with stock exchange listing andSEC 23 -------------------------------------------------------------------------------- requirements, corporate governance, internal controls, investor relations and disclosure and similar requirements applicable to public companies. Additionally, if and when we believe that a regulatory approval of a product candidate appears likely, we expect to incur significant increases in our general and administrative expenses related to the sales and marketing of any approved product candidate. Results of Operations The presentation of our condensed consolidated financial statements for the three and nine months endedSeptember 30, 2021 , reflect the financial results ofVentyx Biosciences, Inc. , and the financial results of our two acquired subsidiaries, Oppilan and Zomagen, from the acquisition date toSeptember 30, 2021 , on a consolidated basis.
Comparison of Three Months Ended
The following table summarizes our condensed consolidated results of operations
for the three months ended
Three Months Ended
September 30,
2022 2021 Change
(in thousands)
Operating expenses:
Research and development (includes related
party amounts of
$220 and $287 , respectively) $ 25,468 $ 10,545 $ 14,923
General and administrative 5,952 2,242 3,710
Total operating expenses 31,420 12,787 18,633
Loss from operations (31,420 ) (12,787 ) (18,633 )
Other income:
Other income (958 ) (13 ) (945 )
Total other income (958 ) (13 ) (945 )
Net loss (30,462 ) (12,774 ) (17,688 )
Unrealized gain on marketable securities 17 6 11
Foreign currency translation (38 ) 23 (61 )
Comprehensive loss $ (30,483 ) $ (12,745 ) $ (17,738 ) Research and Development Expense
Research and development expenses were$25.4 million and$10.5 million for the three months endedSeptember 30, 2022 and 2021, respectively. For the three months endedSeptember 30, 2022 and 2021, most research and development expenses have been related to the development of VTX958, VTX002 and VTX2735. The increase of$14.9 million was due to increases in costs associated with the Phase 1 and Phase 2 trials for VTX958 of approximately$5.2 million , stock-based compensation expense of approximately$1.4 million , compensation related expenses of approximately$1.2 million , consultant fees of approximately$0.4 million and expenses from the operations of Oppilan and Zomagen. The increased expenses from the operations of Oppilan were attributable to an increase in costs associated with the Phase 2 trial for VTX002 of approximately$4.0 million . The increased expenses from the operations of Zomagen were primarily attributable to an increase in costs associated with the Phase 1 trial for VTX2735 and IND enabling studies for VTX3232 of approximately$2.7 million .
General and Administrative Expense
General and administrative expenses were$5.9 million and$2.2 million for the three months endedSeptember 30, 2022 and 2021, respectively. The increase of$3.7 million was primarily due to increased personnel costs, including stock-based compensation of approximately$1.8 million , professional service fees of approximately$0.7 million and compensation related expenses of approximately$0.4 million , insurance costs of approximately$0.5 million and other general and administrative expenses of approximately$0.3 million , including dues and subscriptions, office supplies and equipment and facility related costs. Other Income Other income was$1.0 million and$0 for the three months endedSeptember 30, 2022 and 2021, respectively. During the three months endedSeptember 30, 2022 , the other income recognized was associated with interest earned on available-for-sale marketable securities. 24 --------------------------------------------------------------------------------
Comparison of Nine Months Ended
The following table summarizes our condensed consolidated results of operations
for the nine months ended
Nine Months Ended
September 30,
2022 2021 Change
(in thousands)
Operating expenses:
Research and development (includes related
party amounts of
$653 and $839 , respectively) $ 57,553 $ 44,657 $ 12,896
General and administrative (includes related
party amounts of
$0 and $116 , respectively) 17,012 4,664 12,348
Total operating expenses 74,565 49,321 25,244
Loss from operations (74,565 ) (49,321 ) (25,244 )
Other (income) expense:
Other (income) expense (1,353 ) 31 (1,384 )
Interest expense - related party - 99 (99 )
Change in fair value of notes and derivative
- related party - 11,051 (11,051 )
Change in fair value of Series A tranche
liability - 5,476 (5,476 )
Total other (income) expense (1,353 ) 16,657 (18,010 )
Net loss (73,212 ) (65,978 ) (7,234 )
Deemed dividend - (1,552 ) 1,552
Net loss attributable to common shareholders $ (73,212 ) $ (67,530 ) $ (5,682 )
Net loss $ (73,212 ) $ (65,978 ) $ (7,234 )
Unrealized gain (loss) on marketable
securities (1,204 ) 6 (1,210 )
Foreign currency translation (50 ) 11 (61 )
Comprehensive loss $ (74,466 ) $ (65,961 ) $ (8,505 ) Research and Development Expense
Research and development expenses were$57.6 million and$44.7 million for the nine months endedSeptember 30, 2022 and 2021, respectively. For the nine months endedSeptember 30, 2022 , most research and development expenses have been related to the development of VTX958, VTX002 and VTX2735. For the nine months endedSeptember 30, 2022 as compared to the nine months endedSeptember 30, 2021 , there was a net increase in research and development expenses of approximately$12.9 million . This increase was comprised of increases in costs between periods associated with the Phase 1 and Phase 2 trials for VTX958 of approximately$9.6 million , stock-based compensation expense of approximately$4.0 million , compensation related expenses of approximately$3.5 million , consulting fees of$0.7 million , drug candidate discovery costs of approximately$0.5 million and expenses from the operations of Oppilan and Zomagen. The increased expenses from the operations of Oppilan were attributable to an increase in costs associated with the Phase 2 trial for VTX002 of$8.7 million . The increased expenses from the operations of Zomagen were primarily attributable to an increase in costs associated with the Phase 1 trial for VTX2735 and IND enabling studies for VTX3232 of approximately$6.5 million and drug candidate discovery costs of approximately$1.2 million . These increases between the nine months endedSeptember 30, 2022 and 2021 were offset by a$21.8 million non-cash IPR&D expense associated with the acquisitions of Oppilan and Zomagen (as there was no alternative future use of the IPR&D assets acquired) which was recognized during the nine months endedSeptember 30, 2021 .
General and Administrative Expense
General and administrative expenses were$17.0 million and$4.7 million for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase of$12.3 million was primarily due to increased personnel costs, including stock-based compensation of approximately$6.4 million , compensation related expenses of approximately$1.8 million and professional service fees of approximately$1.8 million , insurance costs of approximately$1.6 million and other general and administrative expenses of approximately$0.7 million , including dues and subscriptions, investor relations costs and facility related costs. 25 --------------------------------------------------------------------------------
Other (Income) Expense
Other income was$1.4 million for the nine months endedSeptember 30, 2022 and other expense was$16.7 million for the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2022 , the other income recognized was associated with interest earned on available-for-sale marketable securities of approximately$1.5 million , slightly offset by franchise tax costs of approximately$0.2 million . During the first quarter of 2021, in conjunction with the acquisitions of Oppilan and Zomagen, the convertible promissory notes (Convertible Notes) and Simple Agreements for Future Equity (SAFEs or Convertible SAFE Notes) converted into Series A and Series A-1 Preferred Stock, eliminating the fair value accounting associated with the Convertible Notes, SAFEs and the associated derivative liability. During the nine months endedSeptember 30, 2021 , the Company recognized a change in the fair value of the Series A tranche liability of approximately$5.5 million . We issued the Convertible Notes in 2019 and 2020 which included a change of control feature for which we recorded a liability measured at fair value. We estimated the fair value of our change of control feature using a combination of probability analysis and Monte Carlo simulation methodology. Until their conversion into Series A-1 Preferred Stock inFebruary 2021 , we adjusted the carrying value of our change in control feature to its estimated fair value at each reporting date, with the increases in fair value of the change of control feature recorded in our condensed consolidated statements of operations and comprehensive loss. We issued SAFEs in 2019 and 2020 which we accounted for at fair value. We estimated the fair value of our SAFEs using a combination of probability analysis and Monte Carlo simulation methodology. Until their conversion into Series A-1 Preferred Stock inFebruary 2021 , we adjusted the carrying value of our SAFEs to their estimated fair value at each reporting date, with the increases in fair value of the SAFEs recorded in our condensed consolidated statements of operations and comprehensive loss. OnFebruary 26, 2021 , we issued 6,283,401 shares of our Series A Preferred Stock for gross proceeds of$57.3 million at the original issue price of$9.12 per share. The Series A purchase agreement allowed the original investors to purchase an additional 6,250,504 shares of Series A Convertible Preferred Shares (the Additional Shares) on the same terms and conditions as the original issuance at the original issuance price of$9.12 per share (the Second Closing or Tranche Liability). In addition, we were obligated to issue 507,133 shares of common stock to a Series A investor if such investor participated in the second tranche. We concluded that these rights or obligations of the investors to participate in the second tranche of the Series A Preferred Stock met the definition of a freestanding instrument that was required to be recorded as a liability at fair value (Series A tranche liability). Given the common shares were linked to the second tranche, they were also considered a component of the Tranche Liability. OnJune 10, 2021 , the investors purchased an additional 6,250,504 shares of our Series A convertible preferred stock, on the same terms and conditions as the original issuance for gross proceeds of$57.0 million in a second closing. Until the conversion of the Series A tranche liability into Series A Preferred Stock onJune 10, 2021 , we adjusted the carrying value of our Series A tranche liability to its estimated fair value at each reporting date. We estimated the fair value of the Series A tranche liability using a combination of probability analysis and Monte Carlo simulation methodology. The increases in fair value of the Series A tranche liability were recorded as an increase in fair value of our Series A tranche liability in our condensed consolidated statements of operations and comprehensive loss.
During the nine months ended
Liquidity and Capital Resources
Sources of Liquidity and Capital Resources
From inception throughSeptember 30, 2022 , we have funded our operations primarily through the issuance of$164.2 million of convertible preferred stock, net of offering costs, to outside investors and related parties and$10.3 million in aggregate principal amount of convertible notes and SAFEs issued to related parties. InOctober 2021 , we received net proceeds of approximately$158.8 million , after deducting underwriting discounts and commissions and offering expenses payable by us, from the sale of our shares of common stock in the IPO. Additionally, inSeptember 2022 through the closing of our private placement, we received net proceeds of approximately$165.4 million after deducting transaction-related expenses. As ofSeptember 30, 2022 , we had cash, cash equivalents and marketable securities of$412.4 million .
We have not entered into any off-balance sheet arrangements, as defined in the
rules and regulations of the
26
--------------------------------------------------------------------------------Future Funding Requirements
To date, we have generated no revenue and do not expect to generate revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates and we do not know when, or if, this will occur. In addition, we expect our expenses to significantly increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. Moreover, we expect to incur additional costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. We expect that our expenses will increase substantially if and as we:
•
continue research and development, including preclinical and clinical development of our existing product candidates;
•
seek regulatory approval for our product candidates;
•
seek to discover and develop additional product candidates;
•
establish a commercialization infrastructure and scale up our manufacturing and distribution capabilities to commercialize any of our product candidates for which we may obtain regulatory approval;
•
seek to comply with regulatory standards and laws;
•
maintain, leverage and expand our intellectual property portfolio;
•
hire clinical, manufacturing, scientific and other personnel to support our product candidates;
•
incur expenses related to development and future commercialization efforts;
•
add personnel, financial and management information systems and personnel; and
•
incur additional legal, accounting and other expenses in operating as a public company.
Based upon our current operating plan, we expect that our cash, cash equivalents and marketable securities as ofSeptember 30, 2022 , will enable us to fund our operating expenses and capital expenditures requirements into 2025. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. We enter into contracts in the normal course of business with various third-party consultants, contract research organizations (CRO) and contract manufacturing organizations (CMO) for preclinical research, clinical trials and manufacturing activities. These contracts generally provide for termination upon notice. Payments due upon cancellation consist of cancellation fees and payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. Actual expenses associated with these arrangements may be higher or lower than anticipated due to various factors, including progress of our development candidates, enrollment in ongoing clinical trials, which may be competitive and challenging and results from our ongoing and planned clinical trials. Material short-term liquidity needs of$0.5 million relate to future minimum lease payments. Material long-term liquidity needs pertaining to our operating leases is approximately$1.4 million with our last minimum lease payment due inJune 2026 . Currently, we have no short-term or long-term purchase commitments.
Our capital expenditures to date have been immaterial and we do not expect to incur significant costs related to capital expenditures in the short or long-term.
The successful development of any product candidate is highly uncertain. Due to the numerous risks and uncertainties associated with the development and commercialization of our product candidates, if approved, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the development of our product candidates.
27
--------------------------------------------------------------------------------Our future capital requirements will depend on many factors, including:
•
the timing of, and the costs involved in, preclinical and clinical development and obtaining any regulatory approvals for our product candidates;
•
the costs of manufacturing, distributing and processing our product candidates;
•
the number and characteristics of any other product candidates we develop or acquire;
•
the degree and rate of market acceptance of any approved products;
•
the emergence, approval, availability, perceived advantages, relative cost, relative safety and relative efficacy of other products or treatments;
•
the expenses needed to attract and retain skilled personnel;
•
the costs associated with being a public company;
•
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing intellectual property claims, including litigation costs and the outcome of such litigation;
•
the timing, receipt and amount of sales of, or royalties on, any approved products; and
•
any product liability or other lawsuits related to our product candidates.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity, equity-linked and debt financings, collaborations, strategic alliances and/or licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with pharmaceutical partners, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates that we would otherwise prefer to develop and market ourselves.
Cash Flows
We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As ofSeptember 30, 2022 , we had cash, cash equivalents and marketable securities of$412.4 million . The following table sets forth a summary of the net cash flow activity for each of the periods indicated: Nine Months Ended September 30, 2022 2021 (in thousands) Net cash provided by (used in): Operating activities$ (51,507 ) $ (23,963 ) Investing activities$ 65,909 $ (71,275 ) Financing activities$ 178,127 $ 163,969 Operating Activities Net cash used in operating activities was$51.5 million for the nine months endedSeptember 30, 2022 and was primarily due to our net loss of$73.2 million offset by$11.5 million for noncash items and a net increase of$10.2 million in operating assets and liabilities. The noncash items included approximately$11.7 million for stock-based compensation expense and approximately$0.3 28 -------------------------------------------------------------------------------- million for the amortization of operating right-of-use assets and depreciation expense, slightly offset by approximately$0.5 million for the net accretion/amortization of investments in available-for-sale marketable securities. The$10.2 million change in operating assets and liabilities was primarily attributable to an increase in accrued expenses and accounts payable of approximately$11.9 million , offset by an increase in prepaid expenses and other assets of approximately$1.5 million . Net cash used in operating activities was$24.0 million for the nine months endedSeptember 30, 2021 and was primarily due to our net loss of$66.0 million offset by$39.8 million for noncash items and a net increase in operating assets and liabilities of approximately$2.3 million . The noncash items included$21.8 million for acquired IPR&D expenses,$16.6 million due to the change in the fair value of related party notes, the associated derivative, and the Series A tranche liability and$1.3 million for stock-based compensation expense. The$2.3 million change in operating assets and liabilities was primarily attributable to increases in accrued expenses and accounts payable of$5.9 million , offset by an increase in prepaid expenses and other assets of$3.6 million .
Investing Activities
Net cash provided by investing activities was$65.9 million for the nine months endedSeptember 30, 2022 and was related to$208.6 million in proceeds from maturities of available-for-sale marketable securities, offset by the purchase of$142.5 million of investments in available-for-sale marketable securities. Net cash used in investing activities was$71.3 million for the nine months endedSeptember 30, 2021 related to the purchase of$73.0 million of investments in available-for-sale marketable securities, partially offset by$1.9 million of net cash assumed in connection with the acquisitions of Oppilan and Zomagen.
Financing Activities
Net cash provided by financing activities was$178.1 million for the nine months endedSeptember 30, 2022 and was attributable to approximately$176.5 million in net proceeds from the issuance of common stock from the private placement,$1.5 million in proceeds from the exercise of stock options, and$0.1 million in proceeds from the issuance of common stock under the 2021 Employee Stock Purchase Plan (ESPP). Net cash provided by financing activities was$164.0 million for the nine months endedSeptember 30, 2021 and was primarily attributable to$164.2 million in proceeds from the issuance of our Series A and Series B Preferred Stock net of offering costs and$0.5 million in net proceeds from the issuance of SAFEs, partially offset by$0.7 million of cash paid for deferred offering costs.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles (GAAP). The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses, and the disclosure of contingent assets and liabilities in our unaudited condensed consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to prepaid and accrued clinical trial and research and development costs, available-for-sale marketable securities, the measurement of operating lease right-of-use assets and operating lease liabilities and the measurement of the fair value of stock-based awards. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. During the three and nine months endedSeptember 30, 2022 , there have been no material changes to our critical accounting policies and estimates from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Annual Report on Form 10-K filed with theSEC onMarch 23, 2022 . Other Company Information
Jumpstart Our Business Startups Act ("JOBS Act")
We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of reduced reporting requirements that are otherwise applicable to public companies. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards; and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. The JOBS Act also exempts us from having to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b). We will remain an "emerging growth company" until the earliest to occur of (1) the last day of the fiscal year in which our annual gross revenue is$1.235 billion or more, (2) the last day of 2026, (3) the date that we become a "large accelerated filer" as defined in 29 -------------------------------------------------------------------------------- Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds$700.0 million as of the last business day of our most recently completed second fiscal quarter and (4) the date on which we have issued more than$1.0 billion in non-convertible debt securities during any three-year period. We are also a "smaller reporting company" because the market value of our stock held by non-affiliates plus the aggregate amount of gross proceeds to us as a result of our initial public offering is less than$700 million as ofJune 30, 2021 , and our annual revenue was less than$100 million during the fiscal year endedDecember 31, 2021 . We may continue to be a smaller reporting company in any given year if either (i) the market value of our stock held by non-affiliates is less than$250 million as ofJune 30 in the most recently completed fiscal year or (ii) our annual revenue is less than$100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than$700 million as ofJune 30 in the most recently completed fiscal year. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited consolidated financial statements in our Annual Report on Form 10-K.
Recent Accounting Pronouncements
A description of recent accounting pronouncements that may potentially impact our financial positions, results of operations or cash flows is disclosed in Note 2 of our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
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