VENTYX BIOSCIENCES, INC. The following discussion and analysis of financial condition and results of operations should be read together with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis and other parts of this Annual Report on Form 10-K 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 I, Item 1A (Risk Factors) 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. 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. In
We were incorporated in
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
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
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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.
On
The registration statement on Form S-1 (Registration Statement) related to our
initial public offering (IPO) was declared effective on
ATM Sales Agreement
In
In
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
•
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
The fair value of the total cost of the Asset Acquisitions was
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the net assets acquired was expensed as IPR&D at the respective acquisition
date. For the year ended
On
On
On
In connection with the closing of the IPO, all 12.5 million outstanding shares of Series A Preferred Stock, 18.8 million outstanding shares of Series A-1 Preferred Stock and 4.0 million shares of Series B Preferred Stock converted into an aggregate of 35.3 million shares of common stock.
Impact of COVID-19 and Other Macroeconomic Factors
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.
In addition, economic uncertainty in various global markets, including the
Although, to date, our business has not been materially impacted by these global
economic and geopolitical conditions, it is impossible to predict the extent to
which our operations will be impacted in the short and long term, or the ways in
which such instability could impact our business and results of operations. The
extent and duration of these market disruptions, whether as a result of the
military conflict between
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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. Direct research and development costs include external research and development expenses incurred under agreements with contract research organizations, consultants and other vendors that conduct our preclinical and clinical activities, expenses related to manufacturing our product candidates for preclinical and clinical studies, laboratory supplies and license fees. Indirect research and development costs include personnel-related expenses, consisting of employee salaries, payroll taxes, bonuses, benefits and stock-based compensation charges for those individuals involved in research and development efforts. Costs incurred in our research and development efforts are expensed as incurred.
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 certain 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):
Year ended December 31,
2022 2021
VTX958 $ 29,328 $ 12,522
VTX002 23,352 11,222
VTX2735 9,364 4,384
Unallocated research and development expenses 25,694 30,353
Total research and development expenses
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:
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per patient trial costs;
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the number of trials required for approval;
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the number of sites included in the clinical trials;
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the countries in which the clinical trials are conducted;
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the length of time required to enroll eligible patients;
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the number of patients that participate in the clinical trials and the drop-out or discontinuation rates of such patients;
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?
the number of doses that patients receive;
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the cost of comparative agents used in clinical trials;
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potential additional safety monitoring or other studies requested by regulatory agencies;
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the duration of patient follow-up;
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the efficacy and safety profile of the product candidate; and
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establishing clinical manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully.
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 legal and patent costs, finance, human resources and other administrative activities. These expenses consist primarily of legal expenses, personnel costs, including stock-based compensation expenses, outside services, 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 and
Results of Operations
The amounts presented below for the year ended
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Comparison of Years Ended
The following table summarizes our consolidated results of operations for the
years ended
Year ended December 31,
2022 2021 Change
Operating expenses:
Research and development (includes related
party amounts of
$883 and $1,234 , respectively) $ 87,738 $ 58,481 $ 29,257
General and administrative (includes related
party amounts of
$0 and $124 , respectively) 25,398 8,666 16,732
Total operating expenses 113,136 67,147 45,989
Loss from operations (113,136 ) (67,147 ) (45,989 )
Other (income) expense:
Interest income (4,669 ) (78 ) (4,591 )
Other (income) expense (41 ) 51 (92 )
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 (4,710 ) 16,599 (21,309 )
Net loss (108,426 ) (83,746 ) (24,680 )
Unrealized loss on marketable securities (1,023 ) (69 ) (954 )
Foreign currency translation (42 ) 11 (53 )
Comprehensive loss $ (109,491 ) $ (83,804 ) $ (25,687 ) Research and Development Expense
Research and development expenses were
For the year ended
These increases between the years ended
General and Administrative Expense
General and administrative expenses were
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Other (Income) Expense
Other income was
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 year ended
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 in
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 Preferred Stock in
On
Until the conversion of the Series A tranche liability into Series A Preferred
Stock on
During the year ended
Liquidity and Capital Resources
Sources of Liquidity and Capital Resources
From inception through
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and marketable securities of
We have not entered into any off-balance sheet arrangements, as defined in the
rules and regulations of the
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 may 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. Our expenses may increase substantially if and as we:
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continue research and development, including preclinical and clinical development of our existing product candidates;
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seek regulatory approval for our product candidates;
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seek to discover and develop additional product candidates;
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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;
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seek to comply with regulatory standards and laws;
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maintain, leverage and expand our intellectual property portfolio;
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hire clinical, manufacturing, scientific and other personnel to support our product candidates;
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incur expenses related to development and future commercialization efforts;
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add personnel, financial and management information systems and personnel; and
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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 of
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.
Short-term liquidity needs of
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.
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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.
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;
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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing intellectual property claims, including litigation costs and the outcome of such litigation;
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the timing, receipt and amount of sales of, or royalties on, any approved products; and
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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 of
The following table sets forth a summary of the net cash flow activity for each
of the periods indicated:
Year ended December 31,
2022 2021
(in thousands)
Net cash provided by (used in):
Operating activities $ (98,771 ) $ (38,650 )
Investing activities $ (74,931 ) $ (214,365 )
Financing activities $ 167,772 $ 323,551
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Operating Activities
Net cash used in operating activities was
Net cash used in operating activities was
Investing Activities
Net cash used in investing activities was
Net cash used in investing activities was
Financing Activities
Net cash provided by financing activities was
Net cash provided by financing activities was
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
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While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies and estimates to be most critical to the preparation of our consolidated financial statements.
Acquisitions
We account for acquisitions of an asset or group of similar identifiable assets that do not meet the definition of a business as asset acquisitions. Intangible assets acquired in an asset acquisition for use in research and development activities which have no alternative future use are expensed as in-process research and development (IPR&D) on the acquisition date. In connection with the acquisitions of Oppilan and Zomagen as described above, we considered the accounting treatment for the acquisitions in accordance with GAAP. We apply judgment when concluding if our acquisitions meet the definition of a business in accordance with GAAP and substantially all of the fair value of the gross assets acquired are concentrated in a group of similar assets. We determined that substantially all of the fair value of the net assets acquired of Oppilan and Zomagen were concentrated in a group of similar assets. As a result, the transactions were accounted for as an asset acquisition and as such, no goodwill was recorded. The excess of the cost of the acquisitions over the net assets acquired was classified as IPR&D assets and expensed at the acquisition date as we determined there was no alternative future use.
Accrued Clinical Trial and Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each consolidated 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. We make estimates of our accrued expenses as of each consolidated 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 clinical trial and research and development expenses include the costs incurred for services performed by our vendors in connection with clinical trial and research and development activities for which we have not yet been invoiced.
We base our expenses related to clinical trial and research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct clinical trials and 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 clinical trial and research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in future clinical trial or 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 Expense
Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. We estimate the fair value of equity awards using the Black-Scholes option pricing model and recognize forfeitures as they occur. Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. See Note 11 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information concerning certain of the specific assumptions we used in applying the
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Black-Scholes option pricing model to determine the estimated fair value of our
stock options granted, if any, during the years ended
Common Stock Valuations
Prior to our IPO, there was no public market for our common stock and our board of directors determined the fair value of our common stock at the time of the grant of stock options and restricted stock awards by considering a number of objective and subjective factors, including:
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valuations of our common stock performed with the assistance of independent third-party valuation specialists;
?
our stage of development and business strategy, including the status of research and development efforts of our platforms, programs and product candidates, and the material risks related to our business and industry;
?
our results of operations and financial position, including our levels of available capital resources;
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the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;
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the lack of marketability of our common stock as a private company;
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the prices of our convertible preferred stock sold to investors in arm's length transactions and the rights, preferences, and privileges of our convertible preferred stock relative to those of our common stock;
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the likelihood of achieving a liquidity event for the holders of our common stock, such as an initial public offering or a sale of our company, given prevailing market conditions;
?
trends and developments in our industry; and
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external market conditions affecting the life sciences and biotechnology industry sectors.
Prior to our IPO, determinations of the fair value of our common stock includes
valuations prepared by an independent third-party valuation specialist using
methodologies, approaches and assumptions consistent with the
In
The assumptions underlying these valuations represented management's best estimates, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different.
Since our IPO in
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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
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
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 consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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