Tectonic Therapeutic Inc
For the period ended Jun 30, 2024. Filed Aug 14, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 14, 2024
TECX$20.64+6.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-09.
0000950170-24-057091
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-14.
0001193125-24-200609
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 93 previous paragraphs and 113 current paragraphs.
13 unchanged; 8 reworded; 92 added; 72 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 3 previous and 55 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (92)
Current report
Unless otherwise indicated or the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section to the Company, “we,” “us,” and “our” refer to the business and operations of Tectonic Operating Company, Inc. (previously Tectonic Therapeutic, Inc., referred to as “Legacy Tectonic”) and its consolidated subsidiaries prior to the Merger, and the business and operations of Tectonic Therapeutic, Inc. (previously AVROBIO, Inc., referred to as “AVROBIO”) and its consolidated subsidiaries following the Merger.
Current report
We are a clinical-stage biotechnology company focused on the discovery and development of therapeutic proteins and antibodies that modulate the activity of G-protein coupled receptors (“GPCRs”). The discovery of biologics that can modulate GPCRs has historically been quite challenging. We have developed a proprietary technology platform called GEODe™, with the aim of addressing these challenges to enable the discovery and development of GPCR-targeted biologic medicines that can modify the course of disease. We focus on areas of significant unmet medical need, often where therapeutic options are poor or nonexistent, as these are areas where new medicines have the potential to improve patient quality or extend duration of life.
Current report
GPCRs are receptor molecules found on the surface of cells that act as sensors for various extracellular stimuli to enable communication between cells and their environment. These molecules regulate diverse aspects of human biology including blood pressure, glucose metabolism, transmission between neurons and immune surveillance. There are over 800 human genes encoding GPCRs, underscoring the extent to which nature has relied on this molecular system for physiological control. The breadth of effects controlled by GPCRs is best illustrated by the fact that greater than 30% of all approved drugs address targets in this class. The vast majority of these drugs, however, are small molecules, and their targets have been largely confined to a few GPCR subfamilies, many of which have a natural ligand that is also a small molecule. We believe there are many situations where biologics could present advantages over small molecules for this class of targets. For instance, when targeting a single member of a highly related family of GPCRs, the selectivity profile achievable with an antibody may be preferable to that of a small molecule to optimize therapeutic efficacy and safety for the patient. Conversely, when multi-modal action is needed to achieve a desired physiological effect, proteins engineered for bispecific function allow for dual target engagement, unlike small molecules that are generally optimized for action on a single target. We are focused on developing biologics to address GPCRs with the goal of capturing such opportunities.
Current report
It has been historically difficult, however, to discover therapeutic proteins and antibodies that bind to and modulate the activity of GPCRs because of the low endogenous level of expression of many GPCRs, complex biochemistry and their inherent instability when removed from their natural environment, the cell membrane. With the goal of unlocking the potential for biologic therapeutics to broaden the clinical utility of GPCRs, we use our proprietary GEODe™ technology platform in an attempt to overcome the known challenges of GPCR-targeted drug discovery.
Current report
Our lead asset, TX45, is an Fc-relaxin fusion molecule that activates the RXFP1 receptor, the GPCR target of the hormone, relaxin. Relaxin is an endogenous protein, expressed at low levels in both men and women. In normal human physiology, relaxin is upregulated during pregnancy where it exerts vasodilative effects, reduces systemic and pulmonary vascular resistance and increases cardiac output to accommodate the increased demand for oxygen and nutrients from the developing fetus. Relaxin also exerts anti-fibrotic effects on pelvic ligaments to facilitate delivery of the baby. It has long been hypothesized that these unique dual aspects of relaxin biology may offer therapeutic potential in the treatment of cardiovascular disease.
Current report
Unfortunately, the development of a viable therapeutic has been challenging, primarily because of relaxin’s very short half-life. We believe TX45’s pharmacological profile, the direct result of applying our protein engineering capabilities, has the potential to overcome the limitations that have impeded previous attempts to develop relaxin as a therapeutic protein. To interrogate the therapeutic potential of relaxin, we have identified: Group 2 Pulmonary Hypertension (“PH”) in the setting of Heart Failure with Preserved Ejection Fraction (“HFpEF”), referred to as Group 2 PH / HFpEF hereafter, as the initial disease setting. We hypothesize that in this setting, treatment with relaxin could improve hemodynamics through effects on pulmonary and systemic vasodilation, cardiac diastolic remodeling and potential remodeling in both the pulmonary vessels and the heart which could translate into a clinically meaningful improvement in exercise capacity in these patients. Clinical trials are planned to confirm this hypothesis. Despite this belief, our business carries substantial risks, including our limited experience in therapeutic discovery and development, and the risk that the platform may never result in the regulatory approval of a product candidate.
Current report
Since our inception in 2019, our operations have focused on organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and conducting preclinical studies and clinical trials. We do not have any product candidates approved for sale and have not generated any revenue from product sales. We have funded our operations primarily with proceeds from sales of Series A-1, A-2, A-3, and A-4 convertible preferred stock (collectively, the “Preferred Stock”), proceeds received from the Merger (as defined below), proceeds from the issuance of common stock, proceeds from issuance of convertible promissory notes, which were all converted to convertible preferred stock in March 2021 and proceeds from issuance of Simple Agreements for Future Equity (“SAFEs”) in October and December 2023. From inception through June 30, 2024, we have received $288.6 million in capital contributions from sales of Preferred Stock, issuance of convertible promissory notes, proceeds from issuance of SAFEs, proceeds from the Merger and proceeds from the issuance of common stock. As of June 30, 2024, we had $185.1 million in cash and cash equivalents. Based on our current operating plan, we believe that our existing cash and cash equivalents should be sufficient to fund our operations for at least the next twelve months following the issuance of our interim condensed consolidated financial statements.
Current report
Since inception, we have incurred significant operating losses. Our net losses were $12.7 million and $10.5 million for the three months ended June 30, 2024 and 2023, respectively, and $27.9 million and $24.9 million for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, we had an accumulated deficit of $118.5 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:
Current report
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution. Further, we will continue to incur additional costs associated with operating as a public company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.
Current report
Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings, debt financings or other capital sources, which may include collaborations with other companies, marketing, distribution or licensing arrangements with third parties, or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, reduce or eliminate our product discovery and development programs or commercialization efforts.
Current report
Recent Developments
Current report
Merger with AVROBIO
Current report
On January 30, 2024, Legacy Tectonic entered into the Agreement and Plan of Merger and Reorganization (“Merger Agreement”) with AVROBIO and Alpine Merger Subsidiary, Inc. (“Merger Sub”). Pursuant to the Merger Agreement and the satisfaction of the conditions described in the Merger Agreement, on June 20, 2024, Merger Sub merged with and into Legacy Tectonic, with Legacy Tectonic surviving as a wholly owned subsidiary of AVROBIO (the “Merger”). The Merger Agreement and the transactions contemplated therein were approved by the members of the AVROBIO board of directors and Legacy Tectonic board of directors. Subject to the terms and conditions of the Merger Agreement, at the effective time, (a) each outstanding share of Legacy Tectonic common stock (including shares of Legacy Tectonic common stock issued upon conversion of its preferred stock and the shares issued pursuant to that certain Subscription Agreement dated January 30, 2024, entered into among Legacy Tectonic and the investors party thereto (the “Subscription Agreement”) and conversion of the SAFEs into the right to receive a number of shares of AVROBIO common stock equal to the exchange ratio; and (b) each then outstanding Legacy Tectonic stock option that was outstanding and unexercised immediately prior to the effective time was assumed by AVROBIO, subject to the exchange ratio.
Current report
Immediately after the Merger, AVROBIO securityholders as of immediately prior to the Merger owned approximately 24.8% of the outstanding shares of our capital stock on a diluted basis. Immediately after the Merger, Legacy Tectonic securityholders owned approximately 38.5% of the outstanding shares of our capital stock on a diluted basis. Investors participating in the Subscription Agreement and the SAFEs owned approximately 27.1% and 9.6% of the outstanding shares of our capital stock, respectively, on a diluted basis.
Current report
Legacy Tectonic stockholders received approximately 10,956,614 shares of AVROBIO common stock in connection with the Merger, including 11,448 shares of AVROBIO common stock subject to vesting terms, based on the number of shares of Legacy Tectonic common stock outstanding immediately prior to the Merger, including Legacy Tectonic restricted stock, the number of shares of Legacy Tectonic common stock issued to investors participating in the Subscription Agreement and SAFEs, and Legacy Tectonic convertible preferred stock outstanding immediately prior to the Merger, which was converted into shares of Legacy Tectonic common stock on aone-for-one basis immediately prior to the closing of the Merger.
Current report
Tectonic Subscription Agreement
Current report
Concurrently with the closing of the Merger, on June 20, 2024, certain investors completed the purchase of shares of Legacy Tectonic common stock pursuant to the Subscription Agreement at a price of approximately $12.40 per share for an aggregate purchase price of approximately $96.6 million. The shares of Legacy Tectonic common stock that were issued pursuant to the Subscription Agreement were converted into 4,163,606 shares of our common stock upon the closing of the Merger based on the exchange ratio, pursuant to the Merger Agreement.
Current report
Macroeconomic Considerations
Current report
Uncertainty in the global economy presents significant risks to our business. We are subject to continuing risks and uncertainties in connection with the current macroeconomic environment, including rising interest rates, recent bank failures and geopolitical factors, such as tensions involving China and the United States, the war between Russia and Ukraine and the conflict in the Middle East and the responses thereto. While we are closely monitoring the impact of the current macroeconomic conditions on all aspects of our business, including the impacts on our participants in our clinical trials, employees, suppliers, vendors and collaboration partners, the ultimate extent of the impact on our business remains highly uncertain and will depend on future developments and factors that continue to evolve. Most of these developments and factors are outside our control and could exist for an extended period of time. We will continue to evaluate the nature and extent of the potential impacts to our business, results of operations, liquidity and capital resources.
Current report
Revenue
Current report
We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the foreseeable future, if at all. If our development efforts for our product candidates are successful and result in regulatory approval, or in collaboration or license agreements with third parties, we may generate revenue in the future from product sales or payments from collaboration or license agreements that we may enter into with third parties, or any combination thereof. We cannot predict if, when or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.
Current report
Research and Development
Current report
Research and development expenses consist of costs incurred for our research activities, including our discovery efforts and the development of our programs and platform. These expenses include:
Current report
Our direct research and development expenses relate to the development of our lead product candidate, TX45, as well as the nonclinical safety pharmacology and toxicology testing of our product candidates. Our external services expenses consist of the external costs and fees paid to consultants and other research laboratories in connection with our preclinical development and clinical development activities.
Current report
Costs that are deployed across multiple of our programs, including the HHT program and programs aimed at the discovery and development of potential therapies for fibrotic disease, and our platform technology and are not directly attributable to any single program are not allocated to any single program and, as such, are not separately classified. These costs include multi-program employee costs, cross-program payments made under third-party licensing agreements, costs of laboratory supplies and facilities expenses, including rent, depreciation and other indirect costs, the costs of our discovery efforts and projects are included in unallocated employee-related expenses, laboratory supplies and other expenses.
Current report
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future. Our clinical development costs are expected to increase significantly as we commence clinical trials. Our future expenses may vary significantly each period based on factors such as:
Current report
General and Administrative
Current report
General and administrative expenses consist primarily of salaries and personnel-related costs, including share-based compensation, for our personnel in executive, legal, finance and accounting, human resources and other administrative functions. General and administrative expenses also include legal fees relating to patents and corporate matters, professional fees paid for accounting, auditing, consulting and tax service, insurance costs, travel expenses, office and information technology costs and facilities, depreciation and other expenses related to general and administrative activities, which include direct or allocated expenses for rent and maintenance of facilities and utilities.
Current report
We anticipate that our general and administrative expenses will increase in the future as we expect to incur significantly increased accounting, audit, legal, regulatory, compliance, director and officer insurance, and investor and public relations expenses associated with operating as a public company. We also expect to incur additional intellectual property-related expenses as we file patent applications to protect innovations arising from our research and development activities.
Current report
Loss on Issuance of SAFE Liabilities and Change in Fair Value of SAFE Liabilities
Current report
In October and December 2023, Legacy Tectonic issued SAFEs for proceeds of $34.1 million. The SAFEs were recorded as liabilities in the consolidated balance sheet at their fair value on the issuance dates. Until redemption, the SAFEs were measured at a fair value on a recurring basis, with subsequent changes in fair value recorded in other income and expenses on the consolidated statement of operations and comprehensive loss. We recorded a loss of $3.6 million resulting from the remeasurement of the SAFEs to fair value from March 31, 2024 to June 20, 2024.
Current report
Immediately prior to the closing of the Merger, the principal balance of the SAFEs was automatically redeemed into 2,752,216 shares of Legacy Tectonic’s common stock at the conversion price of approximately $12.40 per share. At the closing of the Merger, shares of Legacy Tectonic common stock issued pursuant to the redemption of the SAFEs were converted into 1,470,839 shares of our common stock based on the exchange ratio, pursuant to the Merger Agreement.
Current report
Interest income primarily consists of interest earned on our invested cash balances, which consist of deposit accounts and a sweep account.
Current report
Interest expense primarily consists of interest expense on finance lease liabilities.
Current report
Other expense primarily consists of the difference between transactional currency and functional currency.
Current report
Income Taxes
Current report
Since our inception, we have not recorded any income tax benefits for the net losses we have incurred or for the research and development tax credits earned in each year by our operations in the United States, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credit carryforwards will not be realized.
Current report
Components of Results of Operations
Current report
The following table summarizes our results of operations for the three months ended June 30, 2024 and 2023:
Current report
Research and development expenses were $7.1 million for the three months ended June 30, 2024, as compared to $8.8 million for the three months ended June 30, 2023. The decrease of $1.7 million resulted from a reduction of $1.1 million in direct research and development costs from our CMO as a result of fewer batches of clinical trial supply produced during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 due to the completed production of drug substance for the TX45 program in 2023 for planned Phase 1 and Phase 2 studies and a reduction of $1.0 million in preclinical Contract Research Organization (“CRO”) research costs, partially offset by an increase of $0.3 million in clinical trial CRO costs. The decrease of $0.1 million in personnel related costs was primarily due to a reduction in salary and bonus expenses subsequent to the reduction in force that occurred during the three months ended March 31, 2024. The increase of $0.6 million in external services was primarily due to an increase in consulting and professional services to support the ongoing development activities. The decrease of $0.3 million in facility, supplies and other expenses was primarily due to the receipt of reimbursements during the three months ended June 30, 2024 for leasehold improvements made during the year ended December 31, 2023.
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Removed paragraphs (72)
Previous report
We are a gene therapy company with a purpose to free people from a lifetime of genetic disease. Our company has been focused on developing potentially curative HSC gene therapies to treat patients with rare diseases following a single dose treatment regimen. The gene therapies we had been developing employ HSCs that are harvested from the patient and then modified with a lentiviral vector to insert the equivalent of a functional copy of the gene that is mutated in the target disease. We believe that our approach, which is designed to transform stem cells from patients into therapeutic products, has the potential to provide curative benefit for a range of diseases. Our development focus has been on a group of rare genetic diseases referred to as lysosomal disorders, some of which today are primarily managed with enzyme replacement therapies, or ERTs.
Previous report
On July 12, 2023, following a comprehensive review of our business by our Board of Directors, or the AVROBIO Board, we announced our intention to halt development of our programs and explore strategic alternatives focused on maximizing stockholder value, which may include, but are not limited to, an acquisition, a merger, business combination or divestiture.
Previous report
Subsequently, in connection with ongoing cost reduction efforts related to our ongoing review of potential strategic alternatives, we have terminated all Company-sponsored treatment-related and Company-sponsored long-term follow-up clinical studies relating to our AVR-RD-02, or Gaucher disease type 1, program, and Company-sponsored long term follow-up studies relating to our AVR-RD-01, or Fabry disease, program (which we previously deprioritized). In addition, in September 2023, we terminated our agreements with the University of Manchester for the license and development of a gene therapy for MPSII, or Hunter syndrome, and discontinued our AVR-RD-05, or Hunter syndrome gene therapy program. Previously, in June 2023, we sold our cystinosis gene therapy program to Novartis Pharma AG and Novartis Pharmaceuticals Corporation, or collectively Novartis. As of the date of the filing of this Quarterly Report, we currently have a total of three gene therapy product candidates, none of which are currently in active clinical development, including AVR-RD-02 for the treatment of Gaucher disease type 1 and type 3, AVR-RD-03 for the treatment of Pompe disease and AVR-RD-01 for the treatment of Fabry disease.
Previous report
After a comprehensive review of strategic alternatives, including identifying and reviewing potential candidates for a strategic transaction, on January 30, 2024, we entered into an Agreement and Plan of Merger and Reorganization, or the Merger Agreement, with Alpine Merger Subsidiary, Inc., our direct, wholly owned subsidiary, or Merger Sub, and Tectonic pursuant to which Merger Sub will merge with and into Tectonic, with Tectonic surviving as our wholly-owned subsidiary, such transaction referred to hereinafter as the merger. The merger was unanimously approved by the AVROBIO Board, and the AVROBIO Board resolved to recommend approval of the Merger Agreement to AVROBIO stockholders. In connection with the merger, certain investors have agreed to purchase shares of Tectonic common stock at a purchase price of $12.39908 per share, subject to and immediately prior to the closing of the merger, pursuant to the terms of a subscription agreement entered into by such investors and Tectonic, or the Subscription Agreement, and certain investors have consummated or will consummate certain additional purchases of Tectonic common stock pursuant to the conversion of certain simple agreements for future equity, or SAFEs, entered into by such investors and Tectonic, or the Tectonic SAFEs, for an aggregate purchase price among the transactions contemplated by the Subscription Agreement and such Tectonic SAFEs of approximately $130.7 million, such transactions collectively, the private financings. At the effective time of the merger, each share of then-outstanding Tectonic common stock will be converted into the right to receive a number of shares of AVROBIO common stock, equal to the exchange ratio as set forth in the Merger Agreement, or the exchange ratio. Concurrently with the closing of the merger, and assuming approval by AVROBIO stockholders, we anticipate effecting a reverse stock split, or the reverse stock split, at a ratio in the range between 1:3 to 1:30, inclusive. Additionally, at or prior to the effective time of the merger, AVROBIO and a rights agent will enter into a Contingent Value Rights Agreement, or CVR Agreement, pursuant to which AVROBIO stockholders of record as of immediately prior to such effective time (including holders of AVROBIO common stock issued upon settlement of the AVROBIO restricted stock units, or RSUs) will receive one non-transferable contingent value right, or CVR for each outstanding share of AVROBIO common stock held by such stockholder on such date.
Previous report
The closing of the merger is subject to approval by AVROBIO stockholders and Tectonic stockholders, as well as other customary closing conditions including Nasdaq’s approval of the listing of the shares of the AVROBIO common stock to be issued in connection with the proposed merger. The closings of the private financings are conditioned upon the satisfaction or waiver of the conditions to the closing of the merger as well as certain other conditions. The closing of the merger is conditioned upon the satisfaction or waiver of the receipt of cash proceeds not less than $114.5 million in connection with the consummation of the transactions contemplated by the private financings. If the transactions are completed, the business of Tectonic will continue as the business of the combined company.
Previous report
AVROBIO’s future operations are highly dependent on the success of the merger and there can be no assurances that the merger will be successfully consummated. There can be no assurance that the strategic review process or any transaction relating to a specific asset, including the merger and any AVROBIO asset sale (as defined below), will result in AVROBIO pursuing such a transaction(s), or that any transaction(s), if pursued, will be completed on terms favorable to AVROBIO and its stockholders in the existing AVROBIO entity or any possible entity that results from a combination of entities. If the strategic review process is unsuccessful, and if the merger is not consummated, the AVROBIO Board may decide to pursue a dissolution and liquidation of our company.
Previous report
Since our inception in 2015, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights, conducting discovery, research and development activities for our programs and planning for potential commercialization. To date, we have not generated any product revenue and have financed our operations primarily through the private placement of our securities and through public offerings of our common stock. Through March 31, 2024, we had received gross cash proceeds of $87.5 million from sales of our preferred stock; gross cash proceeds, before deducting underwriting discounts and commissions and expenses, of $428.1 million from sales of our common stock through our initial public offering, or IPO, and follow-on offerings; gross cash proceeds, before deducting commissions and expenses, of $23.5 million from sales of our common stock through our prior “at-the-market” facility, or our prior ATM facility; $15.0 million drawn in term loans under the Term Loan Agreement (as defined below), which was repaid in full and terminated on June 9, 2023; and gross proceeds, before deducting transaction costs, of $87.5 million from the sale of the Company’s cystinosis gene therapy program.
Previous report
Additionally, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates and programs. Our net loss was $6.8 million and $25.0 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, we had an accumulated deficit of $484.1 million. Should we resume development of our product candidates, we would expect to continue to incur significant expenses for at least the next several years as we advance our product candidates from preclinical development and clinical trials and seek regulatory approval of our product candidates. Should we resume development of our product candidates, we would expect to expend significant resources to advance these candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.
Previous report
Should we resume development of our product candidates, we would need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we would expect to finance our operations with proceeds from outside sources, with a majority of such proceeds expected to be derived from sales of equity. We may also pursue additional funding from outside sources, including borrowing arrangements and entry into potential future collaboration agreements for one or more of our programs. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all.
Previous report
Components of Our Consolidated Results of Operations
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Operating Expenses
Previous report
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses consist of costs incurred in connection with the development of our product candidates, including:
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license maintenance fees and milestone fees incurred in connection with various license agreements;
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expenses incurred under agreements with contract research organizations, or CROs, contract manufacturing organizations, or CMOs, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
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manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials, including manufacturing validation batches;
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costs of purchasing lab supplies and non‑capital equipment used in our preclinical activities;
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employee-related expenses, including salaries, related benefits, travel and stock-based compensation expense for employees engaged in research and development functions;
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costs related to compliance with regulatory requirements; and
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allocated facilities costs, depreciation and other expenses, which include rent and utilities.
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Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs, and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred under license agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to oversee the research and discovery as well as for managing our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and, therefore, we do not track their costs by program.
Previous report
The table below summarizes our research and development expenses related to our product candidates (in thousands):
Previous report
Research and development activities will be central to our business model, should we resume development of our product candidates. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, should we resume development of our product candidates, we expect that our research and development expenses will increase substantially over the next several years, particularly as we increase personnel costs, including stock-based compensation, contractor costs and facilities costs, as we continue to advance the development of our product candidates. Should we resume development of our product candidates, we also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license agreements to acquire the rights to our product candidates. See “Risk Factors—Risks related to our business, financial position and need for additional capital—We have incurred net losses since inception. We expect to incur net losses for the foreseeable future and may never achieve or maintain profitability.”
Previous report
The successful development and commercialization of our product candidates is highly uncertain. At this time, should we resume development of our product candidates, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
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the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development activities;
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establishing an appropriate safety profile with IND-enabling studies;
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successful patient enrollment in, and the design, initiation and completion of, clinical trials;
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the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
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establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
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development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;
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obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
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significant and changing government regulation;
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launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;
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maintaining a continued acceptable safety profile of the product candidates following approval; and
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the risks disclosed in the section entitled “Risk Factors” of this Quarterly Report on Form 10-Q.
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Should we resume development of our product candidates, we may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the U.S. Food and Drug Administration, or FDA, or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate. Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.
Previous report
General and administrative expenses consist primarily of salaries, related benefits, travel and stock-based compensation expense for personnel in executive, finance and administrative functions. General and administrative expenses also include professional fees for legal, consulting, accounting and audit services.
Previous report
Should we resume development of our product candidates, we would anticipate that our general and administrative expenses would increase as we increase our headcount to support research activities and development of our product candidates. We also anticipate that we would incur increased accounting, audit, legal, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company. We anticipate the additional costs for these services would substantially increase our general and administrative expenses. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other commercialization-related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidate.
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Other (Expense) Income, Net
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Other (expense) income, net primarily consists of interest income earned on our cash and cash equivalents, changes in foreign currency, and interest expense related to the Term Loan Agreement.
Previous report
Consolidated Results of Operations
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Reworded paragraphs (8)
Previous wording
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes for the year ended December 31, 2023 included in our Annual Report on Form 10-K for the year ended December 31, 2023. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and assumptions. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those set forth in our Annual Report on Form 10-K for the year ended December 31, 2023, as supplemented by our subsequent filings with the SEC.
Current wording
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report. In addition to historical information, the following discussion contains forward-looking statements. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed in the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in this Quarterly Report.
Previous wording
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability, should we resume development of our product candidates. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
Current wording
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
Previous wording
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers.
Current wording
We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on our evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense when the goods have been delivered or the services have been performed, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments under license agreements are expensed upon receipt of the license, and annual maintenance fees under license agreements are expensed in the period in which they are incurred. Milestone payments under license or collaboration agreements are accrued, with a corresponding expense being recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.
Previous wording
During the three months ended March 31, 2023, operating activities used $20.3 million of cash, cash equivalents and restricted cash, resulting from our net loss of $25.0 million and cash provided by changes in our operating assets and liabilities of $1.1 million and partially offset by non-cash charges of $3.5 million. The net changes in our operating assets and liabilities were primarily due to a $2.2 million decrease in prepaids and other current assets, offset by a $0.7 million decrease in accrued expenses and other current liabilities and a $0.6 million decrease in current and non-current operating lease liabilities. The non-cash charges primarily included $2.5 million of stock-based compensation expense, $0.6 million in non-cash lease expense, and $0.3 million of depreciation and amortization expense.
Current wording
During the six months ended June 30, 2023, operating activities used $20.5 million of cash, primarily resulting from a net loss of $24.9 million, offset bynon-cash charges of $1.8 million and changes in our operating assets and liabilities of $2.5 million. Non-cash charges primarily consisted of $0.7 million in depreciation and amortization expense, $0.6 million in stock-based compensation expense, and $0.5 million innon-cash lease expense. Net cash provided by changes in our operating assets and liabilities consisted primarily of a $1.6 million increase in accrued expenses and other current liabilities and a $1.7 million increase in accounts payable, partially offset by a $0.5 million increase in prepaid expenses and other current assets and a $0.3 million decrease in operating lease liabilities. The increase in accrued expenses and other current liabilities and increase in accounts payable were primarily due to the timing of vendor and research partner payments and invoicing. The increase in prepaid expenses and other current assets is due to prepayments of material costs and insurance and license fees. The decrease in operating lease liabilities was primarily due to the lease payments made during the six months ended June 30, 2023.
Previous wording
Net cash provided by financing activities was less than $0.1 million for the three months ended March 31, 2024 compared to cash provided by financing activities of $0.1 million for the three months ended March 31, 2023.
Current wording
During the six months ended June 30, 2024 and 2023, net cash provided by and used in financing activities was $179.1 million and $0.3 million, respectively. Net cash provided by financing activities during the six months ended June 30, 2024 was primarily due to $94.6 in net proceeds after offering costs from the sale of shares pursuant to the Subscription Agreement, $85.2 million in gross proceeds before net cash deductions from the Merger and $0.6 million in proceeds from the exercise of stock options, partially offset by $1.2 million of payments of Merger transaction costs and $0.2 million in payments on our financing lease liability. Net cash used in financing activities during the six months ended June 30, 2023 was primarily due to $0.3 million of repayment of finance lease obligations.
Previous wording
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaboration agreements, government and other third-party funding, strategic alliances, licensing arrangements or marketing and distribution arrangements. Debt financing and preferred equity 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 government and other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, 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 products or product candidates that we would otherwise prefer to develop and market ourselves.
Current wording
If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to 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 product candidates that we would otherwise prefer to develop and market ourselves.
Previous wording
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are 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. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. During the three months ended March 31, 2024, there were no material changes to our critical accounting policies. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which was filed with the SEC on March 23, 2023, and the notes to the consolidated financial statements included in Item 1, “Condensed Consolidated Unaudited Financial Statements,” of this Quarterly Report on Form 10-Q.
Current wording
Our management’s discussion and analysis of our financial condition and results of operations is based on our interim condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these interim condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the interim condensed consolidated financial statements and the reported amounts of expenses during the reporting periods. We base our estimates on historical experience, known trends and events, and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities recorded expenses that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates.
Previous wording
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2,“Summary of Significant Accounting Policies” to our consolidated financial statements appearing at the beginning of this Quarterly Report on Form 10-Q.
Current wording
A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our interim condensed consolidated financial statements included elsewhere in this Quarterly Report.