CYTOMX THERAPEUTICS, INC. The following discussion should be read in conjunction with the attached financial statements and notes thereto. This Annual Report on Form 10-K, including the following sections, contains forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. For a detailed discussion of these risks and uncertainties, see the "Risk Factors" section in Item 1A of this Annual Report on Form 10-K. We caution the reader not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date of this Form 10-K. We undertake no obligation to update forward-looking statements, which reflect events or circumstances occurring after the date of this Form 10-K. For a discussion related to the results of operations for 2021 compared to 2020, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Comparison of Years EndedDecember 31, 2021 and 2020" in Amendment No.1 to our Annual Report on Form 10-K/A for the year endedDecember 31, 2021 filed with theSEC onMarch 27, 2023 .
Overview
We are a clinical-stage, oncology-focused biopharmaceutical company focused on developing novel conditionally activated, biologics localized to the tumor microenvironment. We aim to build a commercial enterprise to maximize our impact on the treatment of cancer. By pioneering a novel class of localized biologic drug candidates, powered by our Probody® therapeutic technology platform, we lead the field of conditionally activated oncology therapeutics and have established biologics localization as a strategic area of research and development. Our goal is to transcend the limits of current cancer treatments by successfully leveraging therapeutic targets and strategies that were once thought to be inaccessible. Our proprietary and versatile Probody technology platform is designed to enable conditional activation of biologic therapeutic candidates within the tumor microenvironment, while minimizing drug activity in healthy tissues and circulation. Our industry-leading platform is built on a strong foundation of tumor biology expertise, including deep knowledge of tumor-associated enzymes known as proteases. Proteases are tightly controlled in normal tissues but often poorly regulated and active in tumor microenvironments where they play important roles in cancer cell migration, invasion and metastasis. Leveraging our deep scientific knowledge, we conceived of and constructed our Probody therapeutic platform which allows us to genetically engineer biologic therapeutic candidates to contain protease-cleavable masks. Our masking strategy is designed to reduce binding of biologic therapeutics to their targets until the mask is removed by proteases in the tumor microenvironment, providing more selective targeting of the tumor. We believe this innovative approach has the potential to improve cancer treatment in three ways:
1.
Allowing the pursuit of high potential targets that were previously considered "undruggable" due to their ubiquitous expression on normal tissues;
2.
Enhancing a potential product's "therapeutic window," the balance between tolerability and anti-tumor activity; and
3.
Enabling the development of new combination therapies, including immunotherapies, by improving tolerability.
We are employing our leading, conditional activation platform technology to
address some of the biggest challenges today in oncology biologics research and
development. These include the validation of potential new targets for
antibody-drug conjugates ("ADCs"), opening solid tumor opportunities for T-cell
engaging bispecific antibodies ("TCBs"), and increasing the therapeutic window
for immune modulators such as cytokines and checkpoint inhibitors ("CPIs").
Additionally, we have recently initiated a research collaboration with our
Probody platform beyond cancer into other therapeutic areas.
We have utilized our multi-modality Probody platform to build a promising, broad
pipeline of potential first-in-class and best-in-class therapeutics that
includes four molecules in clinical testing including: CX-2029, a Probody ADC
targeting CD71; CX-904, a conditionally activated TCB, targeting the epidermal
growth factor receptor ("EGFR") on tumor cells and the CD3 receptor on T cells
and BMS-986288, a Probody version of a non-fucosylated anti-CTLA-4 antibody.
We also have a broad pre-clinical pipeline across our collaborations and
internally, including two wholly-owned next-generation molecules in
investigational new drug application ("IND") enabling studies. For our next
generation molecules, we have selected the previously validated anti-cancer
targets, the epithelial cell adhesion molecule (EpCAM) and interferon alpha-2b
(IFNa2b), that have been limited in their potential due to systemic toxicities.
In the molecular design of CX-2051, an ADC, and CX-801, a masked cytokine, we
have incorporated our platform expertise and clinical learnings to optimize
predicted therapeutic index in order to potentially broaden the clinical utility
of these promising targets through tumor localized conditional activation.
CX-2029, which was partnered with Abbvie until March 2023 , is a conditionally
activated ADC directed toward the previously undruggable target CD71. Having
demonstrated favorable tolerability and encouraging anti-tumor activity in Phase
1 studies, CX-2029 entered into a four-cohort Phase 2 expansion study initially
designed to enroll twenty-five efficacy evaluable patients per cohort
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in the following malignancies: squamous non-small cell lung cancer ("sqNSCLC"),
head and neck squamous cell carcinoma ("HNSCC"), esophageal and
gastro-esophageal junction ("E/GEJ") cancers, and diffuse large B-cell lymphoma
("DLBCL"). The DLBCL cohort was later deprioritized due to strategic and
competitive reasons and did not enroll any patients. In January 2023 , a data
update for the Phase 2 expansion was disclosed which included data across all
fully enrolled cohorts. The study results reflected an August 5, 2022 full data
cut-off and an October 4, 2022 data snapshot for efficacy. The data demonstrated
encouraging clinical activity in unselected, heavily pre-treated patients with
tumors of squamous histology including a 21% objective response rate (ORR) in
squamous esophageal cancer and a 10% ORR in squamous non-small cell lung cancer
(sqNSCLC). The adverse event (AE) profile was consistent with Phase 1
observations with anemia (82.6%) being the most common treatment related adverse
event (TRAE). Anemia was managed with transfusions, dose delays, and dose
reductions. The treatment discontinuation rate due to AEs was 3.3% as a result
of anemia. In March 2023 , CytomX announced that it will evaluate the potential
next steps for CX-2029 following the decision from its collaboration partner,
AbbVie, Inc., to not advance CX-2029 into additional clinical studies. As a
result of AbbVie's decision, the 2016 CD71 License and Collaboration Agreement
has been terminated and CytomX has an exclusive option to re-acquire full rights
to CX-2029.
Praluzatamab ravtansine is our conditionally activated ADC directed toward CD166
and is being evaluated in a three-arm study in patients with advanced human
epidermal growth factor receptor 2 ("HER2")-non-amplified breast cancer. Arms A
and B examined praluzatamab ravtansine monotherapy in patients with hormone
receptor-positive/HER2-non-amplified breast cancer and triple-negative breast
cancer ("TNBC"), respectively. Arm C studied praluzatamab ravtansine in
combination with pacmilimab (CX-072), our wholly-owned PD-L1 inhibitor, in
patients with TNBC. In July 2022 , Phase 2 topline results were disclosed for
Arms A and B as of the data cut-off date of May 2022 . Arm A met the primary
endpoint of confirmed objective response rate greater than 10% by central
radiology review. The safety profile in Arm A was generally consistent with
Phase 1 observations and the DM4 payload, with high-grade toxicities or
toxicities resulting in dose modification predominantly ocular or neuropathic in
nature. Specifically, 30% of patients in Arm A discontinued treatment for an
adverse event. Grade 3 or greater ocular and neuropathic toxicities were 15% and
10%, respectively. All patients in Arm A were treated at the initial starting
dose of 7 mg/kg administered every three weeks. Arm B did not pass the
protocol-defined futility boundary in patients with advanced TNBC and enrollment
into Arms B and C was discontinued. Arm B evaluated patients at starting doses
of 7 mg/kg or 6 mg/kg. The toxicity profile of the 7 mg/kg starting dose in Arm
B was consistent with the 7 mg/kg starting dose in Arm A. In the 6 mg/kg cohort
in Arm B, no patients discontinued treatment for an adverse event as of the data
cut-off date and Grade 3 or greater ocular or neuropathic related events were 3%
and 0%, respectively. Based on these results, the Company deprioritized further
investment and seek a partnership to further develop praluzatamab ravtansine.
Our partner, Bristol Myers Squibb, is conducting a randomized Phase 2 study
evaluating BMS-986249, a Probody version of ipilimumab, the anti-CTLA-4
antibody, in combination with nivolumab, the anti-PD-1 antibody, in patients
with metastatic melanoma. In addition, BMS-986249 is being studied in
combination with nivolumab in three additional indications: advanced
hepatocellular carcinoma, metastatic castration-resistant prostate cancer and
advanced TNBC. Bristol Myers Squibb also continues to evaluate BMS-986288, a
Probody version of non-fucosylated ipilimumab, as monotherapy or in combination
with nivolumab in a Phase 1 / 2 clinical study. In February 2023 , BMS
prioritized BMS-986288 as its lead next-generation anti-CTLA-4 program over two
other anti-CTLA-4 programs including BMS-986249.
Reinforcing our leadership in the field of conditional activation, we recently
advanced our first T-cell engaging bispecific antibody (TCB) into the clinic.
CX-904, partnered with Amgen, is a conditionally activated TCB against EGFR and
CD3. In preclinical studies, CytomX's Probody EGFRxCD3 bispecific therapeutics
demonstrated anti-tumor activity and better tolerability when compared to
EGFRxCD3 bispecifics without Probody masking. In May 2022 , the first patient was
dosed in a Phase 1 study evaluating CX-904 as a treatment for patients with
advanced solid tumors. Patient enrollment in the Phase 1 dose escalation portion
of the study continues to progress. We reported in January 2023 that the initial
single patient cohort phase of the study was complete and that the "3+3" patient
cohort phase had been initiated.
Our pipeline also includes CX-2051, a wholly-owned conditionally activated ADC
paired with a next-generation camptothecin payload and directed toward the
epithelial cellular adhesion molecule (EpCAM). CX-2051 has been tailored to
optimize the therapeutic index for the systemic treatment of EpCAM-expressing
epithelial cancers where previous industry efforts targeting EpCAM have not been
successful due to dose-limiting toxicities. CX-2051 has demonstrated a wide
predicted therapeutic index and strong preclinical activity and tolerability in
multiple preclinical models, including colorectal cancer. We plan to submit an
IND for this program in the second half of 2023.
Another wholly-owned emerging product candidate is CX-801, an interferon ("IFN")
alpha-2b Probody. IFNa2b provides a potentially superior approach to activating
anti-tumor immune responses than other cytokines. CX-801 is a dually masked,
conditionally activated version of IFNa2b that has the potential to become a
unique centerpiece of combination therapy for a wide range of tumor types. An
IND submission for CX-801 is planned in the second half of 2023.
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--------------------------------------------------------------------------------We are also continuously engaged in drug discovery efforts towards the generation of new clinical candidates across multiple modalities for the treatment of cancer, including additional ADCs, Cytokines, TCBs, and most recently, mRNAs reflecting the versatility of our Probody platform. We currently have more than 15 active drug discovery and/or development programs.
We do not have any products approved for sale, and we continue to incur significant research and development and general administrative expenses related to our operations. We are not profitable and have incurred losses in each year since our founding in 2008. Our net loss was$99.3 million and$115.9 million for 2022 and 2021, respectively. As ofDecember 31, 2022 and 2021, we had an accumulated deficit of$722.9 million and$623.6 million , respectively. We expect to continue to incur significant losses for the foreseeable future. Global health authorities, including the FDA, regulate many aspects of a product candidate's life cycle, including research and development and preclinical and clinical testing. We will need to commit significant time, resources, and funding to develop our wholly-owned and partnered product candidates in clinical trials. We are unable to provide the nature, timing, and estimated costs of the efforts necessary to complete the development of our product candidates because, among other reasons, of regulatory uncertainty, manufacturing limitations, and the pace of enrollment of our clinical trials, which is a function of many factors, including the availability and proximity of patients with the relevant condition. We currently have no manufacturing capabilities and do not intend to establish any such capabilities in the near term. As such, we are dependent on third parties to supply our product candidates according to our specifications, in sufficient quantities, on time, in compliance with appropriate regulatory standards and at competitive prices.
Restructuring
OnJuly 13, 2022 , we announced a restructuring plan to prioritize our resources on our emerging pre-clinical and early clinical pipeline as well as our existing collaboration partnerships. The restructuring plan resulted in a reduction to our workforce of approximately 40%. The majority of these changes occurred in our late-stage development teams. During 2022, we recorded aggregate restructuring charges of approximately$7.7 million , primarily related to severance and benefits. The restructuring is substantially complete at the end of 2022. Impact of COVID-19 The COVID-19 pandemic continues to impact our ongoing operations, including clinical trials. Any preventative or protective actions that we, our collaboration partners or others have taken, or may take, in respect of the virus may result in further disruption for our clinical trials, including clinical trials for CX-2029, CX-904, and praluzatamab ravtansine, manufacturing, research, financial reporting capabilities and operations generally and could potentially impact our patients, partners, employees and third parties. Any resulting financial impact cannot be reasonably estimated at this time but may materially affect the business and our financial condition and results of operations. The extent to which the COVID-19 pandemic continues to impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions necessary to contain the virus or treat its impact, among others. Currently, it is not possible to predict how long the pandemic will last or the extent or degree of its ongoing impact on economic activity, and our business. We do not know the full extent of any impact or delay on our business or our operations, including clinical trial activity, however, we will continue to monitor the COVID-19 situation closely and operate in accordance with all relevant health and safety guidelines as they evolve in response to changing public health conditions.
Components of Results of Operations
Revenue
Our revenue to date has been primarily derived from non-refundable license
payments, milestone payments and reimbursements for research and development
expenses under our research, collaboration, and license agreements. We recognize
revenue from upfront payments over the term of our estimated period of
performance under the agreement using an input method for the entire performance
obligation. In addition to receiving upfront payments, we are entitled to
variable payments related to research and development services provided and may
be entitled to milestone and other contingent payments upon achieving predefined
objectives. Revenue from variable payments related to research and development
or milestones and other contingent payments, when it is probable that there will
not be a significant revenue reversal, are also recognized over the performance
period based on a similar method.
For the foreseeable future, we do not expect to generate any revenue from the
sale of products unless and until such time as our product candidates have
advanced through clinical development and obtained regulatory approval. We
expect that any revenue we generate in the foreseeable future will fluctuate
from year to year as a result of the timing and amount of milestones and other
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payments from our collaboration agreements with AbbVie, Amgen, Astellas, Bristol
Myers Squibb, Regeneron, Moderna and any other collaboration partners, and as a
result of the fluctuations in the research and development expenses we incur in
the performance of assigned activities under these agreements.
AbbVie, one of our previous collaboration partners, entered into a license
agreement with Seagen Inc. ("SGEN") to license certain intellectual property
rights. As part of the collaboration agreement with AbbVie, we received a
sublicense to these intellectual property rights and therefore paid SGEN
sublicense fees. These sublicense fees were treated as reductions to the
transaction price and combined with the performance obligation to which they
relate. Milestone payments, when considered probable of being reached and when a
significant revenue reversal would not be probable of occurring, are also
recorded net of the associated sublicense fees and included in the transaction
price.
Research and Development Expenses
Our research and development expenses consist primarily of costs incurred to
conduct research, such as the discovery and development of our product
candidates, clinical development, including activities with third parties, such
as contract research organizations ("CRO") and contract development and
manufacturing organizations ("CMO"), and the manufacture of drug products used
in clinical trials, as well as the development of product candidates pursuant to
our research, collaboration and license agreements. Research and development
expenses include personnel costs, including stock-based compensation expense,
contractor services, laboratory materials and supplies, depreciation and
maintenance of research equipment, and an allocation of related facilities
costs. We expense research and development costs as incurred.
We expect our research and development expenses could vary substantially in the
future as we prioritize our pipeline opportunities, advance our product
candidates through clinical trials, initiate additional clinical trials, and
pursue regulatory approval of our product candidates. The process of conducting
the necessary clinical research to obtain regulatory approval is costly and
time-consuming. The actual probability of success for our product candidates may
be affected by a variety of factors including: the safety and efficacy of our
product candidates, early clinical data, investment in our clinical program, the
ability of collaborators to successfully develop our licensed product
candidates, competition, manufacturing capability and commercial viability. We
may never succeed in achieving regulatory approval for any of our product
candidates. As a result of the uncertainties discussed above, we are unable to
determine the duration and completion costs of our research and development
projects or when and to what extent we will generate revenue from the
commercialization and sale of our product candidates.
General and Administrative Expenses
General and administrative expenses include personnel costs, expenses for outside professional services and other allocated expenses. Personnel costs consist of salaries, bonuses, benefits and stock-based compensation. Outside professional services consist of accounting and audit services, legal and other consulting fees. Allocated expenses primarily consist of rent expense related to our office and information technology related costs.
Interest Income
Interest income primarily consists of interest income from our cash equivalents and investments, and accretion of discounts or amortization of premiums on our investments. Other Income (Expense), Net
Other income (expense), net consists primarily of gains and losses resulting from changes to currency exchange rates.
Income Taxes
Income taxes are recorded in accordance with ASC 740, Accounting for Income
Taxes, or ASC 740, which provides for deferred taxes using an asset and
liability approach. We recognize deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in our
financial statements or tax returns. We determine our deferred tax assets and
liabilities based on differences between the financial reporting and tax bases
of assets and liabilities, which are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
Valuation allowances are provided, if based upon the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized.
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We also account for uncertain tax positions in accordance with the provisions of
ASC 740. When uncertain tax positions exist, we recognize the tax benefit of tax
positions to the extent that the benefit will more likely than not be realized.
The determination as to whether the tax benefit will more likely than not be
realized is based upon the technical merits of the tax position as well as
consideration of the available facts and circumstances.
On March 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (CARES
Act) was enacted in response to the COVID-19 pandemic. The tax relief measures
under the CARES Act for businesses include a five-year net operating loss
carryback, suspension of annual deduction limitation of 80% of taxable income
from net operating losses generated in a tax year beginning after December 31,
2017 , changes in the deductibility of interest, acceleration of alternative
minimum tax credit refunds, payroll tax relief, and a technical correction to
allow accelerated deductions for qualified improvement property. We record the
effect of an enacted change in a tax law in the period that includes the
enactment date in accordance with ASC 740.
On August 16, 2022 , the Inflation Reduction Act of 2022 ("IRA") was signed into
law. Among other changes to the Internal Revenue Code, the IRA imposes a 15%
corporate alternative minimum tax on certain corporations and 1% excise tax on
public company stock buybacks for tax years beginning after December 31, 2022 .
The Company does not expect these provisions to have a material impact.
Comparison of Years Ended
Revenue
The following table summarizes our revenue by collaboration partner during the
respective periods:
Year Ended December 31,
2022 2021 Change
(in thousands)
AbbVie $ 18,563 $ 11,546 $ 7,017
Amgen 4,967 8,488 (3,521 )
Astellas 20,491 17,278 3,213
Bristol Myers Squibb 9,142 - 9,142
Total Revenue $ 53,163 $ 37,312 $ 15,851 The increase in revenue of
•
An increase in revenue from AbbVie primarily driven by a higher percentage of project completion under the CD71 Agreement and a cumulative adjustment from a change in estimate of$4.4 million due to completion of performance obligation of the second target under the Discovery Agreement in the current year;
•
An increase in revenue from Astellas under the Astellas Agreement primarily driven by a higher percentage of completion for existing targets and initiation of pre-clinical research and development on a new target selected in current year;
•
An increase in revenue from Bristol Myers Squibb under the BMS Agreement due to initiation and progress of pre-clinical research for new targets selected in current year, offset by;
•
A decrease in revenue from Amgen under the Amgen Agreement driven by lower percentage of completion of the CX-904 program in the current year due to an increase in projected hours-to-completion.
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Research and Development Expenses
The following table summarizes our research and development expenses by program incurred during the respective periods presented:
Year Ended
2022 2021 Change
External costs incurred by product candidate (target): (in
thousands)
Praluzatamab ravtansine, CX-2009 (CD166)
$ (2,707 ) CX-2029 (CD71) 9,708 11,556 (1,848 ) Pacmilimab, CX-072 (PD-L1) 948 3,535 (2,587 ) CX-904 (EGFRxCD3) 2,822 3,522 (700 ) Other wholly owned and partnered programs 14,024 13,831
193
General research and development expenses 13,338 13,534 (196 )
56,649 64,494 (7,845 )
Internal costs 55,000 49,700 5,300
Total research and development expenses
Research and development expenses decreased by$2.5 million for 2022, compared to 2021 primarily driven by a decrease in clinical trial and lab contract services for CX-2009, CX-072, CX-2029, CX-904 and pre-clinical programs, offset by$5.3 million restructuring expenses which are primarily included in internal costs.
General and Administrative Expenses
Year Ended December 31,
2022 2021 Change
(in thousands)
General and administrative $ 42,849 $ 39,160 $ 3,689
General and administrative expenses increased by $3.7 million for 2022, compared
to 2021 primarily driven by $2.4 million of restructuring expenses and a $1.0
million increase in professional expenses related to new collaboration
agreements.
Interest Income and Other Expense, Net
Year Ended December 31,
2022 2021 Change
(in thousands)
Interest income $ 1,678 $ 255 $ 1,423
Other expense, net 340 (83 ) 423
Total interest income and other expense
Interest Income
Interest income increased by
Quarterly Discussion and Analysis
The following discussion should be read in conjunction with our accompanying restated unaudited interim condensed financial statements for the 2022 quarterly periods disclosed in financial statement Note 17, "Selected Quarterly Financial Data (Unaudited)", and our audited financial statements and notes thereto and our unaudited condensed financial statements included in our Amended Annual Report on Form 10-K/A, filed for the fiscal year endedDecember 31, 2021 with theSEC onMarch 27, 2023 .
The following table summarizes our revenue by collaboration partner during the respective periods:
Comparison of the three months ended
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Three Months Ended
March 31,
2022 2021
(As Restated) Change
(in thousands)
AbbVie $ 1,751 $ 1,486 $ 265
Amgen 2,237 2,546 (309 )
Astellas 4,766 4,165 601
Bristol Myers Squibb 286 - 286
Total revenue $ 9,040 $ 8,197 $ 843
The increase in revenue of $0.8 million for the three months ended March 31,
2022 compared to the corresponding period of 2021 was primarily due to a higher
percentage of project completion for the existing targets as well as
pre-clinical research activities initiated for newly selected targets, under the
Astellas Agreement and BMS Agreement in the first quarter of 2022.
Comparison of the three and six months ended June 30, 2022 and June 30, 2021
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(As Restated) Change (As Restated) Change
(in thousands) (in thousands)
AbbVie $ 6,775 $ 2,734 $ 4,041 $ 8,526 $ 4,220 $ 4,306
Amgen 357 1,715 (1,358 ) 2,594 4,261 (1,667 )
Astellas 4,657 4,346 311 9,423 8,511 912
Bristol Myers Squibb 1,064 - 1,064 1,350 - 1,350
Total revenue $ 12,853 $ 8,795 $ 4,058 $ 21,893 $ 16,992 $ 4,901
The increase in revenue of $4.1 million and $4.9 million for the three and six
months ended June 30, 2022 , respectively, compared to the corresponding periods
of 2021 was primarily due to:
•
An increase in revenue under the AbbVie Agreements driven by a higher percentage of project completion primarily for the CD71 project in current periods and a decrease in projected hours-to-completion for a target under the Discovery Agreement, as well as under the Astellas Agreement and BMS Agreement driven by pre-clinical research activities initiated in the current periods for the recently selected new targets; partially offset by
•
A decrease in revenue from Amgen under the Amgen Agreement driven by lower percentage of completion of the CX-904 project in the current periods due to the increase in projected hours-to-completion within the same projected research period. Comparison of the three and nine months endedSeptember 30, 2022 andSeptember 30, 2021 Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 (As Restated) Change (As Restated) Change (in thousands) (in thousands) AbbVie $ 2,972$ 2,277 $ 695 $ 11,498 $ 6,497 $ 5,001 Amgen 337 2,352 (2,015 ) 2,931 6,613 (3,682 ) Astellas 5,880 4,560 1,320 15,303 13,071 2,232 Bristol Myers Squibb 1,958 - 1,958 3,308 - 3,308 Total revenue$ 11,147 $ 9,189 $ 1,958 $ 33,040 $ 26,181 $ 6,859 The increase in revenue of$2.0 million and$6.9 million for the three and nine months endedSeptember 30, 2022 , respectively, compared to the corresponding periods of 2021 was primarily due to:
•
An increase in revenue under AbbVie's CD71 Agreements driven by a higher percentage of project completion in current periods and a decrease in projected hours-to-completion for a target under the Discovery Agreement,
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An increase in revenue under the Astellas Agreement driven by a higher percentage of project completion for the existing targets as well as pre-clinical research activities initiated in the current periods for the recently selected new targets under the Astellas Agreement and the BMS Agreement; partially offset by
•
A decrease in revenue from Amgen under the Amgen Agreement driven by lower percentage of completion of the CX-904 project in the current periods due to an increase in projected hours-to-completion.
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Sources of Liquidity
As ofDecember 31, 2022 , we had cash, cash equivalents and short-term investments of$193.7 million and an accumulated deficit of$722.9 million , compared to cash, cash equivalents and investments of$305.2 million and an accumulated deficit of$623.6 million as ofDecember 31, 2021 . To date, we have financed our operations primarily through sales of our common stock in conjunction with the IPO, subsequent stock offerings and through our at-the-market offering, sales of our convertible preferred securities prior to our IPO and payments received under our collaboration agreements. In January andFebruary 2021 , in an underwritten public offering of our common stock, we raised an aggregate net proceeds of approximately$107.7 million . InNovember 2022 , we entered into a Collaboration and License Agreement with Regeneron Pharmaceuticals, Inc. (the "Regeneron Agreement") to collaborate on preclinical research activities to discover and develop certain antibody compounds for the treatment of cancer using the Company's Probody therapeutic technology. Pursuant to the Regeneron Agreement, we collected an upfront fee of$30.0 million . InDecember 2022 , we entered into a Collaboration and License Agreement withModernaTX, Inc. (the "Moderna Agreement") to collaborate on discovery and preclinical research and development activities to create investigational messenger RNA (mRNA) based conditionally activated therapies using the Company's Probody therapeutic technology. Pursuant to the Moderna Agreement, we recorded a receivable for an upfront fee and prepaid research funding of$35.0 million , which has been collected inJanuary 2023 . OnJuly 13, 2022 , we announced a restructuring plan to prioritize resources on our emerging pre-clinical and early clinical pipeline as well as our existing collaboration partnerships. The restructuring plan resulted in a reduction to our workforce by approximately 40%, and is substantially completed by the fourth quarter of 2022. We incurred aggregate restructuring charges of approximately$7.7 million , primarily related to one-time severance payments and other employee-related costs. Based upon our current operating plan, we expect our existing capital resources will be sufficient to fund operations into 2025. However, if the anticipated operating results and future financing are not achieved in future periods, our planned expenditures may need to be reduced in order to extend the time period over which the then-available resources would be able to fund the operations. The amounts and timing of our actual expenditures depend on numerous factors, including the progress of our preclinical and clinical development efforts, the results of any clinical trials and other studies, our operating costs and expenditures and other factors described under the caption "Risk Factors" in this Annual Report on Form 10-K. The cost and timing of developing our product candidates is highly uncertain and subject to substantial risks and changes. As such, we may alter our expenditures as a result of contingencies such as the failure of one or all of our product candidates currently in clinical development, the acceleration of one or all of our product candidates in clinical development, the initiating of clinical trials for additional product candidates, the identification of more promising product candidates in our research efforts or unexpected operating costs and expenditures. We will need to raise additional funds in the future. There can be no assurance, however, that such efforts will be successful; or if they are successful, that the terms and conditions of such financing will be favorable to us.
Summary Statement of Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended December 31,
2022 2021
(in thousands)
Net cash provided by (used in) operating activities
(119,031 ) Net cash provided by (used in) by investing activities 98,260
22,489
Net cash provided by financing activities 648
110,213
Net increase (decrease) in cash, cash equivalents and restricted cash$ (11,880 ) $ 13,671
Cash Flows from Operating Activities
2022
During the year endedDecember 31, 2022 , cash used in operating activities was$110.8 million , which consisted of a net loss of$99.3 million and a net decrease of$30.7 million relating to the change of our net operating assets and liabilities, offset by non-cash charges of$19.2 million . The non-cash charges primarily consisted of$13.1 million in stock-based compensation,$3.4 million in non-cash lease expense and$2.7 million in depreciation, amortization, and impairment charges. 85
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The change in our net operating assets and liabilities was primarily due to:
•
an increase of$35.2 million in accounts receivable primarily related to the upfront payment and prepaid research under the Moderna Agreement entered into inDecember 2022 ;
•
a decrease of
•
a decrease of$2.3 million in cash flows from prepaid expenses and other current assets and other assets primarily due to increase in advance payments to our third-party manufacturing vendors and timing of payments;
•
a net increase of$16.6 million in deferred revenue consisting of an increase of$69.6 million in deferred revenue related to new agreements with Regeneron and Moderna partially offset by a decrease of$53.0 million resulting from the continued recognition of deferred revenue from existing customers.
2021
During the year endedDecember 31, 2021 , cash used in operating activities was$119.0 million , which consisted of a net loss of$115.9 million , adjusted by non-cash charges of$19.3 million and a net decrease of$22.4 million relating to the changes in our net operating assets and liabilities. The non-cash charges primarily consisted of$13.2 million in stock-based compensation,$3.1 million in non-cash lease expense,$2.7 million in depreciation and amortization and$0.3 million in net accretion of discounts on our investments.
The change of our net operating assets and liabilities was primarily due to:
•
a net decrease of
•
an increase of
•
an increase of
Cash Flows from Investing Activities
During year endedDecember 31, 2022 , cash provided by investing activities was$98.3 million , which consisted of$100.0 million in proceeds received upon the maturity of short-term marketable securities, partially offset by$1.7 million of capital expenditures used to purchase property and equipment. During the year endedDecember 31, 2021 , cash provided by investing activities was$22.5 million , which consisted of$124.0 million in proceeds received upon the maturity of short-term marketable securities, partially offset by$99.9 million used in the purchase of long-term investments and$1.6 million of capital expenditures used to purchase property and equipment.
Cash Flows from Financing Activities
During the year endedDecember 31, 2022 , cash provided by financing activities consisted of$0.6 million of proceeds from the exercise of stock options and employee stock purchases under the employee stock purchase plan ("ESPP"). During the year endedDecember 31, 2021 , cash provided by financing activities was$110.2 million , which consisted of$107.7 million of net proceeds from the follow-on public offering in January andFebruary 2021 and$2.5 million of proceeds from the exercise of stock options and employee stock purchases under the employee stock purchase plan. 86 --------------------------------------------------------------------------------
Contractual Obligations
The following table summarizes our contractual obligations that become due within the next twelve months (in thousands):
Payments Due by
2023
Operating leases(1) $ 5,420
Royalty obligations(2) 150
License maintenance fees(3) 750
Total contractual obligations $ 6,320
(1)
We lease our current facility under a long-term operating lease, which expires in 2026. The lease provides us with one option to extend the lease term for a period of five years at the then fair market rental value. (2) We have royalty obligations under the terms of certain exclusive licensed patent rights. The royalty obligations are cancellable any time by giving notice to the licensor, with the termination being effective 60 days after giving notice. See Part II. Item 8. Financial Statements and Supplementary Data, Note 9 - "License Agreement" in the accompanying Notes to the financial statements for more information. Sublicense fees payable to UCSB for potential milestones that are probable to be earned by the Company in 2023 are not included. (3) We have annual license maintenance fees under the terms of certain license agreement with UCSB. See Part II. Item 8. Financial Statements and Supplementary Data, Note 9 - "License Agreement" in the accompanying Notes to the financial statements for more information. We enter into agreements in the normal course of business with CROs for clinical trials and with vendors for pre-clinical studies and other services and products for operating purposes, which are cancelable at any time by us, generally upon 30 to 60 days prior written notice. These payments are not included in the above table of contractual obligations. The above table also excludes unrecognized tax benefits of$9.3 million as ofDecember 31, 2022 because these uncertain tax positions, if recognized, would be an adjustment to our deferred tax assets, which are subject to a valuation allowance.
Segment Information
We have one primary business activity and operate as one reportable segment.
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance withUnited States generally accepted accounting principles ("U.S. GAAP"). The preparation of these financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
Revenue Recognition
We recognize revenue when our customer obtains control of the promised goods or
services, in an amount that reflects the consideration which we have received or
expect to receive in exchange for those goods or services.
Our revenues are primarily derived through our license, research, development
and commercialization agreements. The terms of these types of agreements may
include (i) licenses for our technology or programs, (ii) research and
development services, and (iii) services or obligations in connection with
participation in research or steering committees. Payments to us under these
arrangements typically include one or more of the following: nonrefundable
upfront and license fees, research funding, milestone and other contingent
payments to us for the achievement of defined collaboration objectives and
certain preclinical, clinical, regulatory and sales-based events, as well as
royalties on sales of any commercialized products. We assess whether the
promises in our arrangements with customers are considered as distinct
performance obligations that should be accounted for separately. Judgment is
required to determine whether the license to our intellectual property is
distinct from the research and development services or participation on steering
committees.
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Our collaboration and license agreements may include contingent payments related
to specified research, development and regulatory milestones. Such milestone
payments are typically payable under the collaborations when the collaboration
partner claims or selects a target, or initiates or advances a covered product
candidate in preclinical or clinical development, upon submission for marketing
approval of a covered product with regulatory authorities; or upon receipt of
actual marketing approvals of a covered product or for additional indications.
To date, we have concluded that these contingent payments should be fully
constrained until the conditions are met. At each reporting date, we re-evaluate
whether the milestones are considered probable of being achieved and estimate
the amount to be included in the transaction price by using the most likely
amount method. If it is probable that a significant revenue reversal would not
occur, the associated milestone value is included in the transaction price in
such period of determination.
Our collaboration and license agreements may also include contingent payments
related to sales-based milestones. Sales-based milestones are typically payable
when annual sales of a covered product reach specified levels. Sales-based
milestones are recognized at the later of when the associated performance
obligation has been satisfied or when the sales occur. Unlike other contingency
payments, such as regulatory milestones, sales-based milestones are not included
in the transaction price based on estimates at the inception of the contract,
but rather, are included when the sales or usage occur. As of December 31, 2022 ,
no sales-based milestones have been recognized.
The transaction price in each arrangement is allocated to the identified
performance obligations based on the relative standalone selling price ("SSP")
of each distinct performance obligation, which requires judgment. In instances
where SSP is not directly observable, such as when a license or service is not
sold separately, SSP is determined using information that may include market
conditions and other observable inputs. Due to the early stage of our licensed
technology, the license of such technology is typically combined with research
and development services and steering committee participation as one performance
obligation. In the event that we receive non-cash consideration such as
consideration in the form of a research license and research support services
from the counterparty, the transaction price of a non-monetary exchange that has
commercial substance is estimated based on the fair value of the non-cash
consideration received, which may be determined through a valuation analysis.
Most of our collaboration arrangements are related to delivering a combined
performance obligation satisfied over time. Revenue is recognized over the
estimated research period using an input measure based on our actual full-time
employee ("FTE") hours incurred as a percentage of projected FTE hours for
completing the performance obligation. We evaluate the measure of progress each
reporting period and, if necessary, we adjust the measure of performance and
related revenue recognition. There have been changes in estimates of research
service periods and/or the related estimated FTE hours-to-completion of certain
of our research development programs in 2022 and 2021. For example, changes in
our estimated research service period resulted in recognition of higher total
revenue of $0.5 million in 2022 and lower total revenue of $9.3 million in 2021,
as compared to the estimates in place at the end of the prior period. Such
adjustments have impacted and may continue to impact the amounts and timing of
our revenue recognized.
Any consideration payable to our customers is treated as a reduction to the transaction price and revenue, unless the payment to the customer is in exchange for distinct good and services.
Research and Development Expenses
We record accrued liabilities for estimated costs of research, preclinical and
clinical studies and contract manufacturing activities, which are a significant
component of research and development expenses. A substantial portion of our
ongoing research and development activities is conducted by third-party service
providers, including CROs. Our contracts with CROs generally include
pass-through costs, such as regulatory expenses, investigator fees, travel costs
and other miscellaneous costs. The financial terms of these contracts are
subject to negotiations, which vary from contract to contract and may result in
payments that do not match the periods over which materials or services are
provided to us under such contracts. We accrue the costs incurred under
agreements with these third parties based on actual work completed in accordance
with the respective agreements. In the event we make advance payments, they are
recorded as prepaid expenses and recognized as the services are performed. We
determine the estimated costs through discussions with internal personnel and
external service providers as to the progress of stage of completion of the
services and the agreed-upon fees to be paid for such services.
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We make significant judgments and estimates in determining the accrual balance
in each reporting period. As actual costs become known, we adjust our accruals.
Although we do not expect our estimates to be materially different than the
actual amounts incurred, such estimates for the status and timing of services
performed relative to the actual status and timing of services performed may
vary and could result in us reporting amounts that are too high or too low in
any one period. Our accrual is dependent, in part, upon the receipt of timely
and accurate reporting from CROs and other third-party vendors. Variations in
the assumptions used to estimate accruals including, but not limited to, the
number of patients enrolled, the rate of patient enrollment and the actual
services performed, may vary from our estimates, resulting in adjustments to
clinical trial expenses in future periods. Changes in these estimates that
result in material changes to our accruals could materially affect our financial
condition and results of operations.
Uncertain Tax Position
We file income taxes in theU.S. federal jurisdiction, the state ofCalifornia and various otherU.S. states. We are currently under examination by the state ofCalifornia for the years 2017 and 2018. The examination contests our tax position on revenue apportionment for upfront and milestone payments resulting from our collaboration and licensing agreements. As of the date of this filing, the state ofCalifornia has not proposed adjustments to the tax returns. Due to the ongoing nature of the examination and discussions with the state ofCalifornia , we are unable to estimate a date by which this matter will be resolved or reasonably estimate the potential impact should the tax position be revised. Based on our current expectations and understanding of the reasonably possible outcomes, we do not anticipate that the resolution of this matter would result in a material impact on our financial position or results of operations.
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