DAY ONE BIOPHARMACEUTICALS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes, our interim condensed consolidated financial statements and related notes, and other financial information appearing in our Annual Report on Form 10-K for the year endedDecember 31, 2022 , or our Annual Report, and this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" in this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Day One was founded to address a critical unmet need: children with cancer are being left behind in a cancer drug development revolution. Our name was inspired by the "The Day One Talk" that physicians have with patients and their families about an initial cancer diagnosis and treatment plan. We aim to re-envision cancer drug development and redefine what's possible for all people living with cancer-regardless of age-starting fromDay One . We are a clinical-stage biopharmaceutical company dedicated to developing and commercializing targeted therapies for people of all ages with life threatening diseases. Initially, we have focused our clinical development efforts on pediatric patients living with cancer, a vulnerable population that has been underserved in the recent revolution in targeted therapeutics and immuno-oncology. Our lead product candidate, tovorafenib (DAY101), is an oral, brain-penetrant, highly-selective type II pan-rapidly accelerated fibrosarcoma, or pan-RAF, kinase inhibitor. Tovorafenib (DAY101) has been studied in over 325 patients and has been shown to be generally well-tolerated as a monotherapy. Tovorafenib (DAY101) has demonstrated encouraging anti-tumor activity in pediatric and adult populations with specific genetic alterations that result in the over-activation of the RAS/mitogen-activated protein kinase, or MAPK, pathway leading to uncontrolled cell growth. Tovorafenib (DAY101) has been granted Breakthrough Therapy designation by theU.S. Food and Drug Administration , or the FDA, inAugust 2020 for the treatment of relapsed or progressive low-grade glioma, or pLGG, based on initial results from a Phase 1 trial which showed evidence of rapid anti-tumor activity and durable responses in pLGG patients. Pediatric low-grade glioma is the most common brain tumor diagnosed in children for which there is no standard of care and for which there are no approved therapies for the vast majority of patients. We received Orphan Drug designation for the treatment of malignant glioma from the FDA inSeptember 2020 and from theEU Commission for the treatment of glioma inMay 2021 . Additionally, the FDA granted Rare Pediatric Disease designation to tovorafenib (DAY101) for treatment of low-grade gliomas, or LGGs, harboring an activating RAF alteration inJuly 2021 . -------------------------------------------------------------------------------- We have initiated and fully enrolled a pivotal Phase 2 trial, or FIREFLY-1, of tovorafenib (DAY101) as a monotherapy for pediatric patients with relapsed or progressive low-grade glioma harboring an activating BRAF alteration. The first patient was dosed in FIREFLY-1 inMay 2021 and we completed enrollment in the registrational arm inMay 2022 . The FIREFLY-1 trial has also been expanded to: (a) include two additional study arms to enable expanded access for eligible patients now that the primary cohort has completed enrollment, and (b) evaluate the preliminary efficacy of tovorafenib (DAY101) in patients aged six months to 25 years with a relapsed or progressive extracranial solid tumor with an activating RAF fusion. We reported initial data from an interim analysis from the FIREFLY-1 trial inJune 2022 and top-line data for all patients inJanuary 2023 . Topline data fromJanuary 2023 demonstrated an overall response rate, or ORR, of 64% in the 69 Response Assessment for Neuro-Oncology- High Grade Glioma, or RANO-HGG, evaluable patients, comprising 3 confirmed complete responses, or CR, and 41 partial responses, or PR (31 confirmed partial responses and 10 unconfirmed partial response, or uPR). We observed an additional 19 patients with a best response of stable disease, or SD, resulting in a clinical benefit rate of 91% (CR+ PR/uPR+ SD of any duration). Safety data, based on 77 treated patients, indicated monotherapy tovorafenib (DAY101) to be generally well-tolerated. We believe tumor reduction or stabilization is clinically meaningful for pLGG patients, as both are perceived as beneficial given the lack of approved therapies for the majority of patients. OnApril 19, 2023 , we held a pre-New Drug Application, or NDA, meeting with the FDA for tovorafenib (DAY101) for the treatment of patients with relapsed or progressive pLGG. We remain in position to initiate the submission of the NDA as early as the second quarter of 2023. InApril 2023 , we also announced new clinical data from the ongoing, open-label, pivotal Phase 2 FIREFLY-1 trial evaluating the investigational agent tovorafenib (DAY101) in relapsed or progressive pLGG will be presented onJune 4, 2023 , as an oral presentation at the 2023American Society of Clinical Oncology , or ASCO, annual meeting. An ASCO abstract scheduled for release onMay 25, 2023 will include topline data from FIREFLY-1 as ofSeptember 28, 2022 , while new detailed clinical data will be highlighted at theJune 4, 2023 oral presentation. We initiated a pivotal Phase 3 trial, or FIREFLY-2, of tovorafenib (DAY101) as a frontline therapy in pLGG inJune 2022 . The first patient was dosed in FIREFLY-2 inMarch 2023 . Our second product candidate, pimasertib, is an oral, highly-selective small molecule inhibitor of mitogen-activated protein kinase kinases 1 and 2, or MEK, a well-characterized key signaling node in the MAPK pathway. Pimasertib has been studied in more than 10 Phase 1/2 clinical trials in over 850 patients with various tumor types, both as a monotherapy and in combination with standard of care therapies. Published preclinical studies indicated that pimasertib has higher central nervous system penetration than other MEK inhibitors. We have initiated an open-label, multicenter, Phase 1b/2a umbrella master trial, or FIRELIGHT-1, of tovorafenib (DAY101) monotherapy or combination therapy, which consists of two substudies. Substudy 1 is a Phase 2 trial of tovorafenib (DAY101) as monotherapy in patients 12 years and older with RAF-altered tumors; the first patient was dosed inNovember 2021 . Substudy 2 is a Phase 1b/2 combination trial of tovorafenib (DAY101) and pimasertib in patients 12 years and older with various MAPK-altered solid tumors; the first patient was dosed inMay 2022 . Simultaneous inhibition of both RAF and MEK has been shown to lead to synergistic antitumor activity in preclinical models. This combination may demonstrate enhanced anti-tumor activity in a variety of adult solid tumors driven by MAPK alterations, including NRAS mutant melanoma and lung cancers, tumors driven by Class II BRAF alterations, tumors with BRAF wild-type fusions, and tumors driven by KRAS alterations. InApril 2023 , we presented a poster titled "Clinical Activity of the Type II pan-RAF Inhibitor Tovorafenib (DAY101) in BRAF-fusion Melanoma" at the 19thEuropean Association of Dermato-Oncology , or EADO,Congress demonstrating initial antitumor activity in relapsed/refractory adult BRAF-fusion while being generally well-tolerated in the ongoing FIRELIGHT-1 study. We believe our business development capabilities combined with our extensive experience in oncology drug development and deep ties within the research and patient advocacy communities, particularly within the pediatric setting, positions us to be a leader in identifying, acquiring and developing therapies for patients of all ages. We hold exclusive worldwide rights to tovorafenib (DAY101) and to pimasertib for all therapeutic areas subject to certain milestone and royalty payments. 23 --------------------------------------------------------------------------------
The following table summarizes our product candidate pipeline.
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Since our inception in November 2018 , we have devoted substantially all of our
resources to identifying, acquiring and developing our product candidates and
building our pipeline; organizing and staffing our company; business planning;
establishing and maintaining our intellectual property portfolio; establishing
arrangements with third parties for the manufacture of our product candidates;
raising capital; preparing for commercial launch; and providing general and
administrative support for these operations. We do not have any products
approved for commercial sale and have not generated any revenues from product
sales or any other source and have incurred net losses since commencement of our
operations. For the three months ended March 31, 2023 and 2022, we reported a
net loss of $42.4 million and $27.7 million , respectively. We had an accumulated
deficit of $312.1 million as of March 31, 2023 . We expect a significant increase
in expenses and substantial losses for the foreseeable future as we continue our
development of, and seek regulatory approvals for our product candidates,
commercialize any approved products, and seek to expand our product pipeline and
invest in our organization.
To date, we have funded our operations through the sale of our redeemable convertible preferred shares, convertible notes and common stock in our IPO and subsequent public offering.
Cash and cash equivalents and short-term investments totaled$318.2 million as ofMarch 31, 2023 . Based on our current operating plan, management believes we have sufficient capital resources to fund anticipated operations into 2025. Because of the numerous risks and uncertainties associated with product development, we may never achieve profitability, and unless and until then, we will need to continue to raise additional capital. There are no assurances that we will be successful in obtaining an adequate level of financing to support our business plans. If we are unable to raise capital as and when needed or on attractive terms, we may have to significantly delay, reduce or discontinue the development and commercialization of our product candidates or scale back or terminate our pursuit of new in-licenses and acquisitions. We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for clinical testing, as well as for commercial manufacturing if any of our product candidates obtain marketing approval. As we advance our product candidates through development, we will explore adding backup suppliers for the Active Pharmaceutical Ingredients, or API, drug product, packaging and formulation for each of our product candidates to protect against any potential supply disruptions. 24 --------------------------------------------------------------------------------
Inflation Reduction Act OnAugust 16, 2022 ,President Biden signed into law the Inflation Reduction Act of 2022, which includes an Alternative Minimum Tax based on the Adjusted Financial Statement Income of Applicable Corporations. Based on our initial evaluation, we do not believe the Inflation Reduction Act will have a material impact on our income tax provision and cash taxes. We continue to monitor the changes in tax laws and regulations to evaluate their potential impact on our business. Significant Agreements
License agreement with Merck KGaA, Darmstadt,
OnFebruary 10, 2021 ,DOT Therapeutics-2, Inc. , or DOT-2, our subsidiary, entered into a license agreement, or the MRKDG License Agreement, with Merck KGaA, Darmstadt,Germany , a pharmaceutical corporation located inDarmstadt, Germany . Under the MRKDG License Agreement, Merck KGaA, Darmstadt,Germany granted to us an exclusive worldwide license, with the right to grant sublicenses through multiple tiers, under specified patent rights and know-how for us to research, develop, manufacture and commercialize products containing and comprising the pimasertib and MSC2015103B compounds. We also received clinical inventory supplies to use in its research and development activities. Our exclusive license grant is subject to a non-exclusive license granted by Merck KGaA,Darmstadt, Germany's affiliate to a cancer research organization and Merck KGaA, Darmstadt,Germany retains the right to conduct, directly or indirectly, certain ongoing clinical studies relating to pimasertib.
Under the MRKDG License Agreement, we have obligations to use commercially reasonable efforts to develop and commercialize at least two licensed products in at least two specified major market countries by the year 2029.
In consideration for the rights granted under the MRKDG License Agreement and clinical supplies, we made an upfront payment of$8.0 million , which was recorded as research and development expenses, as the technology does not have an alternative future use and supplies are used for research activities. Additionally, we made a milestone payment of$2.5 million , which was recorded as research and development expenses due to the nature of the license agreement and the milestone event relating to the first dosing of a patient in a first clinical trial of a product containing pimasertib, in the year endedDecember 31, 2022 . We may also be required to make additional payments of up to$364.5 million based upon the achievement of specified development, regulatory, and commercial milestones, as well a high, single-digit royalty percentage on future net sales of licensed products, if any. Milestones and royalties are contingent upon future events and will be recorded when the milestones are achieved and when payments are due. No milestones were achieved and due as ofMarch 31, 2023 . The term of the MRKDG License Agreement will expire on a licensed product-by-licensed product and country-by-country basis upon the expiration of our obligation to pay royalties to the licensor with respect to such licensed product in such country and will expire in its entirety upon the expiration of all of our payment obligations with respect to all licensed products and all countries under the MRKDG License Agreement. EffectiveDecember 31, 2021 , DOT-2 was merged with and into our company, with our company being the surviving corporation and assuming DOT-2's obligations under the MRKDG License Agreement.
Takeda asset agreement
OnDecember 16, 2019 ,DOT Therapeutics-1, Inc. , or DOT-1, our subsidiary, entered into an asset purchase agreement, or the Takeda Asset Agreement, withMillennium Pharmaceuticals, Inc. , a related party and an affiliate of Takeda Pharmaceutical Company Limited, or Takeda. Pursuant to the Takeda Asset Agreement, DOT-1 purchased certain technology rights and know-how related to TAK-580 (which is now tovorafenib (DAY101)) that provides a new approach for treating patients with primary brain tumors or brain metastases of solid tumors. DOT-1 also received clinical inventory supplies to use in our research and development activities of such RAF-inhibitor and an assigned investigator clinical trial agreement. Takeda also assigned to DOT-1 its exclusive license agreement, or the Viracta License Agreement, with Viracta Therapeutics, Inc. (f/k/a Sunesis Pharmaceuticals, Inc.), or Viracta. Takeda also granted DOT-1 a worldwide, sublicensable exclusive license under specified patents and know-how and non-exclusive license under other patents and know-how generated by Takeda under the Takeda Asset Agreement. DOT-1 also granted Takeda a grant back license, as defined in the Takeda Asset Agreement, which is terminable either automatically or by DOT-1 in the event Takeda does not achieve specified development milestones within the applicable timeframes set forth under the Takeda Asset Agreement. This grant back license to Takeda was terminated at the time of Conversion in connection with the Millennium Stock Exchange Agreement. 25 -------------------------------------------------------------------------------- In consideration for the sale and assignment of assets and the grant of the license under the Takeda Asset Agreement, DOT-1 made an upfront payment of$1.0 million in cash and issued 9,857,143 shares of Series A redeemable convertible preferred stock in DOT-1 inDecember 2019 . The fair value of issued shares was estimated as$9.9 million , based on the price paid by other investors for issued shares in the Series A financing of DOT-1. Based on the terms of the Millennium Stock Exchange Agreement, Takeda exchanged the 9,857,143 shares of Series A redeemable convertible preferred stock of DOT-1 for 6,470,382 shares of our common stock upon the effectiveness of the Conversion, onMay 26, 2021 . The term of the Takeda Asset Agreement will expire on a country-by-country basis upon expiration of all assigned patent rights and all licensed patent rights in such country. Takeda may terminate the Takeda Asset Agreement prior to our first commercial sale of a product if we cease conducting any development activities for a continuous and specified period of time and such cessation is not agreed upon by the parties and is not done in response to guidance from a regulatory authority. Additionally, Takeda can terminate the Takeda Asset Agreement in the event of our bankruptcy. In the event of termination of the Takeda Asset Agreement by Takeda as a result of our cessation of development or bankruptcy, all assigned patents, know-how and contracts (other than the Viracta License Agreement) will be assigned back to Takeda and Takeda will obtain a reversion license under patents and know-how generated to exploit all such terminated products. EffectiveDecember 31, 2021 , DOT-1 was merged with and into our company, with our company being the surviving corporation and assuming DOT-1's obligations under the Takeda Assets Purchase Agreement.
Viracta license agreement
OnDecember 16, 2019 , DOT-1 amended and restated the Viracta License Agreement that was assigned pursuant to the Takeda Asset Agreement. Under the Viracta License Agreement, DOT-1 received a worldwide exclusive license under specified patent rights and know-how to develop, use, manufacture, and commercialize products containing compounds binding the RAF protein family. DOT-1 paid$2.0 million upfront in cash to Viracta, which was recorded as research and development expenses in 2019. DOT-1 made a milestone payment of$3.0 million to Viracta inFebruary 2021 , which was recorded as research and development expense when the milestone was achieved inApril 2021 . DOT-1 is also required to make additional milestone payments of up to$54.0 million upon achievement of specified development and regulatory milestones for each licensed product in two indications, with milestones payable for the second indication to achieve a specified milestone event being lower than milestones payable for the first indication. Additionally, if DOT-1 obtains a priority review voucher with respect to a licensed product and sells such priority review voucher to a third party or uses such priority review voucher, DOT-1 is obligated to pay Viracta a specified percentage in the mid-teen digits of all net consideration received from any such sale or of the value of such used priority review voucher, as applicable. Commencing on the first commercial sale of a licensed product in a country, DOT-1 is obligated to pay tiered royalties ranging in the mid-single-digit percentages on net sales of licensed products, if any. The obligation to pay royalties will end on a country-by-country and licensed product-by-licensed product basis commencing on the first commercial sale in a country and continuing until the later of: (i) the expiration of the last valid claim of the Viracta licensed patents, jointly owned collaboration patents or specified patents owned by the Company covering the use or sale of such product in such country, (ii) the expiration of the last statutory exclusivity pertaining to such product in such country or (iii) the tenth anniversary of the first commercial sale of such product in such country. No milestones were achieved and due as ofMarch 31, 2023 . The term of the Viracta License Agreement will expire on a licensed product-by-licensed product and country-by-country basis upon the expiration of the Company's obligation to pay royalties to Viracta with respect to such product in such country. DOT-1 has the right to terminate the Viracta License Agreement with respect to any or all of the licensed products at will upon a specified notice period. EffectiveDecember 31, 2021 , DOT-1 was merged with and into our company, with our company being the surviving corporation and assuming DOT-1's obligations under Viracta License Agreement. 26 --------------------------------------------------------------------------------
Components of Results of Operations
Operating expenses
Research and development expenses
Research and development expenses consist primarily of external and internal expenses incurred for our research activities, including our discovery and in-licensing undertakings, and the development of our lead product candidate, tovorafenib (DAY101), and our second product candidate, pimasertib.
External expenses include:
•
costs incurred under agreements with third-party contract research organizations, or CROs, contract manufacturing organizations, or CMOs, and other third parties that conduct clinical trials on our behalf;
•
costs associated with acquiring technology and intellectual property licenses that have no alternative future uses; and
•
other operational costs not allocable to a specific product, including expenses for rent and facilities maintenance, travel and information technology.
Internal expenses include:
•
employee-related costs, including salaries, bonuses, benefits and share-based compensation expense, for our research and development personnel.
We expense research and development expenses as incurred. We track external costs by program, which currently consist of expenses for our tovorafenib (DAY101) program and our pimasertib program. We do not track indirect costs on a program specific basis because these costs are deployed across multiple programs and, as such, are not separately classified. Research and development activities are central to our business model. We expect that our research and development expenses will increase substantially for the foreseeable future as we continue to implement our business strategy; advance tovorafenib (DAY101) and pimasertib through clinical trials and conduct larger clinical trials; expand our research and development efforts; and identify, acquire and develop additional product candidates, particularly as more of our product candidates move into clinical development and later stages of clinical development. The successful development of our drug candidates is uncertain and subject to a number of risks. We cannot guarantee that results of clinical trials will be favorable or sufficient to support regulatory approvals for any of our product development programs. We could decide to abandon development or be required to spend considerable resources not otherwise contemplated. For additional discussion regarding the risks and uncertainties regarding our research and development programs, please refer to Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q.
General and administrative expenses
General and administrative expenses consist primarily of employee-related costs, professional services and other operational costs. Employee-related costs include salaries, bonuses, benefits and share-based compensation expense for our general and administrative personnel. Professional service expenses include legal fees; professional fees for accounting, auditing, tax, human resources, business development, and other consulting services. Other operational costs include expenses for rent and facilities maintenance, travel, insurance and information technology. We expect that our general and administrative expenses will increase substantially for the foreseeable future as we anticipate an increase in our personnel headcount to support expansion of research and development efforts for our product candidates and build out of commercial capabilities, as well as to support our operations generally. We also expect continued expenses associated with being a public company, including costs related to compliance with the requirements of the Nasdaq Global Select Market, or Nasdaq, and theSecurities and Exchange Commission , or theSEC ; and investor and public relations costs. 27 --------------------------------------------------------------------------------
Results of operations
Comparison of three months ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended
March 31,
2023 2022 $ Change % Change
Operating expenses:
Research and development $ 27,828 $ 15,003 $ 12,825 85.5 %
General and administrative 18,027 12,745 5,282 41.4 %
Total operating expenses 45,855 27,748 18,107 65.3 %
Loss from operations (45,855 ) (27,748 ) (18,107 ) 65.3 %
Investment income, net 3,466 2 3,464 *
Other expense, net (4 ) (1 ) (3 ) *
Net Loss attributable to common stockholders
* Amount and/or percentage not meaningful
Research and development expenses
Research and development expenses increased$12.8 million , from$15.0 million for the three months endedMarch 31, 2022 to$27.8 million for the three months endedMarch 31, 2023 . In the three months endedMarch 31, 2023 as compared toMarch 31, 2022 , third-party expenses increased by$8.4 million , due primarily to an increase in clinical trial, manufacturing, and other product development expenses, and employee related expenses increased by$4.4 million driven by headcount growth.
The following table summarizes our external and internal research and
development expenses for the three months ended
Three Months Ended
March 31,
2023 2022
(in thousands)External costs: Third-party CRO, CMO and other third-party clinical trial costs (1)
$ 15,851 $
8,245
Other research and development costs 1,382
590
Internal costs: Employee related expenses 10,595
6,168
Total research and development expenses$ 27,828 $ 15,003 (1) Third-party CRO, CMO and other clinical trial costs for the tovorafenib (DAY 101) program and the pimasertib program were$14.8 million and$1.1 million for three months endedMarch 31, 2023 compared to$7.1 million and$1.1 million , respectively, for the three months endedMarch 31, 2022 .
General and administrative expenses
General and administrative expenses increased$5.3 million , from$12.7 million for the three months endedMarch 31, 2022 to$18.0 million for the three months endedMarch 31, 2023 . The increase in general and administrative expenses was primarily due to$4.3 million in employee related costs driven by headcount growth and$1.0 million in professional services driven by the build out of commercial capabilities and continued expansion of business operations.
Liquidity and Capital Resources
Sources of liquidity
InJune 2022 , we entered into an equity distribution agreement withPiper Sandler & Co. andJonesTrading Institutional Services LLC , as sales agents, relating to the issuance and sale of shares of our common stock having an aggregate offering price of up to$150.0 million from time to time, or the 2022 ATM. The issuance and sale of these shares by us pursuant to the 2022 ATM were deemed an "at-the-market" offering under the Securities Act. As ofMarch 31, 2023 , we have not sold any shares of our common stock under the 2022 ATM. 28 -------------------------------------------------------------------------------- InJune 2022 , we completed a follow-on offering and issued and sold 11,500,000 shares of common stock (including the exercise by the underwriters of their option to purchase an additional 1,500,000 shares of common stock) at a price to the public of$15.00 per share for net proceeds of approximately$161.6 million , after deducting underwriting discounts, commissions and offering costs. InJune 2021 , we completed our IPO and sold an aggregate of 11,500,000 shares of common stock at a price to the public of$16.00 per share, which included 1,500,000 shares issued upon the full exercise by the underwriters inMay 2021 of their option to purchase additional shares of common stock. We received aggregate net proceeds from the IPO of$167.0 million , after deducting underwriting discounts, commissions, and offering costs of$17.0 million . Prior to our IPO, we had funded our operations through the sale of our redeemable convertible preferred shares and convertible notes. We had previously raised approximately$192.0 million in gross proceeds from the sale and issuance of our Series A and Series B redeemable convertible preferred shares and convertible notes. As ofMarch 31, 2023 , we had an accumulated deficit of$312.1 million and$318.2 million in cash and cash equivalents and short-term investments. We believe our cash and cash equivalents and short-term investments will be sufficient to satisfy our cash requirements over the next 12 months and into 2025. Our primary use of cash is to fund operating expenses, which consist of research and development expenditures and general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. Our material cash requirements include the following contractual and other obligations.
Leases
We have an operating lease obligation for office space. As ofMarch 31, 2023 , we had fixed lease payment obligations of approximately$0.5 million payable within 12 months.
Contract Research Organizations and Contract Manufacturing Organizations
We have entered into contracts in the normal course of business with CROs, CMOs, and other third-party vendors for clinical trial, manufacturing, testing, and other research and development activities. These contracts generally provide for termination on notice, with the exception of one vendor where certain costs are non-cancellable after the approval of the project. As ofMarch 31, 2023 , there were no amounts accrued related to termination and cancellation charges as these are not probable. License Agreements We have entered into licensing agreements, which require us to pay milestones contingent upon meeting of specific events. We made milestone payments of$2.5 million related to the first dosing of a patient in a first clinical trial of a product containing pimasertib in the year endedDecember 31, 2022 and$3.0 million related to the Viracta License Agreement in the year endedDecember 31, 2021 . We are required to pay royalties on sales of products developed under these agreements. All our products are in development as ofMarch 31, 2023 and no such royalties are due. As ofMarch 31, 2023 , we do not have any contingent payment obligations since the amount, timing and likelihood of such payments are not known. Cash flows
The following table summarizes our sources and uses of cash for the periods presented:
Three Months Ended
March 31,
2023 2022
Net cash used in operating activities
-
Net decrease in cash and cash equivalents
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--------------------------------------------------------------------------------Operating activities
Net cash used in operating activities for the three months endedMarch 31, 2023 was$26.0 million , consisting of our net loss of$42.4 million , non-cash charges of$8.9 million and net changes in operating assets and liabilities of$7.5 million . Non-cash charges is primarily related to share-based compensation expense of$9.4 million , which was partially offset by accretion of discounts on short-term investments of$0.6 million . Net changes in operating assets and liabilities is primarily related to an increase in accounts payable of$4.4 million , an increase in accrued expenses and other current liabilities of$1.8 million and a decrease of prepaid expenses and other current assets of$1.4 million , which were partially offset by a decrease to operating lease liabilities of$0.1 million . Net cash used in operating activities for the three months endedMarch 31, 2022 was$21.6 million , consisting of our net loss of$27.7 million , non-cash charges of$6.3 million and net changes in operating assets and liabilities of$0.1 million . Non-cash charges is primarily related to share-based compensation expense of$6.2 million . Net changes in operating assets and liabilities were primarily related to a decrease in accounts payable of$1.0 million , which was partially offset by an increase in accrued expenses and other current liabilities of$0.6 million and a decrease in prepaid expenses and other current assets of$0.4 million . Investing activities Net cash used in investing activities for the three months endedMarch 31, 2023 was$11.2 million related to the purchase of short-term investments of$160.0 million partially offset by the proceeds from the maturity of short-term investments of$148.8 million .
Net cash used in investing activities for the three months ended
Financing activities
Cash provided by financing activities for the three months endedMarch 31, 2023 was$1.2 million related to net proceeds from the issuance of common stock upon stock option exercises.
For the three months ended
Funding requirements
Since our inception, we have incurred significant operating losses. We expect to
continue to incur significant expenses and increasing operating losses for the
foreseeable future in connection with our ongoing activities.
We believe our existing cash, cash equivalents and short-term investments will
enable us to fund our operating expenses and capital expenditure requirements
into 2025. We have based this estimate on assumptions that may prove to be
imprecise, and we could use our available capital resources sooner than we
currently expect.
As a result of anticipated expenditures, we will need to obtain substantial
additional financing in connection with our continuing operations. Until such
time, if ever, as we cannot generate substantial revenue from product sales, we
expect to finance our cash needs through a combination of equity offerings, debt
financings, collaborations, strategic alliances and marketing, distribution or
licensing arrangements. Adequate additional funds may not be available to us on
acceptable terms, or at all. If we are unable to raise capital when needed or on
attractive terms, we may be required to delay, limit, reduce or terminate our
research, product development programs or any future commercialization efforts
or grant rights to develop and market product candidates that we would otherwise
prefer to develop and market ourselves.
To the extent that we raise additional capital through the sale of equity or
convertible debt securities, your ownership interest will be diluted, and the
terms of these securities may include liquidation or other preferences that
adversely affect your rights as a common stockholder. 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 acquisitions or capital expenditures or
declaring dividends.
If we raise additional funds through collaborations, strategic alliances or
marketing, distribution 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 grant licenses on terms that may not
be favorable to us.
30
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Our ability to raise additional funds may be adversely impacted by potential
worsening global economic conditions, and disruptions to and volatility in the
credit and financial markets in the United States and worldwide resulting from
inflation, changing interest rates, recent turmoil in the global banking system,
geopolitical instability, including the war in Ukraine , public health epidemics,
such as the COVID-19 pandemic, or otherwise. Because of the numerous risks and
uncertainties associated with product development, we cannot predict the timing
or amount of increased expenses and cannot assure that we will ever be
profitable or generate positive cash flow from operating activities.
Off-balance sheet arrangements
We did not during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSEC other than our indemnification agreements as described in Note 6 of our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Critical accounting policies and use of estimates
Our critical accounting policies are disclosed in our audited consolidated
financial statements for the year ended
New Accounting Pronouncements
Refer to Note 2 of the Notes to our Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a summary of recently issued and adopted accounting pronouncements.
Emerging Growth Company Status
As an emerging growth company, or EGC, under the Jumpstart Our Business Startups Act of 2012, or JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an EGC to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year in which we have total gross revenue of$1.07 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of the date of the completion of our IPO, (iii) the date on which we have issued more than$1.0 billion in nonconvertible debt during the previous three years, and (vi) the date on which we are deemed to be a "large accelerated filer," as defined in Rule 12b-2 under the Exchange Act. 31
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