ENTRADA THERAPEUTICS, 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 appearing elsewhere in this Annual Report on Form 10-K (Annual Report). Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Annual Report, 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. You should carefully read the "Cautionary Note Regarding Forward Looking Statements" and "Risk Factors" sections of this Annual Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements contained in the following discussion and analysis.
Overview
We are a biotechnology company that aims to transform the lives of patients by establishing EEV therapeutics as a new class of medicines and become the world's foremost intracellular therapeutics company. Through our proprietary, highly versatile and modular EEV platform (EEV Platform), we are building a robust development portfolio of EEV therapeutic candidates designed to enable the efficient intracellular delivery of therapeutics in various organs and tissues with an improved therapeutic index. We have initially focused on the development of EEV therapeutics for rare neuromuscular diseases, including Duchenne muscular dystrophy (DMD) and myotonic dystrophy type 1 (DM1). In our neuromuscular disease programs, we link EEVs to small strands of nucleic acids called oligonucleotides, including phosphorodiamidate morpholino oligomers (PMOs). Our most advanced therapeutic candidate, ENTR-601-44, is being developed for patients with DMD that are exon 44 skipping amenable. OnDecember 19, 2022 , we announced that we received a clinical hold notice from the FDA regarding the Investigational New Drug (IND) application for ENTR-601-44. The FDA has requested that we gather and submit additional information regarding ENTR-601-44 and we are actively working to resolve the clinical hold inthe United States as quickly as possible. Should we be delayed in submitting a response to the clinical hold inthe United States or our response is not satisfactory to the FDA, the clinical hold may not be lifted on a timely basis, or at all. In addition, given the extraordinary unmet need, we are exploring a range of options globally with the goal of initiating a healthy volunteer trial in 2023. However, if our efforts inthe United States and elsewhere are not successful, we may not be able to initiate our healthy volunteer clinical trial for ENTR-601-44 as planned, or at all. OnJanuary 9, 2023 , we announced the selection of a second clinical candidate within its Duchenne franchise, ENTR-601-45 for the potential treatment of people living with Duchenne muscular dystrophy who are Exon 45 skipping amenable. We plan to submit an IND application for ENTR-601-45 in the fourth quarter of 2024. We have also entered into a Strategic Collaboration and License Agreement (the Vertex Agreement) with Vertex Pharmaceuticals Incorporated ("Vertex") pursuant to which the Company granted Vertex an exclusive worldwide license to research, develop, manufacture and commercialize ENTR-701, the Company's intracellular Endosomal Escape Vehicle ("EEV")-based therapeutic candidate for the treatment of myotonic dystrophy type 1 ("DM1") that targets expanded CUG repeats in DM1 protein kinase (DMPK) mRNA transcripts, as well as any additional EEV-based therapeutic candidates that may be identified by the Company for the potential treatment of DM1 in the course of the parties' global research collaboration. The Vertex Agreement provides for a four-year global research collaboration under which Vertex will fund the Company's continued pre-clinical development of ENTR-701, as well as additional DM1-related research activities with a goal of identifying other EEV-based therapeutic product candidates for the potential treatment of DM1. Other than the Company's efforts under this research collaboration, Vertex will be responsible for global development, manufacturing and commercialization of the licensed products.
On
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Agreement, Entrada received $250 million from the Vertex agreement comprised of
an upfront payment of $223.7 million and an equity investment of $26.3 million
in the Company's common stock at $16.26 per share.
Since our inception, we have devoted substantially all our resources to research
and development efforts relating to our EEV Platform, advancing development of
our portfolio of programs and general and administrative support for these
operations, including raising capital. To date, we have financed our operations
primarily through the sales of preferred and common stock in our initial public
offering (IPO). As of December 31, 2022 we had raised over $400 million of gross
proceeds from the sale of preferred and common stock.
We have incurred losses since our inception. Our net losses were $94.6 million
and $51.2 million for the years ended December 31, 2022 and 2021, respectively.
As of December 31, 2022 , we had an accumulated deficit of $188.3 million . We
expect to continue to generate operating losses and negative operating cash
flows for the foreseeable future as we advance our platform and EEV therapeutic
candidates into later stages of preclinical development and, if successful,
clinical development. We will not generate any revenue from product sales unless
and until we successfully complete clinical development and obtain regulatory
approval for one or more therapeutic candidates, if ever. If we obtain
regulatory approval for any therapeutic candidates, we expect to incur
significant expenses related to developing our internal commercialization
capability to support product sales, marketing and distribution.
Furthermore, we expect to incur additional costs associated with operating as a
public company, including significant legal, accounting, investor relations and
other expenses that we did not incur as a private company. As a result, we will
need substantial additional funding to support our continuing operations and
pursue our growth strategy, as we advance therapeutic candidates through
preclinical and, if successful, into clinical development, seek regulatory
approval, prepare for and, if any therapeutic candidates are approved, proceed
to commercialization and operate as a public company. Until such time as we can
generate significant revenue from product sales, if ever, we expect to finance
our operations through the sale of equity, debt financings or other capital
sources, including potential collaborations with other companies or other
strategic transactions.
If we are unable to obtain funding, we will be forced to delay, reduce, or
eliminate some or all of our research and development programs, product
portfolio expansion and ultimate commercialization efforts, which would
adversely affect our business prospects, or we may be unable to continue
operations. Although we continue to pursue these plans, we may not be successful
in obtaining sufficient funding on terms acceptable to us to fund continuing
operations, if at all.
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. Even if we
can 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.
We believe that our existing cash, cash equivalents and marketable securities of
$188.7 million as of December 31, 2022 , together with the proceeds received
under the Vertex Agreement, ongoing research support and the anticipated
achievement of certain near-term milestones under the Vertex Agreement will be
sufficient to extend our cash runway into the second half of 2025, supporting
the Company's expansion and continued development of EEV therapeutic candidates
targeting Duchenne muscular dystrophy and advance EEV-therapeutic candidates in
indications beyond neuromuscular disease. We have based this estimate on
assumptions that may prove to be wrong, and we could exhaust our available
capital resources sooner than we expect. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources." To finance our operations beyond that point we will need to raise
additional capital, which cannot be assured.
Impact of the Ongoing COVID-19 Pandemic on Our Business
The duration of the ongoing COVID-19 pandemic and the extent to which it may
directly or indirectly impact our business, results of operations and financial
condition will depend on future developments that are uncertain, subject to
change and difficult to predict, including the duration of the outbreak, new
information that may emerge concerning the severity of COVID-19, such as new
strains of the virus, and any future variants that may emerge, which may impact
rates of infection and vaccination efforts, developments or perceptions
regarding the safety of vaccines and the extent and effectiveness of actions to
contain COVID-19 or treat its impact, including vaccination campaigns and
lockdown measures, among others. At times during the pandemic, we, our contract
manufacturing organizations (CMOs), and our contract research organizations
(CROs), experienced temporary reductions in certain operations that have since
normalized. We, together with our CMOs and CROs, are closely monitoring the
impact of the ongoing COVID-19 pandemic on these
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operations. Additionally, to provide a safe work environment for our employees, we have implemented various measures including limiting on-site presence to essential employees, providing for social distancing, increased sanitization of our facilities and providing personal protective equipment for our employees. We are continuing to monitor the impact and effects of the ongoing COVID-19 pandemic and our response to it, and we expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees and other business partners in light of the pandemic. We have not incurred any significant impairment losses in the carrying values of our assets as a result of the COVID-19 pandemic and we are not aware of any specific related event or circumstance that would require us to revise our estimates reflected in our audited consolidated financial statements included elsewhere in this Annual Report. Our estimates of the impact on our business may change based on new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets.
Components of Our Results of Operations
Revenue
We do not have any products approved for sale, and as a result, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future.
Vertex Agreement
OnDecember 7, 2022 , the Company and Vertex Pharmaceuticals Incorporated (Vertex) entered into a Strategic Collaboration and License Agreement (the Vertex Agreement) pursuant to which the Company granted Vertex an exclusive worldwide license to research, develop, manufacture, commercialize ENTR-701 as well as any additional EEV-based therapeutic candidates that may be identified by the Company for the potential treatment of DM1 in the course of the parties' global research collaboration. OnFebruary 8, 2023 , following the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Entrada and Vertex closed the Vertex Agreement. The Vertex Agreement provides for a four-year global research collaboration under which Vertex will fund the Company's continued pre-clinical development of ENTR-701, as well as additional DM1-related research activities with a goal of identifying other EEV-based therapeutic product candidates for the potential treatment of DM1. Other than the Company's efforts under this research collaboration, Vertex will be responsible for global development, manufacturing and commercialization of the licensed products. Pursuant to the Vertex Agreement, the Company received$250 million from the Vertex agreement comprised of an upfront payment of$223.7 million and an equity investment of$26.3 million in the Company's common stock The Company will be eligible to receive up to$485.0 million upon the achievement of certain research, development, regulatory and commercial milestones. The Company will also receive tiered royalties, from the mid to high single digits based on potential future net sales of licensed products as set forth in the Vertex Agreement.
The Vertex Collaboration Agreement became effective in
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our programs. These expenses include:
•personnel-related expenses, including salaries, related benefits and stock-based compensation expense for individuals engaged in research and development functions;
•expenses incurred in connection with the discovery and preclinical development
of our therapeutic candidates and research programs, including under agreements
with third parties, such as consultants, contractors and CROs;
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•the cost of developing and validating our manufacturing process for use in our preclinical studies and potential future clinical trials, including the cost of raw materials used in our research and development activities and engaging with third party CMOs;
•the cost of laboratory supplies and research materials;
•the costs of payments made under third-party licensing agreements and related future payments should certain development and regulatory milestones be achieved; and
•facilities, depreciation and other direct and allocated expenses, including rent and other operating costs, incurred as a result of our research and development activities.
We expense research and development costs as incurred. Non-refundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are 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 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. As a preclinical-stage company in the early phases of development, our research and development costs are often devoted to proof-of-concept studies and our overall EEV Platform that underpins our therapeutic candidates. Our direct, external research and development expenses consist primarily of fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our process development, manufacturing and clinical development activities. Our direct external research and development expenses also include fees incurred under license and intellectual property purchase agreements. We track these external research and development costs on a program-by-program basis as we identify specific programs and product candidates to advance into clinical development. We do not allocate employee costs, costs associated with our development efforts and facilities, 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 and third-party consultants primarily to conduct our research and development activities as well as for managing our process development, manufacturing and clinical development activities. Therapeutic 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 expect that our research and development expenses will increase substantially in connection with our platform development efforts, expanding our facilities and planned preclinical and clinical development activities in the near term and in the future. We expect that the research and development expenses of our programs will increase in the near term as we initiate IND-enabling activities for our therapeutic candidates. Therefore, 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 therapeutic candidates. The successful development of our therapeutic candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development, including the following:
•the scope, timing, rate of progress and expenses of our ongoing and potential future research activities, including preclinical and IND-enabling studies, clinical trials and other research and development activities we decide to pursue;
•the successful initiation, enrollment and completion of clinical trials under current good clinical practices;
•the timing of filing and acceptance of INDs or comparable foreign applications that allow commencement of future clinical trials for our therapeutic candidates;
•the timing and likelihood of resolution of the clinical hold on our IND
application for ENTR-601-44 as well as the initiation of a clinical trial either
within or outside of
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•whether our therapeutic candidates show safety and efficacy in our clinical trials and an acceptable risk-benefit profile in the intended populations;
•our ability to hire and retain key research and development personnel;
•our ability to successfully develop, obtain regulatory and marketing approvals of our therapeutic candidates for the expected indications and patient populations;
•our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our therapeutic candidates are approved;
•commercializing therapeutic candidates, if and when approved, whether alone or in collaboration with others;
•our ability to maintain a continued acceptable safety, tolerability and efficacy profile of our therapeutic candidates following approval;
•our ability to establish new licensing or collaboration arrangements to support our potential therapeutic candidates on favorable business terms;
•any decisions we make to discontinue, delay or modify our programs to focus on others;
•obtaining, maintaining, protecting and enforcing patent and trade secret protection and regulatory exclusivity for our therapeutic candidates;
•obtaining and maintaining adequate coverage and reimbursement from third party payors; and
•the effects of the ongoing COVID-19 pandemic.
A change in the outcome of any of these variables with respect to the development of any of our therapeutic candidates could significantly change the costs and timing associated with the development of that therapeutic candidate. We may never succeed in obtaining regulatory approval for any of our therapeutic candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and personnel-related costs, including stock-based compensation, for our personnel in executive, legal, finance and accounting, corporate and business development, human resources and other administrative functions. General and administrative expenses also include: legal fees relating to intellectual property and corporate matters; professional fees paid for accounting, auditing, consulting and tax services; insurance costs; travel expenses; and facility costs not otherwise included in research and development expenses. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount and expand our facilities to support our continued research activities and development of our programs and EEV Platform. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance and investor and public relations expenses associated with operating as a public company.
Other Income (Expense)
Interest Income
Interest income consists of interest earned our cash, cash equivalents and marketable securities.
Other Income (Expense), Net
Other income (expense), net consists primarily of gains and losses on disposal of fixed assets and gains and losses on foreign currency transactions.
Income Taxes
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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 and interim period as we believe, based upon the weight of available evidence, that it is more likely than not that all our net operating loss carryforwards and tax credit carryforwards will not be realized. As ofDecember 31, 2022 , we had federal net operating loss carryforwards of$119.3 million , which may be available to offset future taxable income, of which$3.2 million expire at various dates beginning in 2036 and the remaining$116.1 million do not expire but are limited in their usage to an annual deduction equal to 80% of annual taxable income. In addition, as ofDecember 31, 2022 , we had state net operating loss carryforwards of$112.1 million , which may be available to offset future taxable income and expire at various dates beginning in 2036. As ofDecember 31, 2022 , we also had federal and state research and development tax credit carryforwards of$5.5 million and$2.8 million , respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2039 and 2035, respectively.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States . The preparation of our consolidated financial statements and related disclosures requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our consolidated 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.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically corroborate the accuracy of these estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include those related to fees paid to:
•vendors in connection with discovery and preclinical development activities;
•CROs in connection with preclinical studies and testing; and
•third-party manufacturers in connection with the development and scale up activities and the production of materials.
We base the expense recorded related to contract research and manufacturing on
our estimates of the services received and efforts expended pursuant to quotes
and contracts with multiple service providers that conduct services and supply
materials. The financial terms of these agreements are subject to negotiation,
vary from contract to contract and may result in uneven payment flows. In
accruing service fees, we estimate the time period over which services were
performed and the level of effort expended in each period. If the actual timing
of the performance of services or the level of effort varies from the estimate,
we adjust the accrual accordingly. Although we do not expect our estimates to be
materially different from amounts actually incurred, our understanding of the
status and timing of services performed relative to the actual status and timing
of services performed may vary and may result in reporting amounts that are too
high or too low in any particular period. While the majority of our service
providers invoice us in arrears for services performed, on a pre-determined
schedule or when contractual milestones are met, some require advance payments.
There may be instances in which payments made to our vendors will exceed the
level of services provided and result in a prepayment of the expense. We record
these as prepaid expenses on our consolidated balance sheets.
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Stock-Based Compensation
We account for all stock-based compensation awards granted as stock-based compensation expense at fair value in accordance with FASB ASC Topic 718, Compensation-Stock Compensation (ASC 718). Our stock-based payments include stock options and grants of common stock restricted for vesting conditions. The measurement date for awards is the date of grant, and stock-based compensation costs are recognized as expense over the requisite service period, which is generally the vesting period, on a straight-line basis. Stock-based compensation expense is classified in the accompanying consolidated statements of operations based on the function to which the related services are provided. Forfeitures are recorded as they occur. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected share price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and our expected dividend yield. Prior to our IPO, there was no public market for our common stock, and consequently, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering third-party valuations of our common stock as well as our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in theAmerican Institute of Certified Public Accountants' Accounting and Valuation Guide , Valuation of Privately-Held-Company Equity Securities Issued as Compensation (Practice Aid). The Practice Aid identifies various available methods for allocating the enterprise value across classes of series of capital stock in determining the fair value of our common stock at each valuation date. Since our IPO, we have determined the fair market value of our common stock using the closing price of our common stock as reported on the Nasdaq Global Market.
Subsequent to the IPO, the fair value of the common stock underlying our stock-based awards is the closing price of our common stock on the date of grant.
Recently Issued Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies, in the notes to our consolidated financial statements included elsewhere in this Annual Report for a description of recent accounting pronouncements applicable to our business.
Results of Operations
Comparison of the years ended
Year ended December 31,
(in thousands) 2022 2021 Change
Operating expenses:
Research and development $ 66,609 $ 35,926 $ 30,683
General and administrative 30,639 15,201 15,438
Total operating expenses 97,248 51,127 46,121
Loss from operations (97,248) (51,127) (46,121)
Other income (expense):
Interest and other income (expense), net 2,632 (31) 2,663
Total other income (expense), net 2,632 (31) 2,663
Net loss $ (94,616) $ (51,158) $ (43,458) Research and Development Expenses
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Year ended December 31,
(in thousands) 2022 2021 ChangeExternal research and development expenses:
ENTR-601-44 $ 12,851 $ 5,350 $ 7,501 ENTR-701 11,339 946 10,393 Other preclinical and discovery 4,835 4,677 158 Total external costs 29,025 10,973 18,052 Internal costs, including personnel related 37,584 24,953 12,631 Total research and development expenses $ 66,609 $ 35,926 $ 30,683 Research and development expenses were$66.6 million for the year endedDecember 31, 2022 , compared to$35.9 million for the year endedDecember 31, 2021 . The increase of$30.7 million in research and development expenses was primarily attributable to:
•an increase of
•an increase of$12.6 million in internal costs driven by increased headcount in our research and development function, inclusive of stock-based compensation expense of$4.2 million and$0.9 million for the years endedDecember 31, 2022 and 2021, respectively, and increased facilities costs to support our expanding operations. We expect our research and development expenses will continue to increase as we continue our current research and development activities, initiate new research programs, continue our preclinical development of therapeutic candidates and progress ENTR-601-44, ENTR-601-45, ENTR-701 and future product candidates, into clinical trials.
General and Administrative Expenses
General and administrative expenses for the year endedDecember 31, 2022 were$30.6 million , compared to$15.2 million for the year endedDecember 31, 2021 . The increase of$15.4 million was primarily attributable to the following: •a$7.4 million increase in personnel-related costs, primarily as a result of the increase in headcount in our general and administrative function, inclusive of stock-based compensation expense of$5.7 million and$1.6 million for the years endedDecember 31, 2022 and 2021, respectively;
•a
•a
•a
Interest and Other Income (Expense), net
Total interest and other income, net was
Liquidity and Capital Resources
Sources of Liquidity
Since our inception in 2016, we have incurred significant operating losses. Our net losses were$94.6 million and$51.2 million for the years endedDecember 31, 2022 and 2021, respectively. As ofDecember 31, 2022 and 2021, we had 129
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an accumulated deficit of$188.3 million and$93.7 million , respectively. We expect to incur significant expenses and operating losses for the foreseeable future as we further our platform development and advance the preclinical and, if successful, the clinical development of our programs. To date, we have funded our operations primarily with over$400 million in gross proceeds from the sale of common and preferred stock. As ofDecember 31, 2022 , we had cash, cash equivalents and marketable securities of$188.7 million . Additionally, pursuant to the Vertex Agreement which closed onFebruary 8, 2023 , the Company received an upfront payment of approximately$223.7 million , and Vertex made an equity investment of approximately$26.3 million in the Company's common stock, pursuant to a stock purchase agreement between the Company and Vertex. InNovember 2022 , we filed a universal shelf registration on Form S-3 to register the issuance from time to time of up to$400.0 million in aggregate principal amount of our common stock, preferred stock, debt securities, warrants and/or units in one or more offerings. To date, we have not issued any securities under the Form S-3.
Cash Flows
The following table summarizes our cash flows for each of the periods presented:
Year Ended December 31,
(in thousands) 2022 2021
Net cash used in operating activities $ (93,786) $ (50,862)
Net cash used in investing activities (148,650) (4,580)
Net cash provided by financing activities 479 307,461
Net (decrease) increase in cash and cash equivalents $ (241,957) $ 252,019
Operating Activities
For the year ended December 31, 2022 , net cash used in operating activities was
$93.8 million , consisting primarily of our net loss of $94.6 million and a net
increase in working capital of $11.1 million , partially offset by adjustments
for non-cash expenses relating to stock-based compensation expense of
$9.9 million , depreciation expense of $1.9 million and amortization of premiums
and discounts on marketable securities of $0.1 million .
For the year ended December 31, 2021 , net cash used in operating activities was
$50.9 million , consisting primarily of our net loss of $51.2 million and a net
increase in working capital of $3.3 million , partially offset by stock-based
compensation expense of $2.5 million and depreciation expense of $1.1 million .
Investing Activities
Net cash used in investing activities was
Net cash used in investing activities was
Financing Activities
Net cash provided by financing activities was$0.5 million for the year endedDecember 31, 2022 , consisting of$0.3 million proceeds from stock option exercises and$0.2 million from the issuance of common stock under our employee stock purchase plan. Net cash provided by financing activities was$307.5 million for the year endedDecember 31, 2021 , consisting of$115.8 million of net proceeds from the sale of our Series B Preferred Stock inMarch 2021 ,$190.7 million of aggregate net proceeds from our IPO inNovember 2021 and stock option exercises of$1.0 million . Funding Requirements 130
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We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and, if successful, the clinical development of our programs. In addition, we expect to incur additional costs associated with operating as a public company. Our operating expenses and future funding requirements are expected to increase substantially as we continue to advance our portfolio of programs. We believe that our existing cash, cash equivalents and marketable securities of$188.7 million as ofDecember 31, 2022 , together with the proceeds received under the Vertex Agreement, ongoing research support and the anticipated achievement of certain near-term milestones under the Vertex Agreement will be sufficient to extend our cash runway into the second half of 2025, supporting the Company's expansion and continued development of EEV therapeutic candidates targeting Duchenne muscular dystrophy and advance EEV-therapeutic candidates in indications beyond neuromuscular disease. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.
Because of the numerous risks and uncertainties associated with research, development and commercialization of our candidates, we are unable to estimate the exact amount of our working capital requirements. Our future capital requirements will depend on many factors, including costs associated with:
•the continuation of our current research programs and our preclinical development of therapeutic candidates from our current research programs;
•the timing and likelihood of resolution of the clinical hold on our IND
application for ENTR-601-44 as well as the initiation of a clinical trial either
within or outside of
•seeking to identify additional research programs and additional therapeutic candidates;
•advancing our existing and future therapeutic candidates into clinical development;
•initiating preclinical studies and clinical trials for any therapeutic candidates we identify and develop or expand development of existing programs into additional indications;
•maintaining, expanding, enforcing, defending and protecting our intellectual property portfolio and providing reimbursement of third-party expenses related to our patent portfolio;
•timing of manufacturing for our therapeutic candidates and commercial manufacturing if any therapeutic candidate is approved;
•establishing and maintaining clinical and commercial supply for the development and manufacture of our therapeutic candidates;
•seeking regulatory and marketing approvals for any of our therapeutic candidates that we develop, if any;
•seeking to identify, establish and maintain additional collaborations and license agreements, and the success of those collaborations and license agreements;
•ultimately establishing a sales, marketing and distribution infrastructure to commercialize any platforms for which we may obtain marketing approval, either by ourselves or in collaboration with others;
•generating revenue from commercial sales of therapeutic candidates we may develop for which we receive marketing approval;
•hiring additional personnel including research and development, clinical and commercial personnel;
•adding operational, financial and management information systems and personnel, including personnel to support our product development;
•achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
•acquiring or in-licensing products, intellectual property and technologies; and
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•the ongoing costs of operating as a public company.
Until such time, if ever, as we can generate substantial product revenue to support our cost structure, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and 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 funds through collaborations or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or therapeutic candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our therapeutic candidates even if we would otherwise prefer to develop and market such therapeutic candidates ourselves.
Contractual Obligations and Commitments
Lease commitments
6 Tide Street Lease
We have a noncancellable operating lease of 42,046 square feet of office and laboratory space at6 Tide Street inBoston , Massachusetts.InJanuary 2023 , we entered into an amendment pursuant to which the term for a portion of the leased space will expire onNovember 30, 2023 at the latest. The term for the remainder of the lease will end onNovember 30, 2025 . Following the amendment, the fixed rental payment will be approximately$0.8 million per month throughNovember 30, 2023 , and$0.5 million per month afterNovember 30, 2023 .
IDB Lease
OnMarch 16, 2022 , the Company and IDB 17-19Drydock Limited Partnership , as landlord (Landlord), entered into a lease agreement (IDB Lease) with respect to approximately 81,442 square feet of office and laboratory space (Premises) inBoston, Massachusetts , which, when available for occupancy, will become the Company's new consolidated headquarters location and supplement its existing space inMassachusetts . The term of the IDB Lease commences the date upon which the Landlord tenders possession of the Premises to the Company following the Landlord's substantial completion of the initial build-out of the Premises and shall continue for a period of approximately 10 years. The initial fixed rental rate is$0.5 million per month, which is for a 12 month period during which the base rent is payable for 65,000 square feet, and will increase 3% per annum thereafter for the entire 81,442 square feet leased.
IDB Sublease
InDecember 2022 , the Company entered into a sublease agreement to sublease a portion of the office and laboratory space leased under the IDB Lease to a third-party (subtenant). The term of the sublease will commence at the later of (i) the date the subleased space is available for use by the subtenant, (ii) the date that IDB 17-19Drydock Limited Partnership delivers its executed consent to the sublease, or (iii)March 1, 2023 . The sublease term is 3 years and neither party has an option to extend the lease. The initial fixed rental rate is approximately$0.2 million per month and will increase 3% per annum thereafter.
For additional information regarding these leases, refer to Note 11, Leases, to our consolidated financial statements included elsewhere in this Annual Report.
License Agreements
We have also entered into a license agreement (OSIF License Agreement) withOhio State Innovation Foundation (OSIF), an affiliate ofThe Ohio State University (OSU), under which we are obligated to make specific milestone and royalty payments. The payment obligations under this agreement are contingent upon future events, such as our achievement of specified development, regulatory and commercial milestones, or generating product sales. For additional information about our OSIF License Agreement and amounts that could become payable in the future under such 132
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agreements, see "Business-Intellectual property- License agreement with
Other Funding Commitments
We enter into contracts in the normal course of business with CROs, third-party manufacturers and other third parties for preclinical research studies and testing and manufacturing services. These contracts do not contain minimum purchase commitments and are cancelable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation.
Emerging Growth Company and Smaller Reporting Company Status
We are an "emerging growth company," or EGC, under the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). Section 107 of the JOBS Act provides that an EGC can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of delayed adoption of new or revised accounting standards and, therefore, we will be subject to the same requirements to adopt new or revised accounting standards as private entities.
As an EGC, we may, and intend to, take advantage of certain exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC:
•we may present only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations; •we may avail ourselves of the exemption from providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended (the Sarbanes-Oxley Act); •we may avail ourselves of the exemption from complying with any requirement that may be adopted by thePublic Company Accounting Oversight Board (PCAOB) regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis;
•we may provide reduced disclosure about our executive compensation arrangements; and
•we may not require nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments.
We will remain an EGC until the earliest to occur of (i) the last day of the fiscal year following the fifth anniversary of the completion of our IPO, (ii) the last day of the fiscal year in which we have total annual gross revenues of$1.235 billion or more, (iii) the date on which we have issued more than$1.0 billion in non-convertible debt during the previous rolling three-year period or (iv) the date on which we are deemed to be a large accelerated filer under the Securities Exchange Act of 1934, as amended (the Exchange Act). We are also a "smaller reporting company," meaning that the market value of our stock held by non-affiliates is less than$700 million and our annual revenue was less than$100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than$250 million or (ii) our annual revenue was less than$100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than$700 million . If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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