GALECTO, INC. The following information should be read in conjunction with the unaudited
interim condensed consolidated financial statements and the notes thereto
included in this Quarterly Report on Form 10-Q and the audited consolidated
financial statements and notes thereto for the year ended
Overview
We are a clinical-stage biotechnology company developing novel small molecule therapeutics that are designed to target the biological processes that lie at the heart of cancer and fibrotic diseases. Our strategy is to focus on diseases without disease-modifying treatment options and where there is a high unmet medical need. We are concentrating on the development of a new class of medicines: small molecule inhibitors of galectin-3 and lysyl oxidase-like 2, or LOXL2, that target underlying biology for the treatment of multi-factorial diseases like cancer and fibrotic diseases. Galectin proteins, and especially galectin-3, are highly expressed in many cancers, where they promote cancer progression, and fibrotic diseases, where they reduce organ function. The collagen cross-linking enzyme LOXL2 builds the backbone of fibrotic tissue by cross-linking collagen and elastin molecules and has been linked to cancer growth, metastasis and fibrosis. Our product candidates are designed to modulate multiple disease pathways simultaneously by inhibiting the master drivers of the cancer and fibrotic cascades. We believe our galectin and LOXL2 product candidates are distinct from the current generation of anti-cancer and anti-fibrotic agents and have the potential to significantly improve patient outcomes for these complex diseases. We recently completed a Phase 1b/2a clinical trial in patients with decompensated liver cirrhosis, and we currently have three other ongoing Phase 2 clinical trials.
GB0139 (Idiopathic Pulmonary Fibrosis, IPF) - GALACTIC-1 Trial
Our most advanced product candidate, GB0139, is an inhaled small molecule
inhibitor of galectin-3, one of the key regulators of fibrosis that controls the
pro-fibrotic activity of TGF-b. Overexpression of galectin-3 is ubiquitous in
fibrotic tissue, including in fibrotic lung tissue, and is linked to both
disease severity and disease progression, as well as acute exacerbations of
idiopathic pulmonary fibrosis, or IPF. We are initially developing GB0139 for
the treatment of IPF, a life-threatening progressive fibrotic disease of the
lung. IPF affects approximately 100,000 people in
In our clinical, preclinical and in vitro testing to date, we have demonstrated that GB0139 can directly target galectin-3 in the lungs and markedly lowers the systemic plasma levels of biomarkers of fibrosis in IPF patients. In our Phase 1/2a trial in both healthy volunteers and IPF patients, GB0139 was generally well-tolerated, showed consistent and tight pharmacokinetics measured as plasma levels of the compound, and showed target engagement with the inhibition of galectin-3 in the lungs of IPF patients in a dose-dependent manner. Our clinical trials completed to date have found that orally inhaled GB0139 also decreased systemic levels of a range of plasma biomarkers, such as the glycoprotein YKL-40 and PDGF, that have been linked to mortality, disease severity and/or progression in IPF.
We are currently conducting the GALACTIC-1 trial, a 52-week randomized,
double-blind, multicenter, parallel, placebo-controlled Phase 2b trial
investigating the safety and efficacy of GB0139 in patients with IPF. The
primary endpoint of the trial is to assess the annual rate of decline in forced
vital capacity, or FVC, over 52 weeks, which is the regulatory endpoint
identified for IPF therapy approval. Reduction in the decline of FVC is the
endpoint that was accepted by the FDA for the approval of both nintedanib,
marketed as Ofev® by
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GB1211 (Liver Cirrhosis and Oncology Indications) - GULLIVER-2, GALLANT-1 and Providece Investigator-Initiated Trials
GB1211 is a selective oral small molecule inhibitor of galectin-3 and is chemically distinct from GB0139. We believe GB1211 has the potential to treat multiple types of fibrosis and oncology indications. GB1211 demonstrated antifibrotic and anticancer activity in multiple preclinical models and was evaluated in a Phase 1 trial in 78 healthy volunteers. In the Phase 1 trial, GB1211 was well-tolerated and showed dose-dependent pharmacokinetics.
Within the field of fibrotic diseases, our initial target indication for GB1211 is liver cirrhosis, a severe, progressive disease that ultimately leads to liver failure and for which there are limited treatment options and no FDA-approved disease modifying therapeutics available. During the fourth quarter of 2022, at the American Association for the Study of Liver Diseases' (AASLD) The Liver Meeting® 2022, we announced topline results from our Phase 1b/2a GULLIVER-2 trial in patients with decompensated liver cirrhosis showing statistically significant reductions in ALT (p<0.0005), AST (p<0.005) and GGT (p<0.05), with encouraging reductions for ALP (p<0.09), after 12 weeks of treatment. These findings suggest that GB1211 provided liver cell protection and improved liver status, further supporting clinical development in severe liver disease. The consistency of the reductions in liver enzymes shown in this severe form of liver cirrhosis, the progressive improvement we observed over 12 weeks and the favorable safety profile observed in the GULLIVER-2 trial lead us to believe that a broader study in patients with compensated and/or decompensated cirrhosis could show broader clinical activity, providing a potential regulatory path to approval as the first FDA-approved therapy in liver cirrhosis. Our next step in the development of GB1211 for the treatment of liver cirrhosis and other liver diseases is to conduct a Phase 2b trial, subject to obtaining additional financing or collaborating with a third party.
GB1211 is also being studied in oncology. Many tumors overexpress galectin-3,
which mechanistically is linked to several cancer promoting mechanisms,
including those linked to programmed cell death receptor 1 (PD-1) or its ligand,
PD-L1 resistance and chemotherapy resistance, and may ultimately lead to worse
clinical outcomes. Galectin-3 inhibition has the potential to both directly
reduce tumor growth as well as increase the immune mediated eradication of
tumors and is believed to increase T-cell recruitment and activation in the
tumor microenvironment. In an animal model, we observed that oral administration
of our galectin-3 inhibitors reduced human and mouse lung adenocarcinoma growth
and blocked metastasis. Treatment with one of our galectin-3 inhibitors also
potentiated the activity of a PD-L1 immune checkpoint inhibitor. The mechanisms
at work include checkpoint inhibitor-type mechanisms (inhibition of TGF-?
signaling, LAG-3, T-cell receptor, interferon gamma) and mechanisms potentially
enhancing PD-1/PD-L1 activity, as evidenced by preclinical data that we
presented at the 2022
Our initial target indication for GB1211 in oncology is non-small cell lung
cancer, or NSCLC, a cancer indication with high unmet medical need. In the
fourth quarter of 2021, we announced that we had entered into a clinical trial
supply agreement with
We have initiated Part A of the GALLANT-1 trial, an open-label study to select the dose of GB1211 to be used in Part B of the trial, which is designed to evaluate the safety and tumor shrinkage (based on RECIST criteria) of the combination of the selected dose of GB1211 and atezolizumab. In the first seven patients who received GB1211 200 mg twice daily in combination with atezolizumab, we observed two serious adverse events of autoimmune-type skin rashes (showing perivascular lymphocytic infiltrates), which were determined by the principal investigator to be related to the administration of atezolizumab. In accordance with the protocol, we reduced the GB1211 dose to 100 mg twice daily for the second patient cohort. The reactions were similar to those observed with atezolizumab and described in the label. Both reactions responded to therapy with oral glucocorticosteroids and were clinically manageable. Interestingly, inflammatory and perivascular lymphocytic infiltrates were observed in both skin reactions, and could signal an exaggerated immune activation, something often observed with checkpoint inhibitor therapy and associated with improved clinical outcomes. Because a central aspect of the mechanism of action for GB1211 in combination with a checkpoint inhibitor is to remove galectin-3 from the lymphocytes and the tumor cells, and thereby increase lymphocyte-based tumor killing, we believe this could also be a positive signal of enhanced lymphocyte activation.
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One patient in the GALLANT-1 trial who has been in treatment for 23 weeks with both GB1211 200 mg twice daily and atezolizumab showed a partial response, which is defined by the RECIST criteria to be shrinkage of at least 30% of the tumor, at week 18. Another patient who has been in treatment for 14 weeks with GB1211 100 mg twice daily and atezolizumab also showed a partial response at week six and week 12. Both partial responses were pursuant to investigator-led assessments. Both patients continue to receive treatment with GB1211 and atezolizumab. Recruitment in Part A is currently ongoing and we expect to release interim safety data in the second half of 2023. We expect topline results to be available in the first half of 2024.
In
GB2064 (Myelofibrosis) - MYLOX-1 Trial
GB2064 is a selective oral small molecule inhibitor of LOXL2 that we are initially developing for the treatment of myelofibrosis, a malignant disease of the bone marrow in which progressive fibrosis reduces the ability to form blood cells in the bone marrow. Myelofibrosis is one of several types of cancer and multiple fibrotic diseases in which expression of LOXL2 is significantly increased. Unlike current treatment options for myelofibrosis, we believe that GB2064 has the potential to be a disease-modifying therapy as it is designed to have a direct impact on the fibrotic process and slow the progression of the disease.
We are currently conducting a Phase 2a MYLOX-1 trial examining GB2064 in myelofibrosis in which the primary endpoint is safety and secondary endpoints include measurements of drug levels in the bone marrow and grade of fibrosis, improvement of anemia and/or thrombocytopenia and assessment of spleen and liver size. In the third quarter of 2022, we announced results from a planned intermediate assessment of the first five patients who had completed at least six months of treatment with GB2064. Four of the five patients experienced a ? 1-grade reduction in collagen fibrosis of the bone marrow, an improvement suggesting that GB2064 could impact the progression of the disease and potentially be disease modifying. All four patients who experienced a ? 1-grade reduction in collagen fibrosis also showed stable hematological parameters (hemoglobin, white blood cell count, and thrombocytes) and stable spleen volume over the six month treatment period, and none required transfusion. As of the date of the planned intermediate assessment, the most commonly observed treatment-related adverse events were gastrointestinal in nature and were manageable in most patients with standard therapy. In the five patients who completed at least six months of treatment with GB2064 and valid bone marrow biopsies, there were no treatment-related serious adverse events, while in the entire trial population, the only possibly treatment-related serious adverse event was a case of fall.
As of the date of this report, we have enrolled and treated 18 patients in the MYLOX-1 trial, of which two patients continue to receive treatment and four patients are currently in the extension phase because their treating physician deemed them to be clinically responsive to treatment with GB2064. Since the analysis of five evaluable patients in the intermediate assessment referenced above, three more patients have passed the six and nine month periods to be deemed evaluable. Of these three patients, one patient experienced a 1-grade reduction in reticulin fibrosis at nine months and, following an initial increase of collagen fibrosis score of 1 grade at six months, experienced a 1-grade reduction in collagen fibrosis at nine months. Consistent with the trends observed in the intermediate assessment, the patient who experienced reduction in fibrosis also showed stable hematological parameters and stable spleen volume and did not require transfusion. Marked reductions of lactate dehydrogenase levels (LDH) were observed in local laboratory findings for two of these three patients. LDH assessment was not part of the scheduled assessments for the MYLOX-1 trial, but reduciton of LDH is generally viewed as a positive signal in myelofibrosis since increase in LDH are linked to worse prognosis.
The data received to date from the MYLOX-1 trial suggest that inhibiting LOXL2 may be a way to reduce tissue collagen levels in multiple fibrosis and oncology indications. Four out of eight evaluable patients have now shown a ? 1 grade reduction in collagen fibrosis, which we believe has not been shown with any FDA-approved therapy. Because the trial has already exceeded the pre-defined target of a ? 1 grade reduction in collagen fibrosis in at least three out of 16 evaluable patients, we believe that MYLOX-1 has reached the dual goal of confirming LOXL2 as an attractive fibrosis target and demonstrating that GB2064 has clinically meaningful antifibrotic activity. Accordingly, we have determined to stop enrolling additional patients in the trial and will continue following the remaining patients. We continue to expect to report topline results in the second half of 2023. Given that we have already shown bone marrow collagen reduction and a manageable clinical tolerability profile, we are beginning to plan for next steps in clinical development, which we expect could include combining GB2064 with another myelofibrosis treatment.
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Financial Overview
Our product candidates GB0139, GB1211 and GB2064 are in Phase 2 of clinical
development. Our ability to generate revenue from product sales sufficient to
achieve profitability will depend heavily on the successful development and
eventual commercialization of one or more of these product candidates. Our
operations to date have been financed primarily from our initial public
offering, or IPO, the issuance of common stock through our ATM Program, the
issuance of convertible preferred shares and convertible notes. Since inception,
we have had significant operating losses. Our net loss was
Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our prepaid expenses, accounts payable and accrued expenses. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue. In particular, we expect our expenses to continue as we further our development of, and seek regulatory approvals for, our product candidates, as well as hire additional personnel, pay fees to outside consultants, lawyers and accountants, and incur other costs associated with being a public company. In addition, if and when we seek and obtain regulatory approval to commercialize any current or future product candidate, we will also incur increased expenses in connection with commercialization and marketing of any such product. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.
Based upon our current operating plan, we believe that our existing cash, cash
equivalents and marketable securities of
To date, we have not had any products approved for sale and, therefore, have not generated any product revenue. We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. As a result, until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms, if at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies, including our research and development activities. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs.
The spread of COVID-19 and identification of new variants and subvariants of the virus has impacted the global economy and, both directly and indirectly, businesses and commerce. As worker shortages have occurred, supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The ongoing economic challenges of the COVID-19 pandemic and its effects on our business and operations are uncertain.
In addition, economic uncertainty in various global markets, including the
Although, to date, our business has not been materially impacted by these global
economic and geopolitical conditions, it is impossible to predict the extent to
which our operations will be impacted in the short and long term, or the ways in
which such instability could impact our business and results of operations. The
extent and duration of these market disruptions, whether as a result of the
military conflict between
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Components of Operating Results
Operating Expenses
Our operating expenses since inception have consisted primarily of research and development expenses and general and administrative costs.
Research and Development
Our research and development expenses consist primarily of costs incurred for the development of our product candidates and our drug discovery efforts, which include:
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personnel costs, which include salaries, benefits and stock-based compensation expense;
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expenses incurred under agreements with consultants, and third-party contract organizations that conduct research and development activities on our behalf;
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costs related to sponsored research service agreements;
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costs related to production of preclinical and clinical materials, including fees paid to contract manufacturers;
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laboratory and vendor expenses related to the execution of preclinical studies and planned clinical trials;
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laboratory supplies and equipment used for internal research and development activities; and
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acquired in-process research and development programs.
We expense all research and development costs in the periods in which they are incurred, including for acquired in-process research and development. Costs for certain research and development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers.
We have historically met the requirements to receive a tax credit in
Our direct research and development expenses are not currently tracked on a
program-by-program basis. We use our personnel and infrastructure resources
across multiple research and development programs directed toward identifying
and developing product candidates. The majority of our clinical spending in the
three month periods ended
We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in conducting clinical trials, manufacturing and otherwise advancing our programs. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain.
Because of the numerous risks and uncertainties associated with product development and the current stage of development of our product candidates and programs, we cannot reasonably estimate or know the nature, timing and estimated costs necessary to complete the remainder of the development of our product candidates or programs. We are also unable to predict if, when, or to what extent we will obtain approval and generate revenues from the commercialization and sale of our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
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successful enrollment and completion of our Phase 2 clinical trials for GB0139, GB2064 and GB1211, and any clinical trials for future product candidates;
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data from our clinical programs that support an acceptable risk-benefit profile of our product candidates in the intended patient populations;
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acceptance by the FDA, regulatory authorities in
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expansion and maintenance of a workforce of experienced scientists and others to continue to develop our product candidates;
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successful application for and receipt of marketing approvals from applicable regulatory authorities;
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obtainment and maintenance of intellectual property protection and regulatory exclusivity for our product candidates;
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arrangements with third-party manufacturers for, or establishment of, commercial manufacturing capabilities;
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establishment of sales, marketing and distribution capabilities and successful launch of commercial sales of our products, if and when approved, whether alone or in collaboration with others;
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acceptance of our products, if and when approved, by patients, the medical community and third-party payors;
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effective competition with other therapies; obtainment and maintenance of coverage, adequate pricing and adequate reimbursement from third-party payors, including government payors;
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maintenance, enforcement, defense and protection of our rights in our intellectual property portfolio;
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avoidance of infringement, misappropriation or other violations with respect to others' intellectual property or proprietary rights; and
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maintenance of a continued acceptable safety profile of our products following receipt of any marketing approvals.
We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our preclinical studies and clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development.
Research and development activities account for a significant portion of our operating expenses. We expect our research and development expenses to continue for the foreseeable future as we continue to implement our business strategy, which includes advancing GB0139, GB2064 and GB1211 through clinical development and other product candidates further into clinical development, expanding our research and development efforts, including hiring additional personnel to support further clinical development efforts, and seeking regulatory approvals for our product candidates that successfully complete clinical trials. In addition, product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect our research and development expenses to continue as our product candidates advance into later stages of clinical development. However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel costs, depreciation expense and other expenses for outside professional services, including legal, human resources, audit and accounting services and facility-related fees not otherwise included in research and development expenses. Personnel costs consist of salaries, benefits and stock-based compensation expense, for our personnel in executive, finance and accounting, business operations and other administrative functions. We expect our general and administrative expenses to continue over the next several years to support our continued research and development activities, manufacturing activities and continued costs of operating as a public company. These expenses will likely include continued costs related to the hiring of additional personnel, legal, regulatory and other fees, director and officer insurance premiums and investor relations costs associated with our continued operations.
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Other Income (Expense), Net
Our other income (expense), net is comprised of:
• Interest income: The interest income earned on our cash, cash equivalents, restricted cash and marketable securities are recorded in our statements of operations.
• Foreign exchange: The functional currency of our subsidiaries in
Results of Operations
Comparison of the Three Months Ended
The following sets forth our results of operations for the three months endedMarch 31, 2023 and 2022: Three Months Ended March 31, Change 2023 2022 Amount Percent (in thousands) Operating expenses Research and development$ 10,362 $ 13,235 $ (2,873 ) -21.7 % General and administrative 3,130 3,704 (574 ) -15.5 % Total operating expenses$ 13,492 $ 16,939 $ (3,447 ) -20.3 % Loss from operations (13,492 ) (16,939 ) 3,447 -20.3 % Other income, net 498 1 497 49700.0 % Net loss$ (12,994 ) $ (16,938 ) $ 3,944 -23.3 %
Research and development expenses
Research and development expenses were comprised of:
Three Months Ended
March 31, Change
2023 2022 Amount Percent
(in thousands)
Preclinical studies and clinical
trial-related activities $ 4,948 $ 7,941 $ (2,993 ) -37.7 %
Chemistry, manufacturing and control 960 1,786 (826 ) -46.2 %
Personnel 2,523 2,433 90 3.7 %
Consultants and other costs 1,931 1,075 856 79.6 %
Total research and development expenses
Research and development expenses were
General and administrative expenses
General and administrative expenses were $$3.1 million for the three months
ended
Other income (expense), net
Other income (expense), net for the three months ended
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Liquidity and Capital Resources
Sources of Liquidity
Our operations to date have been financed primarily through our IPO, the
issuance of common stock through our ATM Program (as defined below), the
issuance of convertible preferred shares and convertible notes. Since inception,
we have had significant operating losses. On
Our net losses were
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Three Months Ended
March 31,
2023 2022
(in thousands)
Net cash used in operating activities $ (9,134 ) $ (6,797 )
Net cash provided by (used in) investing activities 1,374 (10,207 )
Net cash provided by financing activities 23 -
Net decrease in cash, cash equivalents and restricted cash
Cash used in operating activities of
Cash used in operating activities of
Cash provided by investing activities of
Cash used in investing activities of
Net Cash Provided by Financing Activities
Cash provided by financing activities of
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Funding Requirements
Any product candidates we may develop may never achieve commercialization and we anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. As a result, until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses; costs related to third-party clinical research, manufacturing and development services; costs relating to the build-out of our headquarters and other offices, our laboratories and our manufacturing facility; license payments or milestone obligations that may arise; laboratory expenses and costs for related supplies; clinical costs; manufacturing costs; legal and other regulatory expenses and general overhead costs.
Based upon our current operating plan, we believe that our existing cash, cash
equivalents and marketable securities of
We may be unable to raise additional funds or enter into other arrangements when
needed, on favorable terms, or at all. Although we assess our banking and
customer relationships as we believe necessary or appropriate, our access to
funding sources and other credit arrangements in amounts adequate to finance or
capitalize our current and projected future business operations could be
significantly impaired by factors that affect the financial services industry or
economy in general. Volatility in equity capital markets, including market
events involving limited liquidity, defaults, non-performance or other adverse
developments that affect financial institutions, transactional counterparties or
the financial services industry generally, may adversely affect the market price
of our equity securities, which may in turn materially limit our ability to fund
our business through public or private sales of equity securities. If we are
unable to raise capital, we will need to delay, reduce or terminate planned
activities to reduce costs. Furthermore, investor concerns regarding the
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
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the progress, costs and results of our ongoing Phase 2 clinical trials of GB0139, GB2064 and GB1211, as well as the progress, costs and results for other preclinical and clinical trials for any future product candidates;
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the scope, progress, results and costs of discovery, research, preclinical development, laboratory testing and clinical trials for our current and future product candidates;
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the continued impacts of the ongoing COVID-19 pandemic and/or any geopolitical instability; • the number of, and development requirements for, other product candidates that we pursue;
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the costs, timing and outcome of regulatory review of our product candidates; • our ability to enter into contract manufacturing arrangements for supply of active pharmaceutical ingredient, or API, and manufacture of our product candidates and the terms of such arrangements;
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our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements; • the payment or receipt of milestones and receipt of other collaboration-based revenues, if any; • the costs and timing of any future commercialization activities, including product manufacturing, sales, marketing and distribution, for any of our product candidates for which we may receive marketing approval; • the amount and timing of revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property-related claims; • the extent to which we acquire or in-license other products, product candidates, technologies or data referencing rights; • the ability to receive additional non-dilutive funding, including grants from organizations and foundations; and • the costs of continuing to operate as a public company.
Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our unaudited interim condensed consolidated financial
statements, which have been prepared in accordance with
Research and Development Costs
We incur substantial expenses associated with clinical trials. Accounting for clinical trials relating to activities performed by contract research organizations, or CROs, contract manufacturing organizations, or CMOs, and other external vendors requires management to exercise significant estimates in regard to the timing and accounting for these expenses. We estimate costs of research and development activities conducted by service providers, which include, the conduct of sponsored research, preclinical studies and contract manufacturing activities. The diverse nature of services being provided under CRO and other arrangements, the different compensation arrangements that exist for each type of service and the lack of timely information related to certain clinical activities complicates the estimation of accruals for services rendered by CROs, CMOs and other vendors in connection with clinical trials. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and include these costs in the accrued and other current liabilities or prepaid expenses on the balance sheets and within research and development expense on the condensed consolidated statements of operations. In estimating the duration of a clinical study, we evaluate the start-up, treatment and wrap-up periods, compensation arrangements and services rendered attributable to each clinical trial and fluctuations are regularly tested against payment plans and trial completion assumptions.
We estimate these costs based on factors such as estimates of the work completed and budget provided and in accordance with agreements established with our collaboration partners and third-party service providers. We make significant judgments and estimates in determining the accrued liabilities and prepaid expense balances in each reporting period. As actual costs become known, we adjust our accrued liabilities or prepaid expenses. We have not experienced any material differences between accrued costs and actual costs incurred since our inception.
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Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that may be used to conduct and manage clinical trials on our behalf. We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis.
Stock-based Compensation
We have issued stock-based compensation awards through the granting of stock options, which generally vest over a four-year period. We account for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation, or ASC 718. In accordance with ASC 718, compensation cost is measured at estimated fair value and is included as compensation expense over the vesting period during which service is provided in exchange for the award.
We use a Black-Scholes option pricing model to determine fair value of our stock
options. The Black-Scholes option pricing model includes various assumptions,
including the fair value of common shares, expected life of stock options, the
expected volatility based on the historical volatility of a publicly traded set
of peer companies and the expected risk-free interest rate based on the implied
yield on a
The fair value of our awards in the three months ended
We will continue to use judgment in evaluating the assumptions utilized for our stock-based compensation expense calculations on a prospective basis. In addition to the assumptions used in the Black-Scholes model, the amount of stock-based compensation expense we recognize in our consolidated financial statements includes stock option forfeitures as they occurred. We recognize forfeitures as they occur, and the compensation expense is reversed in the period that the forfeiture occurs.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted statutory tax rates expected to apply to taxable income in the jurisdictions and years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Based on the level of historical operating results and projections for the taxable income for the future, we have determined that it is more likely than not that our net deferred tax assets will not be realized. Accordingly, we have recorded a full valuation allowance to reduce our net deferred tax assets.
We recognize tax benefits from uncertain tax positions only if (based on the technical merits of the position) it is more likely than not that the tax positions will be sustained on examination by the tax authority. The tax benefits recognized in the financial statements from such positions are measured based on the largest amount that is more than 50% likely to be realized upon ultimate settlement. We do not believe there will be any material changes in its unrecognized tax positions over the next 12 months. We have not incurred any interest or penalties. In the event we are assessed interest or penalties at some point in the future, they will be classified in the financial statements as a component of income tax expense.
We operate in multiple jurisdictions, both within and outside
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Recently Adopted Accounting Pronouncements
Refer to Note 2, "Summary of Significant Accounting Policies," in the
accompanying notes to our consolidated financial statements for the three months
ended
Emerging Growth Company and Smaller Reporting Company Status
As an emerging growth company, or EGC, under the Jumpstart our Business Startups
Act of 2012, or the JOBS Act, we may delay the adoption of certain accounting
standards until such time as those standards apply to private companies. Other
exemptions and reduced reporting requirements under the JOBS Act for EGCs
include presentation of only two years of audited consolidated financial
statements in a registration statement for an IPO, an exemption from the
requirement to provide an auditor's report on internal controls over financial
reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, an exemption
from any requirement that may be adopted by the
In addition, the JOBS Act provides that an EGC 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. As a result, our condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We may remain classified as an EGC until the end of the fiscal year following
the fifth anniversary of the completion of our IPO, although if the market value
of our common stock that is held by non-affiliates exceeds
We are also a "smaller reporting company," meaning that the market value of our
shares held by non-affiliates is less than
Effects of Inflation
Our assets are primarily monetary, consisting of cash and cash equivalents. Because of their liquidity, these assets are not directly affected by inflation. Since we intend to retain and continue to use our equipment, furniture, fixtures and office equipment, computer hardware and software and leasehold improvements, we believe that the incremental inflation related to replacement costs of such items will not materially affect our operations. However, the rate of inflation affects our expense and use of our resources. We continue to monitor the impact of inflation on these costs in order to minimize its effects through productivity improvements and cost reductions. There can be no assurance, however, that our operating results will not be affected by inflation in the future.
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