VERA THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.
In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations, and involve risks and uncertainties. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in the sections titled "Special Note Regarding Forward-Looking Statements" and "Risk Factors."
Overview
We are a late clinical-stage biotechnology company focused on developing and
commercializing transformative treatments for patients with serious
immunological diseases. Our lead product candidate, atacicept, is a
self-administered fusion protein that blocks both BLyS and APRIL with
best-in-class potential for the treatment of IgAN. The Phase 2b ORIGIN trial
evaluating the safety and efficacy of atacicept in patients with IgAN completed
enrollment in mid-2022 and reported positive 24-week topline results in
In
Since our inception, we have devoted substantially all of our resources to our research and development efforts, pre-clinical studies and clinical trials, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.
We do not have any product candidates approved for commercial sale, and we have not generated any revenue from product sales. Our ability to generate revenue sufficient to achieve profitability, if ever, will depend on the successful development and eventual commercialization of one or more of our product candidates, which we expect will take a number of years, if ever. We also do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for nonclinical and clinical testing, as well as for commercial manufacturing if any of our product candidates obtain marketing approval. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of our product candidates.
To date, we have funded our operations primarily through proceeds from the sale
of shares of our Class A common stock, redeemable convertible preferred stock,
debt financing and convertible promissory notes. As of
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development milestone payments. Pursuant to this amendment, we issued 283,034
shares of Class A common stock to Novartis in exchange for a reduction of
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We have incurred significant operating losses since the commencement of our
operations. Our net losses were
We expect to continue to incur net operating losses for at least the next several years, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. We expect our expenses and capital requirements will increase significantly in connection with our ongoing near- and long-term activities as we:
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continue our ongoing and planned development of our product candidates, atacicept for the treatment of IgAN and LN, and MAU868 for the treatment of BK viremia;
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conduct clinical trials and nonclinical studies for atacicept and MAU868;
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seek regulatory approvals for any product candidates that successfully complete clinical trials;
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continue to scale up external manufacturing capacity with the aim of securing sufficient quantities to meet our capacity requirements for clinical trials and potential commercialization;
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establish a sales, marketing and distribution infrastructure to commercialize any approved product candidates and related additional commercial manufacturing costs;
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develop, maintain, expand, protect and enforce our intellectual property portfolio, including patents, trade secrets and know-how;
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attract, develop and retain additional clinical, scientific, quality control, manufacturing management and administrative personnel;
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add clinical, operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and
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incur additional legal, accounting, investor relations and other expenses associated with operating as a public company.
We also expect to increase the size of our administrative function to support the growth of our business. 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.
We will require substantial additional funding to develop our product candidates
and support our continuing operations. Until such time that we can generate
significant revenue from product sales or other sources, if ever, we expect to
finance our operations through the sale of equity, debt financings, or other
capital sources, which could include income from collaborations, strategic
partnerships, or marketing, distribution, licensing or other strategic
arrangements with third parties, or from grants. We may be unable to raise
additional funds or to enter into such agreements or arrangements on favorable
terms, or at all. Our ability to raise additional funds may be adversely
impacted by potential worsening global economic conditions and the disruptions
to, and volatility in, the credit and financial markets in
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material adverse effect on our business, results of operations or financial condition, including requiring us to have to delay, reduce or eliminate our product development or future commercialization efforts. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot provide assurance that we will ever be profitable or generate positive cash flow from operating activities.
Geopolitical and Macroeconomic Developments
The coronavirus (including its variants, COVID-19) pandemic has had a significant economic impact across the global marketplace presenting challenges to maintaining business continuity and dramatically changing the ways in which we live and interact with others. While vaccines have become widely available in certain countries, and businesses and economies have reopened, the status of global economic recovery remains uncertain and unpredictable, and will continue to be impacted by developments in the pandemic including any subsequent waves of outbreak or new variant strains of COVID-19 which may require re-closures or other preventative measures. As public health directives surrounding the pandemic have relaxed, our office has reopened and we are permitting travel and in-person events, taking into consideration government restrictions, employee safety, and health risks. Our approach may vary among geographies depending on appropriate health protocols, and may change at any time. Additionally, our efforts to reopen our office safely may not be successful, could expose our employees to health risks, and could involve additional costs or liability.
Due to the ongoing military conflict between
Although we did not see a significant financial impact to our business
operations as a result of recent geopolitical and macroeconomic developments,
such as the COVID-19 pandemic and the ongoing
We continue to believe that our existing cash and cash equivalents will be
sufficient to fund our operating expenses and capital expenditure requirements
for at least the next 12 months from the issuance date of the financial
statements included in this Annual Report. However, should adverse geopolitical
and macroeconomic events, such as the COVID-19 pandemic, the ongoing
Results of operations
Comparison of the years ended
The following table summarizes our results of operations for the years ended
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Year Ended
December 31, CHANGE
(dollars in thousands) 2022 2021 AMOUNT %
Operating expenses:
Research and development $ 68,993 $ 22,484 $ 46,509 207 %
General and administrative 21,910 11,918 9,992 84 %
Total operating expenses 90,903 34,402 56,501 164 %
Loss from operations (90,903 ) (34,402 ) (56,501 ) 164 %
Other income (expense):
Interest income 1,750 15 1,735 *
Interest expense (992 ) (20 ) (972 ) *
Other income 1,899 - 1,899 *
Change in fair value of
non-marketable equity securities (809 ) (892 ) 83 *
Gain on sale of PNAi technology - 2,691 (2,691 ) *
Total other income, net 1,848 1,794 54 3 %
Loss before provision of income
taxes $ (89,055 ) $ (32,608 ) $ (56,447 ) 173 %
* Not meaningful
Research and development expenses
Research and development expenses represent a substantial portion of our
operating expenses. Our research and development expenses consist primarily of
direct and indirect expenses incurred in connection with the research and
development of our product candidates. Direct expenses include costs incurred
under agreements with third parties, including contract research organizations,
contract drug manufacturing organizations and consultants directly related to
our research and development of product candidates, laboratory supplies and
costs of lab studies, and license and milestone fees incurred as a result of our
contractual obligations for our development candidates. Indirect expenses
include employee compensation and other personnel-related expenses, including
stock-based compensation, facilities and depreciation related to buildings and
equipment used for research and development personnel and activities and other
expenses. From
Research and development expenses are recorded as expense in the period in which the related activities occurred, and payments we make prior to the receipt of goods or services to be used in research and development efforts are deferred as prepaid expenses until the goods or services are received and used. We accrue expenses for contract research and development as the related services are performed by monitoring the status of specified activities and billings received from our external service providers. These expenses are accrued based on estimates and are adjusted as actual expenses become known. The cost incurred in obtaining technology licenses, including initial and subsequent milestone payments incurred under our licensing agreements, are recorded as expense in the period in which they are incurred, as the licensed technology, method or process has no alternative future uses other than for our research and development activities. Where contingent milestone payments are due to third parties under license or other agreements, the milestone payment obligations are recognized as expense when achievement of the contingent milestone is probable, which is generally upon achievement of the milestone.
The following table summarizes our research and development expenses incurred during the respective periods.
Year Ended
December 31, CHANGE
(dollars in thousands) 2022 2021 AMOUNT %
Direct research and development expenses
Contract drug manufacturing $ 27,587 $ 2,236 $ 25,351 1134 %
Clinical trial expenses 20,534 6,754 13,780 204 %
Consulting and professional services 5,431 2,508 2,923 117 %
License and milestone obligations 3,661 7,000 (3,339 ) (48 )%
Indirect research and development expenses
Compensation and related benefits 10,987 3,870 7,117 184 %
Facilities and other 793 116 677 584 %
Research and development expenses $ 68,993 $ 22,484 $ 46,509 207 %
Research and development expenses increased by
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atacicept in IgAN and LN, including expenses incurred in manufacturing drug
supply for clinical trials. Contract drug manufacturing increased by
We expect our research and development expenses to increase in future periods as we initiate our ORIGIN-3 Phase 3 trial of atacicept in IgAN, continue our COMPASS Phase 3 trial of atacicept in LN and develop other product candidates.
General and administrative
General and administrative expenses consist primarily of compensation and personnel-related expenses, including stock-based compensation, for our personnel in executive management, legal, finance, human resources, and other administrative functions. General and administrative expenses also include professional fees paid for accounting, auditing, legal, tax and consulting services, and other general overhead costs to support our operations. General and administrative expenses are recorded as expense in the period in which incurred, and payments we make prior to the receipt of goods or services to be used for general and administrative purposes efforts are deferred as prepaid expenses until the goods or services are received and used.
Year Ended
December 31 , CHANGE
(dollars in thousands) 2022 2021 AMOUNT %
General and administrative
General and administrative expenses increased by
Other income
Year Ended
December 31, CHANGE
(dollars in thousands) 2022 2021 AMOUNT %
Other income, net $ 1,848 $ 1,794 $ 54 (3 )%
Other income, net was
Liquidity and Capital Resources
Overview
To date, we have funded our operations primarily through proceeds from the sale
of shares of our Class A common stock, redeemable convertible preferred stock,
debt financing and convertible notes. From our inception through
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We use our cash to fund operations, primarily to fund our research and development efforts, clinical trials, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. Cash used to fund operating expenses is affected by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid assets.
We anticipate that we will continue to incur net losses for the foreseeable future as we continue research and development activities of atacicept and MAU868, hire additional staff, including clinical, operational, financial and management personnel, and incur additional expenses associated with operating as a public company. We expect to incur significant expenses and operating losses for the foreseeable future as we advance our clinical development activities and our product candidate portfolio. We expect that our research and development and general and administrative costs will increase substantially in connection with conducting additional clinical trials and clinical trials for our research programs and product candidates, contracting with third parties to support nonclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.
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Contractual Obligations
We enter into agreements in the normal course of business with various third parties for preclinical, clinical and other services. These contracts are generally cancellable without material penalty upon written notice.
Our operating lease obligations reflect our lease obligations for our office
space in
During 2020, we vacated the leased facilities in
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In
Cash Flows
The following table summarizes our cash flows for the periods indicated.
Year Ended
December 31,
(dollars in thousands) 2022 2021
Net cash used in operating activities $ (67,596 ) $ (23,708 )
Net cash used in investing activities (70,552 ) (4,204 )
Net cash provided by financing activities 101,933 53,882
Net (decrease) increase in cash, cash equivalents and
restricted cash$ (36,215 ) $ 25,970 Operating Activities
For the year ended
For the year ended
Investing Activities
For the year ended
For the year ended
Financing Activities
For the year ended
For the year ended
Loan and security agreement
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Initially, through
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and (ii) the sum of (a) 1-Month CME Term SOFR as reported by
We are permitted to prepay the Loan in full or in part at any time upon 10 business days' written notice to the Lender, subject to the applicable Prepayment Fee (as defined below). Upon the earliest to occur of the maturity date, acceleration of the Loan or prepayment of the Loan, we are required to make a final payment equal to 7.0% of the aggregate principal amount of the Loan (the Final Fee). Any prepayments of the Loan, whether mandatory or voluntary, must include an amount equal to the sum of (a) the portion of the outstanding principal of the Loan being prepaid plus accrued and unpaid interest thereon through the prepayment date, (b) the Final Fee, (c) the Lender's expenses and all other obligations that are due and payable to the Lender, and (d) a prepayment fee of (i) 3.0% of the portion of the Loan being prepaid if the repayment is on or before the first anniversary of the funding date of such term loan or (ii) 2.0% of the portion of the Loan being prepaid if the repayment is after the first anniversary of the funding date but on or before the second anniversary of the funding date of such term loan (the Prepayment Fee). There is no Prepayment Fee for any prepayments occurring after the second anniversary of the funding date of such term loan.
Our obligations under the Loan Agreement are secured by a security interest in all of our assets, other than our intellectual property, which is subject to a negative pledge. The Loan Agreement does not contain any financial related covenants. Included in the Loan Agreement are customary representations and covenants that, subject to exceptions, restrict our ability to, among other things: declare dividends or redeem or repurchase equity interests; incur additional liens; make loans and investments; incur additional indebtedness; engage in mergers, acquisitions and asset sales; transact with affiliates; undergo a change in control; add or change business locations; and engage in businesses that are not related to our existing business.
Upon the occurrence of an event of default, a default interest rate of an
additional 5.0% may be applied to the outstanding loan balances, and the Lender
may declare all outstanding obligations immediately due and payable and take
such other actions as set forth in the Loan Agreement. Events of default under
the Loan Agreement include customary events of default, including, but not
limited to: (i) failure to (a) make any payment of principal or interest on its
due date, or (b) pay any other obligations within three business days after such
obligations are due and payable; (ii) failure to perform any obligation under
specified covenants; (iii) the occurrence of a material adverse change; (iv) we
or any of our subsidiaries being or becoming insolvent, beginning an insolvency
proceeding, or becoming subject to an insolvency proceeding that is not
dismissed or stayed within 45 days; (v) a default under any agreement with a
third party resulting in a right by such third party to accelerate the maturity
of any indebtedness in an amount in excess of
At-the-Market Offering
In
Emerging growth company status
We are an emerging growth company, as defined in the JOBS Act. We have elected to use the 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 that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company under the JOBS Act until the earliest
of (i) the last day of our first fiscal year in which we have total annual gross
revenue of
Critical Accounting Policies and Significant Judgments and Estimates
The discussion and analysis of our financial condition and results of operations
is based on our financial statements, which have been prepared in accordance
with
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assets and liabilities, at the date of the financial statements, as well as expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
While our significant accounting policies are described in the notes to our financial statements, we believe that the following critical accounting policies and estimates are most important to understanding and evaluating our reported financial results.
Research and development contract costs, and related prepaid and accrued balances
We enter into various research and development and other agreements with commercial firms, researchers and others for provisions of goods and services from time to time. These agreements are generally cancellable, and the related costs are recorded as research and development expenses as incurred. We record accruals for estimated ongoing research and development costs. When evaluating the adequacy of the accrued liabilities, we analyze progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the prepaid and accrued balances at the end of any reporting period. Actual results could differ materially from our estimates.
Fair value of common stock
Historically, for all periods prior to our IPO, the fair values of the shares of
our common stock underlying our share-based awards were determined on each grant
date by our board of directors with input from management and the assistance of
an independent third-party valuation specialist. Given the absence of a public
trading market of our common stock, and in accordance with the
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external market conditions affecting the proteomics and genomics biotechnology industry and trends within the industry;
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our stage of development;
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the rights, preferences and privileges of our redeemable convertible preferred stock relative to those of our common stock;
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the prices at which we sold shares of our redeemable convertible preferred stock;
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actual operating results and projected financial performance, including our levels of available capital resources;
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the progress of our research and development efforts and business strategy;
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equity market conditions affecting comparable public companies;
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general U.S. market conditions; and
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the lack of marketability of our common stock.
In valuing our common stock, the fair value of our business, or enterprise value, was determined using various valuation methods, including combinations of income, market and asset approaches with input from management. The income approach determines value by using one or more methods that convert anticipated economic benefits into a present single amount. The application of the income approach establishes value by methods that discount or capitalize earnings or cash flow, by a discount or capitalization rate that reflects investors' rate of return expectations, market conditions, and the relative risk of the subject investment. The market approach involves identifying and evaluating comparable public companies and acquisition targets that operate in the same industry or which have similar operating characteristics as the subject company. From the comparable companies, publicly available information is used to extrapolate market-based valuation multiples that are applied to historical or prospective financial information in order to derive an indication of value. The asset approach determines the value of the underlying assets and liabilities of a business as a means of determining the value of the business in aggregate. This approach can include the value of both tangible and intangible assets.
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Option Pricing Method (OPM). Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the redeemable convertible preferred stock and common stock are inferred by analyzing these options. This method is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts.
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Probability-Weighted Expected Return Method (PWERM). The PWERM is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. This method is
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generally most appropriate to use when the time to a liquidity event is short, making the range of possible future outcomes relatively easy to predict.
Based on our early stage of development and other relevant factors, we determined that the OPM was the most appropriate method for allocating our enterprise value to determine the estimated fair value of our common stock for valuations during early 2020.
Beginning in
Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of future events. Changes in any or all of these estimates and assumptions, or the relationships between those assumptions, impact our valuations as of each valuation date and may have a material impact on the valuation of common stock.
The assumptions underlying these valuations represent our management's best estimate, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.
After the completion of our IPO, the fair value of each share of the underlying common stock has been determined based on the closing price as reported on the date of grant on the primary stock exchange on which our Class A common stock is traded.
Recent accounting pronouncements
See Note 2 to our audited financial statements included elsewhere in this Annual Report on Form 10-K for more information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one yet, of their potential impact on our financial condition of results of operations.
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