The following discussion and analysis should be read together with our condensed consolidated financial statements and the related notes thereto included in Part I, Item 1 of this Quarterly Report and our consolidated financial statements and related notes thereto for the year ended
December 31, 2021included in our Annual Report on Form 10-K filed with the SECon March 11, 2022("2021 Annual Report on Form 10-K"). This discussion and other parts of this report contain forward-looking statements reflecting our current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, intentions, and beliefs. See "Forward-Looking Statements" for a discussion of the uncertainties, risks, and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled "Risk Factors" included elsewhere in this Quarterly Report.
Overview and recent developments
We are a biotechnology company advancing new treatments for patients with serious diseases that are underserved by today's therapies. Marketed therapies often leave room for improvements in efficacy, safety, and/or dosing convenience. We believe that first-generation drugs rarely represent optimal solutions, and that the potential exists to develop alternatives that improve patient outcomes, moderate side effects, enhance quality of life, ease access and augment market competition. Our business model is to identify product opportunities in indications for which clinical trial data demonstrating compelling proof of concept for a targeted mechanism of action already exists, but the competitive evolution of product profiles and number of entrants appears incomplete. We intend to prioritize indications that fast-follower and bio superior competition could create significant medical benefit for patients. We are developing two product candidates, VRDN-001 and VRDN-002, to treat patients who suffer from thyroid eye disease ("TED"). Our most advanced product candidate, VRDN-001, is a differentiated humanized monoclonal antibody that binds and blocks the insulin-like growth factor-1 receptor ("IGF-1R") with subnanomolar affinity. This mechanism of action is clinically and commercially validated for the treatment of TED. Our ongoing first clinical trial for VRDN-001 is a Phase 1/2 proof of concept study that includes multiple randomized, placebo-controlled cohorts of TED patients. This clinical trial is designed to assess the potential for VRDN-001 to provide rapid improvements of signs and symptoms of TED at six weeks, after two intravenous ("IV") infusions of VRDN-001. We expect to announce top line proof of concept clinical data from two patient cohorts in the third quarter of 2022. Dose escalation and healthy volunteer enrollment is complete, and we continue to enroll TED patients at sites in the
U.S.and Canada. Each TED cohort includes eight patients randomized in a 3:1 ratio to receive VRDN-001 or placebo. The first cohort is evaluating two infusions of 10 mg/kg VRDN-001; the second cohort is evaluating two infusions of 20 mg/kg VRDN-001. The healthy volunteer portion of the trial includes doses of 3 mg/kg, 10 mg/kg and 20 mg/kg in 13 subjects. No drug related adverse events associated with hyperglycemia, hearing loss or muscle spasms have been reported to date. Other adverse events have been generally comparable to placebo; to date, there have been no infusion reactions or serious adverse events. Interim data for plasma levels of IGF-1, a biomarker for target engagement, show a rapid increase that saturated after the first infusion at levels that were similar for all doses tested, including 3 mg/kg. Based on these results we now plan to enroll a cohort of TED patients at a dose of 3 mg/kg following the completion of the 10 mg/kg and 20 mg/kg cohorts in this trial. We expect to report top-line data from the 3 mg/kg cohort in the fourth quarter of 2022. VRDN-002 is a distinct, next-generation IGF-1R antibody incorporating half-life extension technology and is designed to support administration as a convenient, low-volume, subcutaneous injection for the treatment of TED. In March 2022, we announced dosing of the first subject in a first-in-human Phase 1 clinical trial 32 -------------------------------------------------------------------------------- Table of Contents evaluating VRDN-002. This is a single ascending dose clinical trial to explore safety, tolerability, pharmacokinetics and pharmacodynamics of intravenously administered VRDN-002 at doses of 3 mg/kg, 10 mg/kg, and 20 mg/kg in up to 16 healthy volunteers. We have completed dose escalation and expect to announce top line data from this Phase 1 trial in the third quarter of 2022. Results from this Phase 1 trial will confirm the feasibility of a low-volume subcutaneous dosing paradigm for TED patients; we are planning a subcutaneous proof of concept trial in TED patients as the next step in VRDN-002 development. We believe a low- volume subcutaneous injection would improve convenience for patients and physicians, mitigate treatment burdens, and expand the settings of care for TED therapies. In addition to developing therapies for TED, we are executing a similar strategic approach to identify opportunities to develop fast-follower therapies in other serious and/or rare disease indications. Our pipeline expansion is focused on additional opportunities that leverage validated mechanisms and technologies in therapeutic areas underserved by today's available medicines. The most advanced of these programs is VRDN-004, a therapeutic monoclonal antibody program currently in discovery stage for an undisclosed rare disease. VRDN-005 is a second discovery-stage program for another undisclosed indication in which we believe patient care can be advanced with a novel therapeutic monoclonal antibody.
The COVID-19 pandemic
The on-going COVID-19 pandemic continues to cause disruption throughout
the United Statesand worldwide. We could be materially and adversely affected by the risks, or the public perception of the risks, related to the COVID-19 pandemic or any other epidemic, pandemic or public health crisis. Such risks include, but are not limited to, potential disruptions to our supply chain that may limit our ability to manufacture drug product for our clinical trials, and delays to our planned or future clinical trials. The ultimate extent of the impact of any epidemic, pandemic or other public health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other public health crisis and actions taken to contain or prevent the further spread, among others. While our business has not been materially impacted by the COVID-19 pandemic to date, we cannot predict whether our business, financial condition and results of operations will be affected by the COVID-19 pandemic in the future.
Overview of financial operations
Historically, our revenues consisted primarily of upfront payments for licenses, milestone payments and payments for other research and development services earned under licensing and collaboration agreements as well as amounts earned in the some of the grants we’ve received.
October 2020, we became party to a license agreement with Zenas BioPharma. Since February 2021, we have entered into several letter agreements with Zenas BioPharmain which we agreed to provide assistance to Zenas BioPharma with certain development activities, including manufacturing. Under the terms of the Zenas Agreements, we granted Zenas BioPharma an exclusive license to develop, manufacture, and commercialize certain IGF-1R directed antibody products for non-oncology indications in the greater area of Chinain exchange for upfront non-cash consideration and non-refundable milestone payments upon achieving specific milestone events during the contract term. Additionally, we may receive royalty payments based on a percentage of the annual net sales of any licensed products sold on a country-by-country basis in the greater area of China. The royalty percentage may vary based on different tiers of annual net sales of the licensed products made. Zenas BioPharma is obligated to make royalty payments to us for the royalty term in the Zenas Agreements. 33 -------------------------------------------------------------------------------- Table of Contents In the future, we expect to continue to generate revenue from a combination of license fees and other up-front payments, payments for research and development services, milestone payments, product sales, and royalties in connection with strategic alliances. We expect that any revenue we generate could fluctuate from quarter to quarter as a result of the timing of our achievement of development and commercial milestones, the timing and amount of payments relating to such milestones, and the extent to which any of our product candidates are approved and successfully commercialized by us or our strategic alliance collaborators, if any. If we or our strategic alliance collaborators, if any, fail to develop product candidates in a timely manner or to obtain regulatory approval for them, then our ability to generate future revenue, and our results of operations and financial position would be adversely affected.
Research and development costs
Research and development expenses include costs incurred for the research and development of our therapeutic programs and product candidates, which include:
• employee-related expenses, including salaries, severance, retention, benefits, insurance and stock-based compensation expenses;
•expenses incurred under agreements with clinical research organizations (“CROs”), investigational sites that conduct our clinical trials, and other clinical trial-related suppliers and consultants;
•the costs of acquiring, developing, and manufacturing and testing clinical and preclinical materials, including costs incurred under agreements with contract manufacturing organizations ("CMOs");
•costs associated with non-clinical activities and regulatory operations;
•licensing fees and milestone payments related to the acquisition and retention of certain licensed technologies and intellectual property rights; and
•installations, depreciation, market studies and other expenses, which include charges for rent and maintenance of installations, depreciation of leasehold improvements and equipment, and laboratory supplies.
We make non-refundable advance payments for goods and services that will be used in future research and development activities. These payments are recorded as expense in the period in which we receive or take ownership of the goods or when the services are performed. We record up-front and milestone payments to acquire and retain contractual rights to in-licensed technology and intellectual property rights as research and development expenses when incurred if there is uncertainty in our receiving future economic benefit from the acquired contractual rights. We consider future economic benefits from acquired contractual rights to licensed technology to be uncertain until such a drug candidate is approved by the
U.S. Food and Drug Administration("FDA,") or when other significant risk factors are abated. Our research and development expenses may increase if we initiate new clinical trials. The process of conducting clinical trials and preclinical studies necessary to obtain regulatory approval is costly and time consuming. We, or our strategic alliance collaborators, if any, may never succeed in achieving marketing approval for any of our product candidates. The probability of success for each product candidate may be affected by numerous factors, including clinical data, preclinical data, competition, manufacturability, and commercial viability of our product candidates. Successful development of future product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each future product candidate and 34 -------------------------------------------------------------------------------- Table of Contents are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to our ability to maintain or enter into new strategic alliances with respect to each program or potential product candidate, the scientific and clinical success of each future product candidate, and ongoing assessments as to each future product candidate's commercial potential. We will need to raise additional capital and may seek additional strategic alliances in the future in order to advance our various programs.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related benefits, including share-based compensation, and severance and retention benefits related to our finance, accounting, human resources, legal, business development, and other support functions, professional fees for auditing, tax, and legal services, as well as insurance, board of director compensation, consulting, and other administrative expenses.
Other income, net
Other income consists mainly of interest income, net of fees, and various non-recurring income items. We earn interest income on interest-bearing accounts, money market funds and short-term investments.
Significant Accounting Policies and Estimates
There were no changes to our critical accounting policies as disclosed in our 2021 Annual Report on Form 10-K during the three months ended
March 31, 2022. Our significant accounting policies are disclosed in Note 2. Summary of Significant Accounting Policies to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report.
Comparison of the three months ended
Three Months Ended March 31, Increase 2022 2021 (Decrease) (in thousands) Collaboration revenue - related party
$ 216 $ 1,451 $ (1,235)Research and development expenses 17,746 13,806 3,940 General and administrative expenses 8,359 6,160 2,199 Other income, net 196 55 141 Revenue Revenue was $0.2 millionfor the three months ended March 31, 2022, as compared to $1.5 millionfor the three months ended March 31, 2021. Revenue for both the three months ended March 31, 2022and 2021 was attributable to our collaboration agreement with Zenas BioPharma. The $1.2 milliondecrease in revenue is due to the timing of activities performed under the collaboration agreement.
Research and development costs
Research and development expenses were
$17.7 millionduring the three months ended March 31, 2022, compared to $13.8 millionduring the three months ended March 31, 2021. The $3.9 millionincrease in research and development expenses is primarily attributable to an increase of $1.3 millionin personnel related costs, 35
including share-based compensation, due to an increase in headcount; an increase of
$2.3 millionin license fees due to the $2.5 millionfee paid to Paragon Therapeutics, Inc.during the three months ended March 31, 2022; an increase of $1.9 millionin clinical trial expenses related to our lead product candidates, VRDN-001 and VRDN-002; and an increase of $0.3 millionin consulting expenses. Offsetting this increases was a decrease of $2.0 millionrelated to manufacturing activities and IND-enabling studies for both VRDN-001 and VRDN-002 that were incurred during the three months ended March 31, 2021.
General and administrative expenses
General and administrative expenses were
$8.4 millionduring the three months ended March 31, 2022, compared to $6.2 millionduring the three months ended March 31, 2021. The $2.2 millionincrease in general and administrative expenses is due primarily to an increase of $0.5 millionof personnel related expenses, including share-based compensation, due to an increase in headcount; an increase of $0.3 millionin board of directors expenses, including share-based compensation; and increases of $1.0 millionin professional expenses, including external consulting fees, legal and auditing costs.
Other income, net
Other income, net was
$0.2 millionduring the three months ended March 31, 2022compared to $55 thousandduring the three months ended March 31, 2021. Other income (expense), net for both periods is comprised of interest income earned on short-term investments as well as sub-lease income. The increase of $0.1 millionwas due primarily to higher interest income earned due to a higher balance of short-term investments, as well as an increase in sub-lease income.
Cash and capital resources
Summarized cash flows for the three months ended
March 31, 2022and 2021 are as follows: Three Months Ended March 31, 2022 2021 Increase (Decrease) (in thousands) Net cash provided by (used in): Operating activities $ (21,042) $ (11,539)$ (9,503) Investing activities 8,863 10,872 (2,009) Financing activities 738 1,259 (521) Total $ (11,441) $ 592$ (12,033) Operating Activities Net cash used in operating activities was $21.0 millionfor the three months ended March 31, 2022, and primarily consisted of a net loss of $25.7 million, adjusted for non-cash items of $5.0 million(primarily share-based compensation of $4.7 million), and changes in working capital of $0.4 million. Net cash used in operating activities was $11.5 millionfor the three months ended March 31, 2021, and primarily consisted of a net loss of $18.5 million, adjusted for non-cash items of $3.4 million(primarily share-based compensation of $3.2 million), and changes in working capital of $3.5 million. 36 -------------------------------------------------------------------------------- Table of Contents Investing Activities
Net cash from investing activities was
Net cash provided by investing activities was
$10.9 millionduring the three months ended March 31, 2021, and consisted of $10.9 millionin net proceeds from maturities of short term investments.
Net cash provided by financing activities was
Net cash provided by financing activities was
$1.3 millionfor the three months ended March 31, 2021, and consisted primarily of $0.9 millionof proceeds from the exercise of common stock warrants and $0.3 millionin proceeds from the exercise of stock options.
Cash and capital resources
We have funded our operations to date principally through proceeds received from the sale of our common stock, our Series A Preferred Stock, our Series B Preferred Stock and other equity securities, debt financings, license fees, and reimbursements received under collaboration agreements. As of
March 31, 2022, we had $175.4 millionin cash, cash equivalents, and short-term investments. We expect that our current resources will enable us to fund our planned operations into 2024. We have no products approved for commercial sale and have not generated any revenue from product sales. Since our inception and through March 31, 2022, we have generated an accumulated deficit of $384.0 million. Substantially all of our operating losses resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We will continue to require substantial additional capital to continue the development of our product candidates, and potential commercialization activities, and to fund our ongoing operations. The amount and timing of future funding requirements will depend on many factors, including the pace and results of our clinical development efforts, equity financings, securing additional license and collaboration agreements, and issuing debt or other financing vehicles. Our ability to secure capital is dependent upon a number of factors, including success in developing our technology and product candidates. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop our product candidates. Changing circumstances may cause us to consume capital significantly faster or slower than we currently anticipate. If we are unable to acquire additional capital or resources, we will be required to modify our operational plans to complete future milestones. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available financial resources sooner than we currently anticipate. We may be forced to reduce our operating expenses and raise additional funds to meet our working capital needs, principally through the additional sales of our securities or debt financings or entering into strategic collaborations. Our material cash requirements include obligations as of March 31, 2022, as well as resources required to fulfill our research and development activities and the effects that such obligations and activities are expected to have on our liquidity and cash flows in future periods. We expect that our operating losses will fluctuate significantly from quarter to quarter and year to year due to timing of our development activities and efforts to achieve regulatory approval. 37
If we raise additional funds through the issuance of debt, the obligations related to such debt could be senior to rights of holders of our capital stock and could contain covenants that may restrict our operations. Should additional capital not be available to us in the near term, or not be available on acceptable terms, we may be unable to realize value from our assets and discharge our liabilities in the normal course of business, which may, among other alternatives, cause us to further delay, substantially reduce, or discontinue operational activities to conserve our cash resources.
Loan and guarantee agreement with Hercules Capital, Inc.
April 1, 2022, we entered into a loan and security agreement (the " Hercules Loanand Security Agreement") among the Company, certain of our subsidiaries from time to time party thereto (together with the Company, collectively, the "Borrower"), Hercules Capital, Inc. ("Hercules") and certain other lenders (the "Lenders"). Under the Hercules Loan and Security Agreement, the Lenders provided us with access to a term loan with an aggregate principal amount of up to $75.0 million, in four tranches (collectively the "Term Loan"), consisting of: (1) an initial tranche of $25.0 million, available through June 15, 2023; (2) a second tranche of $10.0 million, subject to the achievement of certain regulatory milestones, available through June 15, 2023; (3) a third tranche of $15.0 million, subject to the achievement of certain regulatory milestones, available through March 15, 2024; and (4) a fourth tranche of $25.0 million, subject to approval by the Lenders' investment committee(s), available through December 15, 2024. The first tranche of $25.0 millionwill be available to us through June 15, 2023. Upon signing we drew an initial principal amount of $5.0 million. The Term Loan bears interest at a floating per annum rate equal to the greater of (i) 7.45% and (ii) 4.2% above the Prime Rate, provided that the Term Loan interest rate shall not exceed a per annum rate of 8.95%. Interest is payable monthly in arrears on the first day of each month. We are obligated to make interest-only payments through April 1, 2024. If certain development milestones are met, then the interest-only period will be extended to October 1, 2024, or under a second extension if additional development milestones are met, to April 1, 2025. The obligations of the Borrower under the Loan Agreement are secured by certain assets of the Borrower, including substantially all of the assets of the Borrower, but excluding the Borrower's intellectual property.
November 2021, we entered into an Open Market Sale AgreementSM (the " November 2021ATM Agreement") with Jefferies LLC("Jefferies") under which we can offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $75.0 millionthrough Jefferies as our sales agent in an "at the market" offering. Jefferies will receive a commission equal to 3.0% of the gross sales proceeds of any common stock sold through Jefferies under the November 2021ATM Agreement. As of March 31, 2022, we have not sold any shares under the November 2021ATM Agreement. As described below, we were previously a party to the April 2021ATM Agreement (defined below) with Jeffries and the Cowen ATM Agreement (defined below) with Cowen and Company, LLC("Cowen") during the years ended December 2021and 2020, and those agreements are no longer in effect. In April 2021, we entered into an Open Market Sale AgreementSM (the " April 2021ATM Agreement") with Jefferies under which we could offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 millionthrough Jefferies as our sales agent in an "at the market" offering. Jefferies received a commission equal to 3.0% of the gross sales proceeds of any common stock sold through Jefferies under the April 2021ATM Agreement. During the year ended December 31, 2021, we sold an aggregate of 2,551,269 shares of common stock pursuant to the terms of the April 2021ATM Agreement, at a volume weighted-average price of $13.13per share, for aggregate net proceeds of approximately $32.4 million, including initial expenses for executing the "at the market offering" and commissions to Jefferies as sales agent. 38 -------------------------------------------------------------------------------- Table of Contents Underwritten Public Offerings In September 2021, we entered into an underwriting agreement (the "2021 Underwriting Agreement") with Jeffries, SVB Leerink LLCand Evercore Group, LLC (collectively, the "Underwriters") for the sale and issuance of 7,344,543 shares of common stock, which includes 1,159,089 shares of common stock issued in connection with the exercise in full by the underwriters of their option to purchase additional shares, at a public offering price of $11.00per share and 23,126 shares of Series B Non-Voting Convertible Preferred Stock at a public offering price of $733.37per share (the "2021 Public Offering"). Our aggregate gross proceeds from the 2021 Public Offering were approximately $97.7 million, before deducting underwriting discounts and commissions and estimated offering expenses payable by us. In February 2020, we entered into an underwriting agreement with Oppenheimer & Co., Inc.for the sale and issuance of 1,000,000 shares of our common stock and warrants to purchase 500,000 shares of our common stock (the "2020 Public Offering"). Each warrant has an exercise price of $16.50per share, was exercisable immediately and expires on the fifth anniversary of the date of issuance. The 2020 Public Offering resulted in approximately $13.9 millionof net proceeds to us after deducting underwriting commissions and discounts and other estimated offering expenses payable by us and excluding the proceeds from the exercise of the warrants. Purchase Agreements In October 2020, we entered into a securities purchase agreement (the "Purchase Agreement") with the purchasers named therein (the "Investors"). Pursuant to the Purchase Agreement, we agreed to sell an aggregate of approximately 195,290 shares of Series A Preferred Stock for an aggregate purchase price of approximately $91.0 million. Each share of Series A Preferred Stock is convertible into 66.67 shares of our common stock, subject to specified conditions. The powers, preferences, rights, qualifications, limitations, and restrictions applicable to the Series A Preferred Stock are set forth in the applicable certificate of designations. During the three months ended March 31, 2022, 47,871 shares of Series A Preferred Stock were converted into 3,191,555 shares of common stock. In December 2019, we entered into a common stock purchase agreement with Aspire Capital(the "Aspire Purchase Agreement"), which provides that, subject to the terms, conditions, and limitations set forth therein, Aspire Capitalis committed to purchase up to an aggregate of $20.0 millionof shares of our common stock over the 30-month term of the Aspire Purchase Agreement. Upon execution of the Aspire Purchase Agreement, we sold to Aspire Capital106,564 shares of common stock at $9.38per share for proceeds of $1.0 millionas the Initial Purchase Shares (as defined in the Purchase Agreement). During the year ended December 31, 2020, we sold to Aspire Capital412,187 shares of our common stock at a weighted-average price of $21.35per share for aggregate net proceeds of $8.8 million. As of March 31, 2022, we have the ability to sell an additional $10.2 millionof shares of our common stock to Aspire Capital.
Contractual obligations and commitments
We are a smaller reporting company, as defined by Rule 12b-2 under the Exchange Act and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.
© Edgar Online, source