You should read the following information in conjunction with the consolidated financial information and the notes thereto appearing elsewhere in this Annual Report on Form 10-K. In addition, you should read the "Risk Factors" and "Special Note Regarding Forward-Looking Statements" in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are an advanced, late clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of targeted antibacterial products that address high unmet medical needs to treat serious infections caused by multidrug-resistant pathogens.
Our lead product candidate, sulbactam-durlobactam, or SUL-DUR, is an
intravenous, or IV, combination of sulbactam, an IV ?-lactam antibiotic, and
durlobactam, a novel broad-spectrum IV ?-lactamase inhibitor, or BLI, that we
are developing for the treatment of pneumonia and bloodstream infections caused
by carbapenem-resistant Acinetobacter baumannii, or Acinetobacter. Based on
current carbapenem resistance rates, we estimate there are in excess of 250,000
hospital-treated carbapenem-resistant Acinetobacter infections annually across
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data set, we believe will also support a regulatory submission in
Our second late-stage product candidate, zoliflodacin, is a novel orally
administered molecule being developed for the treatment of uncomplicated
gonorrhea. The bacterial pathogen responsible for gonorrhea is Neisseria
gonorrhoeae, or N. gonorrhoeae, including multidrug-resistant strains.
Intramuscular injections of ceftriaxone now represent the only
Our third product candidate is ETX0282CPDP which is a combination of a novel, oral BLI, ETX0282, with cefpodoxime proxetil or CPDP, which has the potential to address complicated urinary tract infections, or cUTIs, including those caused by multidrug-resistant Enterobacteriaceae. We believe there is a significant unmet need for new oral antibiotics to reliably treat the estimated 3 to 4 million patients diagnosed annually with cUTIs. We have reported preliminary Phase 1 trial results, and we are now seeking a partner to help further advance ETX0282CPDP through additional clinical trials. This program was previously supported by the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator program, or CARB-X.
We are also advancing the development of a novel class of antibiotics, non
?-lactam inhibitors of penicillin-binding proteins, or NBPs. We believe NBPs
constitute a potential new class of Gram-negative antibacterial agents that are
designed to target a broad spectrum of multidrug resistant bacterial pathogens
that overcome the main source of ?-lactam resistance which is driven by
?-lactamase activity. This novel class of agents is designed to potentially
target a broad spectrum of multidrug resistant bacterial pathogens that are part
of the
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Since our inception in
Funding Arrangements
In
CARB-X
In
License and Collaboration Agreements
GARDP
In
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collaboration agreement, GARDP will fully fund the ongoing Phase 3 registration trial, including the manufacture and supply of the product candidate containing zoliflodacin, in uncomplicated gonorrhea.
Zai Lab
In
Components of Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our product discovery efforts and the development of our preclinical and clinical product candidates. These expenses include:
employee-related expenses, including salaries and benefits, travel and
? stock-based compensation expense for employees engaged in research and
development functions;
? fees paid to consultants for services directly related to our product
development and regulatory efforts;
expenses incurred under agreements with contract research organizations, or
? CROs, as well as contract manufacturing organizations, or CMOs, and consultants
that conduct and provide supplies for our preclinical studies and clinical
trials;
? costs associated with preclinical activities and development activities;
? costs associated with our technology and our intellectual property portfolio;
? costs related to compliance with regulatory requirements; and
? facilities-related expenses, which include allocated rent and maintenance of
facilities and other operating costs.
Costs associated with research and development activities are expensed as incurred. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered.
Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and preclinical program and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also
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include fees incurred under service, license or option agreements. We do not allocate employee costs or facility expenses to specific programs because these costs are deployed across multiple programs and, accordingly, are not separately classified. We primarily use internal resources and our own employees to conduct our research and discovery as well as for managing our preclinical development, process development, manufacturing and clinical development activities.
To date, substantially all of our research and development expenses have been
related to the preclinical and clinical development of our product candidates
and preclinical programs. The following table shows our research and development
expenses by development program and type of activity for the years ended
Year Ended December 31, 2021 2020 (in thousands) Direct research and development expenses by program: SUL-DUR$ 16,820 $ 23,356 ETX0462 2,271 1,968 ETX0282CPDP 130 160 Zoliflodacin 6 2 Other preclinical programs 1,126 822
Unallocated research and development expenses: Personnel related (including stock-based compensation) 14,464 12,383 Facilities, supplies and other
2,288 2,331 Total research and development expenses$ 37,105 $ 41,022
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. It is difficult to determine with certainty the duration and completion costs of our current or future preclinical programs and clinical trials of our product candidates, or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.
The duration, costs and timing of clinical trials and development of our product candidates and preclinical program will depend on a variety of factors that include, but are not limited to, the following:
? the impact of COVID-19 on hospitals participating in the trials and their
ability to focus on and direct resources to our trials;
? the number of trials required for approval and any requirement for extension
trials; ? per-patient trial costs;
? the number of patients that participate in the trials;
? the number of sites included in the trials;
? the countries in which the trials are conducted;
? the length of time required to enroll eligible patients;
? the number of doses that patients receive;
? the drop-out or discontinuation rates of patients;
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? potential additional safety monitoring or other studies requested by regulatory
agencies;
? the duration of patient follow-up; and
? the efficacy and safety profiles of the product candidates.
Any changes in the outcome of any of these factors with respect to the development of our product candidates could mean a significant change in the costs and timing associated with the development of these product candidates. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing and supply, and commercial viability. We will determine which programs to pursue and how much to fund each program based on the scientific and clinical success of each product candidate, as well as an assessment of each candidate's commercial potential.
General and Administrative Expenses
General and administrative expenses consist of salaries and benefits and stock-based compensation expense for personnel in executive, finance and administrative functions. General and administrative costs also include facilities-related costs not otherwise included in research and development expenses and professional fees for legal, patent, consulting, insurance, accounting and audit services.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research, development and commercialization activities of our product candidates. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing functions for that product candidate.
Other Income Grant Income
Grant income consists of income recognized in connection with grants we received
under our funding arrangements with the Trustees of
Interest Income
Interest income consists of interest earned on our cash and investment balances,
which are primarily held in money market funds and
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Years Ended
The following table summarizes our results of operations for the years endedDecember 31, 2021 and 2020: Year Ended December 31, 2021 2020 $ Change (in thousands) Operating expenses: Research and development 37,105 41,022 (3,917) General and administrative 15,212 13,209 2,003 Total operating expenses 52,317 54,231 (1,914) Loss from operations (52,317) (54,231) 1,914 Other income: Grant income 5,163 3,562 1,601 Interest income 13 173 (160) Total other income 5,176 3,735 1,441 Net loss$ (47,141) $ (50,496) $ 3,355
Research and Development Expenses
Research and development expenses were
General and Administrative Expenses
General and administrative expenses were
Other Income
Other income was
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Liquidity and Capital Resources
Overview
As of
Going Concern
Since our inception, we have incurred recurring losses and negative cash flows
from operations. Our net loss was
These conditions and events raise substantial doubt about our ability to
continue as a going concern for the one-year period following the issuance of
our financial statements for the year ended
Funding Requirements
Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, laboratory and related supplies, manufacturing development costs, legal and other regulatory expenses and general administrative costs.
The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the clinical development of our product candidates and obtain regulatory approvals. We are also unable to predict when, if ever, net cash inflows will commence from product sales. This is due to the numerous risks and uncertainties associated with developing drugs, including, among others, the uncertainty of:
? the unpredictable duration and economic impact of the COVID-19 pandemic;
? successful enrollment in, and completion of clinical trials;
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? performing preclinical studies and clinical trials in compliance with
requirements of the FDA, the EMA, or any comparable regulatory authority;
? the ability of collaborators to manufacture sufficient quantity of product for
development, clinical trials or potential commercialization;
obtaining marketing approvals with labeling for sufficiently broad patient
? populations and indications, without unduly restrictive distribution
limitations or safety warnings, such as black box warnings or a risk evaluation
and mitigation strategies program;
? obtaining and maintaining patent, trademark and trade secret protection and
regulatory exclusivity for our product candidates;
? making arrangements with third parties for manufacturing capabilities;
? launching commercial sales of products, if and when approved, whether alone or
in collaboration with others;
? acceptance of the therapies, if and when approved, by physicians, patients and
third-party payors;
? competing effectively with other therapies;
? obtaining and maintaining healthcare coverage and adequate reimbursement;
? protecting our rights in our intellectual property portfolio; and
? maintaining a continued acceptable safety profile of our drugs following
approval.
A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate.
We will not generate revenue from product sales unless and until we or a collaborator successfully complete clinical development and obtain regulatory approval for our current and future product candidates. If we obtain regulatory approval for any of our product candidates that we ultimately decide to commercialize on our own, we will incur significant expenses related to commercialization, including developing our internal commercialization capability to support product sales, marketing and distribution.
As a result, we will need substantial additional funding to support our continuing operations and to pursue our growth strategy. Until such time, if ever, when we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings and potential collaboration, license and development agreements. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to a third party to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Our failure to raise capital as and when needed would compromise our ability to pursue our business strategy.
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We will also continue to incur costs as a public company that we did not incur
or incurred at lower rates prior to our initial public offering, including
increased fees payable to the nonemployee members of our board of directors,
increased personnel costs, increased director and officer insurance premiums,
audit and legal fees, investor relations fees and expenses for compliance with
public-company reporting requirements under the Exchange Act and
rules implemented by the
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
At-the-Market Facility
In
Innoviva, Inc. Securities Purchase Agreement
On
The Third Private Placement occurred in two tranches. At the closing of the
first tranche, or the First Closing, which occurred on
As of
On
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including the date of maturity, if not converted, the Convertible Note will bear interest at a rate of 10.00% per annum to, but excluding, the date of repayment or conversion of the Convertible Note.
The Convertible Note and the Warrants will have provisions that preclude conversion or exercise, respectively, if such conversion or exercise would result in the issuance of more than 19.99% of the our currently outstanding common stock in the aggregate prior to obtaining stockholder approval.
Registration Rights Agreement
On
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands): Year Ended December 31, 2021 2020 Net cash used in operating activities$ (42,972) $ (45,426) Net cash (used in) provided by investing activities (70) 24,982 Net cash provided by financing activities 22,102 57,657
Net (decrease) increase in cash and cash equivalents
Operating Activities
During the year ended
During the year ended
Investing Activities
During the year ended
During the year ended
Financing Activities
During the year ended
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During the year ended
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles in
While our significant accounting policies are described in more detail in Note 2 , Summary of Significant Accounting Policies, in the accompanying notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Research and Development Expenses
All research and development expenses are expensed as incurred. Research and development expenses comprise costs incurred in performing research and development activities, including compensation, benefits and other employee costs; equitybased compensation expense; laboratory and clinical supplies and other direct expenses; facilities expenses; overhead expenses; fees for contractual services, including preclinical studies, clinical trials, clinical manufacturing and raw materials; and other external expenses. Nonrefundable advance payments for research and development activities are capitalized and expensed over the related service period or as goods are received. When third-party service providers' billing terms do not coincide with our period-end, we are required to make estimates of our obligations to those third parties, including clinical trial costs, contractual service costs and costs for supply of our drug candidates, incurred in a given accounting period and record accruals at the end of the period. We base our estimates on our knowledge of the research and development programs, services performed for the period and the expected duration of the third-party service contract, where applicable.
Recent Accounting Pronouncements
Refer to Note 2, Summary of Significant Accounting Policies, in the accompanying notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K for a discussion of recent accounting pronouncements.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to "opt out" of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
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