RA PHARMACEUTICALS, INC. The following discussion and analysis of our financial condition and results
of operations should be read together with our consolidated financial statements
and related notes appearing elsewhere within this Annual Report on Form 10-K.
Some of the information contained in this discussion and analysis or set forth
elsewhere within this Annual Report on Form 10-K, including information with
respect to our plans and strategy for our business and related financing,
includes forward-looking statements that involve risks and uncertainties and
should be read together with the "Risk Factors" section of 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. A
discussion of the year ended
Overview
We are a clinical-stage biopharmaceutical company using our proprietary
peptide chemistry platform to develop novel therapeutics for the treatment of
serious diseases that are caused by excessive or uncontrolled activation of the
complement system, a critical component of the immune system. Inappropriate
activation of the complement system can quickly turn it from a beneficial
defense system to an aggressor that plays a major role in immune and
inflammatory diseases. The complement system, which consists of approximately 30
interacting proteins, offers a target-rich opportunity for us to leverage our
proprietary peptide chemistry platform, which was pioneered by Nobel Laureate
Dr.
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compared to larger monoclonal antibodies and biologics. We believe this technology will allow us to pursue challenging targets for which only monoclonal antibodies have been developed.
On
We are developing our lead product candidate, zilucoplan, for the treatment of various complement-mediated diseases, including generalized myasthenia gravis (gMG), immune-mediated necrotizing myopathy (IMNM), amyotrophic lateral sclerosis (ALS), and other tissue-based complement-mediated disorders. Zilucoplan is a potent, synthetic, macrocyclic peptide inhibitor of complement component 5 (C5), formulated for convenient, self-administered, subcutaneous (SC) injection, which is an injection into the tissue under the skin. The relatively small size of this peptide allows for distinct advantages compared to larger monoclonal antibodies, including enhanced tissue penetration and an optimized route of administration. Additionally, we have a C5 life cycle management plan with an extended release (XR) program for zilucoplan and an oral, small molecule C5 inhibitor.
MG is a chronic, complement-mediated, autoimmune disease that causes
weakness in the skeletal muscles. Patients with MG present with muscle weakness
that characteristically becomes increasingly severe with repeated use and
recovers with rest. Muscle weakness can be localized to specific muscles, such
as those responsible for eye movements, but often progresses to affect a broader
range, including head, limb, and respiratory muscles. This is often described as
the generalized, or severe, form of the disease. We initiated a Phase 2 clinical
trial with zilucoplan for gMG in the fourth quarter of 2017. In
IMNM is an autoimmune myopathy characterized by skeletal muscle necrosis, severe proximal limb weakness, and elevated creatine kinase (CK) levels. IMNM is categorized into two subtypes defined by the presence of distinct autoantibodies against 3-hydroxy-3-methylglutaryl-coenzyme A reductase, of HMGCR, or signal recognition particle, or SRP. In IMNM, these autoantibodies drive complement-mediated necrosis of muscle fibers, resulting in severe, progressive, and debilitating proximal muscle
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weakness. In
ALS is the most prevalent adult-onset progressive motor neuron disease,
causing the progressive degeneration of motor neurons, resulting in progressive
muscle weakness and atrophy that can eventually lead to partial or total
paralysis. In
We have a life-cycle management plan with an extended release (XR) program for zilucoplan and an oral, small molecule C5 inhibitor, as well as inhibitors of other complement factors for certain renal, autoimmune, and central nervous system (CNS) diseases. Our XR program includes two formulations: the poly (D,L-lactic-co-glycolic acid) (PLGA) XR formulation of zilucoplan and the FluidCrystal® (FC) XR formulation of zilucoplan. We anticipate the XR program entering human clinical studies in the second half of 2020.
In
In
In addition to our focus on developing novel therapeutics to treat
complement-mediated diseases, we have validated our Extreme Diversity™ platform
by successfully identifying and delivering orally-available cyclic peptides for
a non-complement cardiovascular target with a large market opportunity in a
collaboration with Merck & Co., Inc., or Merck. In
On
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In
In
In
In
As of
º •
º continue to advance our lead program, zilucoplan, through clinical
development by establishing clinical proof-of-concept activity using
convenient SC administration in gMG, IMNM, and ALS;
º •
º continue our current research programs and development activities;
º •
º seek to identify additional research programs and additional product
candidates;
º •
º initiate pre-clinical testing and clinical trials for any product
candidates we identify and develop, maintain, expand and protect our
intellectual property portfolio;
º •
º hire additional research, clinical and scientific personnel; and
º •
º incur additional costs associated with operating as a public company,
including expanding our operational, finance and management teams.
We believe that, our cash and cash equivalents as of
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progress that we expect with respect to zilucoplan because the actual costs and timing of clinical development activities are difficult to predict and are subject to substantial risks and delays. We will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.
Financial Overview
Revenue
We have derived all of our revenue to date from the Merck Agreement, which
we entered into in
To date, we have not generated any revenue from product sales and do not expect to do so in the near future. We expect that our revenue will be less than our expenses for the foreseeable future and that we will experience increasing losses as we continue our development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. Our ability to generate revenue for each product candidate for which we receive regulatory approval will depend on numerous factors, including competition, commercial manufacturing capability and market acceptance of our products.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including development of our proprietary chemistry technology platform, and our pre-clinical and clinical candidates, which include:
º •
º employee-related expenses, including salaries, benefits, and
stock-based compensation expense;
º •
º expenses incurred under agreements with CROs, CMOs, and independent
contractors that conduct research and development, pre-clinical and
clinical activities on our behalf;
º •
º costs of purchasing lab supplies and non-capital equipment used in our
pre-clinical activities and in manufacturing pre-clinical study and
clinical trial materials;
º •
º consulting, licensing and professional fees related to research and
development activities; and
º •
º facility costs, depreciation, and other expenses, which include direct
and allocated expenses for rent and maintenance of facilities,
insurance, and other supplies.
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We expense research and development costs as incurred. We recognize costs for certain development activities, such as pre-clinical studies and clinical trials, based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors such as patient enrollment or clinical site activations for services received and efforts expended.
Research and development activities are central to our business model. We expect research and development costs to increase significantly for the foreseeable future as our current development programs progress and new programs are added.
The following table sets forth our research and development expenses related
to our product candidates:
Year Ended December, 31
2019 2018
(in thousands)
Zilucoplan $ 39,602 $ 22,680
Other pipeline programs 6,372 6,676
Allocated costs 45,974 29,356
Unallocated costs 36,668 25,093
Total $ 82,642 $ 54,449 The expenses allocated to our product candidates in the table above relate to CRO and CMO costs associated with our pre-clinical studies and clinical trials. We do not allocate compensation, benefits and other employee-related expenses, costs related to facilities, depreciation, share-based compensation, research and development support services, laboratory supplies and certain other costs directly to programs.
Historically, we had not provided program costs because we have not tracked or recorded our research and development expenses on a program-by-program basis.
Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of the current or future pre-clinical studies and clinical trials or if, when, or to what extent we will generate revenues from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for our product candidates. The duration, costs, and timing of pre-clinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
º •
º successful completion of pre-clinical studies and Investigational New
Drug-enabling studies;
º •
º successful enrollment in, and completion of, clinical trials;
º •
º receipt of marketing approvals from applicable regulatory authorities;
º •
º establishing commercial manufacturing capabilities or making
arrangements with third-party manufacturers;
º •
º obtaining and maintaining patent and trade secret protection and
non-patent exclusivity;
º •
º launching commercial sales of the product, if and when approved,
whether alone or in collaboration with others;
º •
º acceptance of the product, if and when approved, by patients, the
medical community and third-party payors;
º •
º effectively competing with other therapies and treatment options;
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º •
º a continued acceptable safety profile following approval;
º •
º enforcing and defending intellectual property and proprietary rights
and claims; and
º •
º achieving desirable medicinal properties for the intended indications.
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 pre-clinical 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 pre-clinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of pre-clinical and clinical development. We expect our research and development expenses to increase for the foreseeable future as we continue the development of product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of employee related expenses, including salaries, benefits, and stock-based compensation, for personnel in executive, finance, facility operations and administrative functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters, and fees for accounting, tax and consulting services.
We anticipate that our general and administrative expenses will increase in
the future to support continued research and development activities, potential
commercialization of our product candidates and increased costs of operating as
a public company. These increases will likely include increased costs related to
the hiring of additional personnel and fees to outside consultants, lawyers and
accountants, among other expenses. Additionally, we anticipate increased costs
associated with being a public company, including expenses related to services
associated with maintaining compliance with exchange listing and
Other Income (Expense), Net
Other income (expense), net primarily consists of interest income earned on our cash and cash equivalents and changes in in fair value of preferred stock tranche rights.
Income Taxes
We have not recorded a provision for federal or state income taxes as we have had cumulative net operating losses since inception.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our liquidity, capital resources and results
of operations is based upon our consolidated financial statements prepared in
accordance with generally accepted accounting principles in the
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We believe that our application of the following accounting policy, which requires significant judgments and estimates on the part of management, is the most critical to aid in fully understanding and evaluating our reported financial results:
Research and Development Expenses
We expense research and development costs to operations as incurred. We defer and capitalize nonrefundable advance payments we make for research and development activities until the related goods are received or the related services are performed.
Research and development expenses comprise costs incurred in performing research and development activities, including salaries, benefits and other employee-related expenses, share-based compensation expense, laboratory supplies and other direct expenses, facilities cost, overhead costs, third-party contract costs relating to pre-clinical studies and clinical trial activities and related contract manufacturing expenses, and other outside costs.
As part of the process of preparing our consolidated financial statements, we are required to estimate certain of our research and development expenses, including estimates of third-party contract costs relating to pre-clinical studies and clinical trial activities and related contract manufacturing expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost.
The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers to gauge the reasonableness of our estimates. Differences between actual and estimated expenses recorded have not been material and are adjusted for in the period in which they become known. However, if we incorrectly estimate activity levels associated with such research and development activities at a given point in time, we could be required to record material adjustments in future periods. Examples of estimated research and development expenses include fees paid to:
º •
º CROs in connection with clinical trials;
º •
º CMOs with respect to clinical materials, intermediates, drug substance
and drug product;
º •
º vendors in connection with pre-clinical development activities; and
º •
º vendors related to manufacturing, development and distribution of
clinical supplies.
We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed, enrollment of subjects and the level of effort to be expended in each period.
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Result of Operations
Comparison of the Years Ended
The following table summarizes our results of operations:
Year Ended December 31,
2019 2018 $ Change % Change
(in thousands, except percentages)
Revenue $ 3,000 $ 2,500 $ 500 20.0 %
Operating expenses:
Research and development 82,642 54,449 28,193 51.8 %
General and administrative 27,337 14,439 12,898 89.3 %
Total operating expenses 109,979 68,888 41,091 59.6 %
Loss from operations (106,979 ) (66,388 ) (40,591 ) 61.1 %
Other income, net 4,291 1,426 2,865 200.9 %
Net loss before benefit from income
taxes (102,688 ) (64,962 ) (37,726 ) 58.1 %
Benefit from income taxes - (19 ) 19 -100.0 %
Net loss $ (102,688 ) $ (64,943 ) $ (37,745 ) 58.1 %
Revenue
Revenue for the year ended
Research and Development Expenses
Research and development expenses increased by
General and Administrative Expenses
General and administrative expenses increased by
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Other Income, Net
Other income, net increased by approximately
Liquidity and Capital Resources
Overview
We have funded our operations from inception through
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Cash Flows
Comparison of the Years Ended
The following table summarizes our sources and uses of cash:
Year Ended
December 31,
2019 2018
(in thousands)
Net cash provided by (used in):
Operating activities $ (87,361 ) $ (54,946 )
Investing activities (865 ) (1,034 )
Financing activities 143,396 195,421
Net increase in cash $ 55,170 $ 139,441 Cash flows used in operating activities represent the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net loss for (1) non-cash operating items such as depreciation and amortization, and stock-based compensation as well as (2) changes in operating assets and liabilities, which reflect timing differences between the receipt and payment of cash associated with transactions and when they are recognized in our results of operations.
Net cash used in operating activities was
Net cash used in investing activities was
Net Cash Provided by Financing Activities
Net cash provided by financing activities was
Funding Requirements
We expect our expenses to increase in connection with our ongoing development activities, particularly as we advance the Phase 3 clinical program for zilucoplan, continue clinical trials of
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zilucoplan in additional indications advance the development of our pipeline programs, initiate new research and pre-clinical development efforts and seek marketing approval for any product candidates that we successfully develop. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to establishing sales, marketing, distribution and other commercial infrastructure to commercialize such products. Furthermore, we anticipate increased costs associated with being and operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
We believe that, our cash and cash equivalents as of
º •
º the scope, progress, timing, costs and results of clinical trials of,
and research and pre-clinical development efforts for, our current and
future product candidates;
º •
º our ability to enter into and the terms and timing of any
collaborations, licensing agreements or other arrangements;
º •
º the number of future product candidates that we pursue and their
development requirements;
º •
º the outcome, timing and costs of seeking regulatory approvals;
º •
º the costs of commercialization activities for any of our product
candidates that receive marketing approval to the extent such costs
are not the responsibility of any future collaborators, including the
costs and timing of establishing product sales, marketing,
distribution and manufacturing capabilities;
º •
º subject to receipt of marketing approval, revenue, if any, received
from commercial sales of our current and future product candidates;
º •
º our headcount growth and associated costs as we expand our research
and development and establish a commercial infrastructure; and
º •
º the costs of preparing, filing and prosecuting patent applications,
maintaining and protecting our intellectual property rights and
defending against intellectual property related claims.
Identifying potential product candidates and conducting pre-clinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of a common stockholder. Debt financing, if available, may involve agreements that include covenants
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limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have 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 product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Off-Balance Sheet Arrangements
As of
Recent Accounting Pronouncements
For a discussion of recently adopted or issued accounting pronouncements please refer to Item 8, "Financial Statements and Supplementary Data" within this Annual Report on Form 10-K.
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