Cabaletta Bio(CABA) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The company's net loss increased to $30.3 million in H1 2023, driven by higher R&D expenses for its cell therapy platforms Condensed Balance Sheet Data (in thousands) | Account | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $128,072 | $81,607 | | Short-term investments | $48,256 | $24,940 | | Total Assets | $184,637 | $116,968 | | Total Liabilities | $10,496 | $12,448 | | Accumulated deficit | $(195,903) | $(165,562) | | Total stockholders' equity | $174,141 | $104,520 | Condensed Statements of Operations (in thousands) | Account | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Research and development | $24,232 | $18,684 | | General and administrative | $8,614 | $7,375 | | Total operating expenses | $32,846 | $26,059 | | Interest income | $2,505 | $203 | | Net loss | $(30,341) | $(25,856) | - In May 2023, the company issued 8,337,500 shares of common stock in a public offering, generating net proceeds of $93.8 million[340][417] - The company entered into or amended several key agreements, including an Exclusive License Agreement with IASO Biotherapeutics and an expanded Licence and Supply Agreement with Oxford Biomedica[323][328][329] Management's Discussion and Analysis of Financial Condition and Results of Operations R&D expenses rose to $24.2 million in H1 2023 to advance the CABA™ platform, with cash reserves of $176.3 million expected to fund operations into Q4 2025 - The company's lead product candidate, CABA-201, received FDA IND clearance for a Phase 1/2 trial in Systemic Lupus Erythematosus (SLE) and myositis[366] R&D Expense Breakdown (Six Months Ended June 30, in thousands) | Category | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | License of intellectual property | $2,324 | $0 | $2,324 | | Personnel | $9,679 | $6,924 | $2,755 | | Development services | $5,796 | $3,660 | $2,136 | | Sponsored research activities | $0 | $1,944 | $(1,944) | | Total R&D Expenses | $24,232 | $18,684 | $5,548 | - General and administrative expenses increased by $1.2 million for the six months ended June 30, 2023, mainly due to a $0.9 million increase in personnel costs[403] - As of June 30, 2023, the company had $176.3 million in cash, cash equivalents, and short-term investments, expected to fund operations into the fourth quarter of 2025[405][409] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity on its $176.3 million in short-term investments, which management deems not material - The company's main market risk is interest rate sensitivity on its $176.3 million in cash, cash equivalents, and short-term investments[433] - Management asserts that an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of its holdings due to their short-term maturities[433] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes during the quarter - Management concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective[434] - No material changes to the company's internal control over financial reporting occurred during the fiscal quarter ended June 30, 2023[435] PART II. OTHER INFORMATION Legal Proceedings The company is not involved in any material legal proceedings as of the reporting date - The company reports no material litigation or legal proceedings as of June 30, 2023[437] Risk Factors The company faces significant risks in clinical development, manufacturing, regulatory approval, intellectual property, and financing inherent to an early-stage biotech Risks Related to Clinical Development - As an early-stage company, success hinges on advancing product candidates through clinical development and obtaining regulatory approval, a process fraught with uncertainty[440] - The company's novel cell therapies create challenges in manufacturing, patient access, and managing potential side effects like Cytokine Release Syndrome (CRS) and neurotoxicity[443][451] - The use of preconditioning regimens in clinical trials may increase the risk of adverse side effects and complicate efficacy assessments[458][459] - The business is highly dependent on the success of its initial product candidates, and failure in these trials could negatively impact the entire CABA™ platform[463][464] Risks Related to the Industry - Product candidates may cause undesirable side effects, such as CRS, which could halt clinical development or prevent regulatory approval[474][476] - Preclinical and early clinical trial results may not be predictive of later-stage trial outcomes[478] - Interim, topline, or preliminary data from clinical trials are subject to change and could differ materially from final results[485][488] - The company may face substantial delays in clinical trials due to issues with manufacturing, regulatory holds, or patient recruitment, which would increase costs[493] Risks Related to Sales, Marketing and Competition - The company faces significant competition from large pharmaceutical and biotechnology companies with greater financial and technical resources[517] - Even if approved, product candidates may not gain market acceptance among physicians and patients due to novelty, side effects, cost, and competition[519] Risks Related to Business Development - With limited resources, the company must prioritize certain programs, which may cause it to forego or delay potentially valuable opportunities[521][522] - The business is highly dependent on its ability to attract and retain key managerial, scientific, and medical personnel[526][529] - As the company grows, it may experience difficulties in managing its expansion and outsourced activities effectively[530] Risks Related to Our Financial Condition and Capital Requirements - The company has a history of net losses, with an accumulated deficit of $195.9 million as of June 30, 2023, and anticipates incurring substantial future losses[537][538] - The company will require substantial additional financing to complete development, and failure to obtain it could force program delays or discontinuation[557] - Future sales of common stock to raise capital will result in additional dilution to existing stockholders[318][562] Risks Related to Our Intellectual Property - The company's business is heavily dependent on intellectual property in-licensed from third parties, and failure to comply with license obligations could result in the loss of critical rights[276] - The company's in-licensed patents may be challenged, invalidated, or circumvented by competitors in a highly uncertain patent landscape[283][284] - Some in-licensed intellectual property is subject to federal regulations, including "march-in" rights and a preference for U.S. manufacturing, due to U.S. government funding[299] - The company may become subject to claims that it is infringing on third-party intellectual property rights, which could lead to costly litigation[268] Risks Related to Our Reliance on Third Parties - The company relies significantly on a research services agreement with the University of Pennsylvania (Penn) for R&D and manufacturing[351] - The company depends on third parties, including CROs, to conduct its clinical trials, and their failure to perform could cause delays[3] - Strategic alliances and licensing arrangements are critical, but the company faces significant competition in seeking appropriate partners[18] Risks Related to Manufacturing and Supply - The company relies on Penn and commercial CMOs for manufacturing and will need to develop new relationships for commercial-scale production[26][27] - The manufacturing process for the company's product candidates is complex, novel, and costly, and difficulties could halt supply[30][31] - The manufacture of viral vectors is complex with limited suppliers, and a lack of vector supply could delay product development[39] - The company is dependent on single-source suppliers for some specialty raw materials, creating a risk of supply chain interruptions[47] Risks Related to Government Regulation - The FDA regulatory approval process is lengthy and uncertain, with additional challenges due to the novelty of the company's therapies for autoimmune disease[57][59] - The regulatory landscape for gene and cell therapies is still developing and subject to change, which could result in delays or increased costs[65] - Even if approved, the company will be subject to ongoing regulatory obligations, including potential Risk Evaluation and Mitigation Strategy (REMS) requirements[91][92] - Orphan Drug and Fast Track designations do not guarantee a faster review or ultimate marketing approval[82][83] Risks Related to Healthcare - Commercial success is highly dependent on obtaining coverage and adequate reimbursement from government and third-party payors[99][105] - Healthcare legislative measures, such as the Inflation Reduction Act of 2022 (IRA), may exert downward pressure on pricing and reimbursement[101] - The company's relationships with customers will be subject to federal and state healthcare fraud and abuse laws[111][114] Risks Related to Data and Privacy - The company is subject to restrictive and evolving data privacy regulations globally, such as GDPR and CCPA/CPRA, which impose significant compliance costs[118][119][123] - A breach of security measures could harm the company's reputation and result in significant liabilities and litigation[126][127] - The company relies on third-party internet service providers and cloud computing platforms, and any service interruptions could harm the business[131][132] Risks Related to Ownership of Our Common Stock - As of June 30, 2023, executive officers, directors, and 5% stockholders beneficially owned approximately 64% of the company's outstanding voting common stock[134] - The dual-class structure of the common stock may limit the ability of common stockholders to influence corporate matters[139] - Anti-takeover provisions in the company's charter documents could delay or prevent a change of control[149][156] - The company's ability to use its net operating loss carryforwards (NOLs) may be subject to limitations due to ownership changes[153][161] General Risk Factors - Adverse developments in the financial services industry, such as bank failures, could impair the company's access to cash[165][166] - Public health crises, such as pandemics, could seriously harm R&D efforts and delay clinical trial enrollment[172] - The company's stock price is likely to be highly volatile due to clinical trial results, regulatory decisions, and market fluctuations[174] - The company's status as an "emerging growth company" allows for reduced reporting requirements, which may make its stock less attractive to some investors[181][183] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of securities in the reporting period[190] Defaults Upon Senior Securities The company reported no defaults upon senior securities - None[191] Mine Safety Disclosures This item is not applicable to the company - Not applicable[1] Other Information The company terminated its 2020 at-the-market sales agreement with Cowen after selling 4,792,562 shares - The company terminated its 2020 Sales Agreement with Cowen, effective May 10, 2023, and no additional shares will be sold under this agreement[224][225] Exhibits This section lists exhibits filed with the report, including key agreement amendments and officer certifications - The report includes several filed exhibits, such as an amendment to the License and Supply Agreement with Oxford Biomedica[196][228]