Spyre Therapeutics(SYRE) - 2023 Q3 - Quarterly Report

Company Information The company filed a Form 10-Q as a Non-accelerated and Smaller reporting company, with 4,048,927 common shares outstanding - AEGLEA BIOTHERAPEUTICS, INC. filed a Quarterly Report on Form 10-Q for the period ended September 30, 2023[1][2] - The company is a Non-accelerated filer and a Smaller reporting company[6] - As of November 3, 2023, 4,048,927 shares of common stock, $0.0001 par value per share, were outstanding[6] NOTE ABOUT FORWARD-LOOKING STATEMENTS This section clarifies that the report contains forward-looking statements subject to risks, and the company is not obligated to update them unless legally required - This Quarterly Report contains forward-looking statements regarding future operations, financial position, business strategy, and product development, subject to risks and uncertainties detailed in the 'Risk Factors' section[10][11] - Readers should not rely on forward-looking statements as predictions of future events, and the company undertakes no obligation to update them, except as required by law[12] PART I. FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements and accompanying notes for the reporting period Item 1. Financial Statements (Unaudited) This section contains the company's unaudited condensed consolidated financial statements and notes, detailing accounting policies and the financial impact of recent transactions Condensed Consolidated Balance Sheets This table presents the company's financial position, highlighting significant changes in cash, marketable securities, total assets, liabilities, and stockholders' equity | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change | | :----------------------------- | :-------------------------- | :-------------------------- | :----- | | Cash and cash equivalents | $90,592 | $34,863 | +159.8% | | Marketable securities | $113,007 | $20,848 | +442.1% | | Total current assets | $205,949 | $62,258 | +230.8% | | Total assets | $207,265 | $71,144 | +191.3% | | Total current liabilities | $44,872 | $14,656 | +206.2% | | Total liabilities | $65,562 | $20,839 | +214.6% | | Series A Preferred Stock | $387,105 | $0 | N/A | | Total Stockholders' (Deficit) Equity | $(245,402) | $50,305 | -587.9% | | Accumulated deficit | $(701,234) | $(425,624) | +64.7% | Condensed Consolidated Statements of Operations This table details the company's operational performance, showing revenue, expenses, and net loss for the three and nine months ended September 30, 2023 and 2022 | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (YoY) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------- | :--------------------------------------- | :--------------------------------------- | :------------- | | Total revenue | $0 | $174 | -100% | $886 | $2,161 | -59% | | Research and development | $24,660 | $11,977 | +106% | $55,822 | $44,328 | +26% | | Acquired in-process research and development | $(298) | $0 | N/A | $130,188 | $0 | N/A | | Gain on sale of in-process research and development asset | $(14,609) | $0 | N/A | $(14,609) | $0 | N/A | | Total operating expenses | $18,337 | $18,929 | -3% | $197,275 | $67,780 | +191% | | Loss from operations | $(18,337) | $(18,755) | +2% | $(196,389) | $(65,619) | +199% | | Change in fair value of forward contract liability | $(25,360) | $0 | N/A | $(83,530) | $0 | N/A | | Net loss | $(40,107) | $(18,234) | +120% | $(275,610) | $(64,993) | +324% | | Net loss per share, basic and diluted | $(9.34) | $(4.84) | +93% | $(69.57) | $(20.17) | +245% | Condensed Consolidated Statements of Comprehensive Loss This table presents the company's net loss and total comprehensive loss for the three and nine months ended September 30, 2023 and 2022 | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | Change (YoY) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (YoY) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :------------- | :--------------------------------------- | :--------------------------------------- | :------------- | | Net loss | $(40,107) | $(18,234) | +120% | $(275,610) | $(64,993) | +324% | | Total comprehensive loss | $(40,250) | $(18,198) | +121% | $(275,694) | $(65,157) | +323% | Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders' (Deficit) Equity This section details changes in the company's convertible preferred stock and stockholders' (deficit) equity, including the impact of net loss and Series A preferred stock issuance - As of December 31, 2022, total stockholders' equity was $50,305 thousand, with an accumulated deficit of $(425,624) thousand[26] - The company issued Series A non-voting convertible preferred stock valued at $387,105 thousand as of September 30, 2023[26] - For the nine months ended September 30, 2023, the net loss was $(275,610) thousand, contributing to an accumulated deficit of $(701,234) thousand and total stockholders' (deficit) equity of $(245,402) thousand[26] Condensed Consolidated Statements of Cash Flows This table summarizes the company's cash flows from operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022 | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (YoY) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :------------- | | Net cash used in operating activities | $(68,874) | $(62,004) | +11.1% | | Net cash (used in) and provided by investing activities | $(73,121) | $43,008 | -270.0% | | Net cash provided by financing activities | $197,471 | $42,686 | +362.6% | | Net increase in cash, cash equivalents, and restricted cash | $55,483 | $23,538 | +135.7% | | Cash, cash equivalents, and restricted cash, End of period | $91,899 | $40,518 | +126.8% | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes to the unaudited condensed consolidated financial statements, explaining accounting policies and the impact of recent transactions 1. The Company and Basis of Presentation Aeglea BioTherapeutics, Inc. transformed into a preclinical IBD biotechnology company in 2023 through restructuring, the Spyre acquisition, and Series A preferred stock issuance, facing going concern uncertainty - Aeglea BioTherapeutics, Inc. is now a preclinical stage biotechnology company focused on developing next generation therapeutics for patients living with inflammatory bowel disease (IBD)[34][152] - In April 2023, the company implemented a restructuring plan resulting in an approximate 83% reduction of its existing headcount[35][42] - On June 22, 2023, Aeglea acquired assets from Spyre Therapeutics, Inc., a privately held biotechnology company advancing antibody therapeutics for IBD, in a stock-for-stock transaction[36][43] - As of September 30, 2023, the Company had an accumulated deficit of $701.2 million and cash, cash equivalents, and marketable securities of $203.6 million[39] - Substantial doubt exists about the Company's ability to continue as a going concern, contingent on stockholder approval for the conversion of Series A Preferred Stock to common stock[44] 2. Summary of Significant Accounting Policies This section outlines the company's significant accounting policies for its unaudited interim financial statements, including convertible preferred stock, acquisitions, CVRs, and the early adoption of ASU 2020-06 - Series A Preferred Stock is classified outside of stockholders' (deficit) equity because it is redeemable at the option of the holders for cash if conversion to common stock is not approved by stockholders[48] - Acquisitions are evaluated as either business combinations or asset acquisitions; the Spyre transaction was accounted for as an asset acquisition, with acquired in-process research and development (IPR&D) expensed if it has no alternative future use[49][51] - Contingent Value Rights (CVR) are classified as derivative liabilities, initially recorded at fair value and re-valued at each reporting date, with changes recognized in other income or expense[52] - The Company early adopted ASU 2020-06, 'Accounting for Convertible Instruments and Contracts in an Entity's Own Equity,' effective January 1, 2023, eliminating certain accounting models for convertible instruments[55] 3. Fair Value Measurements This section details the company's fair value measurements for financial instruments using a three-level hierarchy, including assets like money market funds and liabilities such as the CVR liability | Category | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :------- | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Financial Assets: | | | | | | Money market funds | $55,451 | — | — | $55,451 | | Commercial paper | — | $107,093 | — | $107,093 | | Corporate bonds | — | $22,828 | — | $22,828 | | Liabilities: | | | | | | Parapyre Option Obligation | — | $2,952 | — | $2,952 | | CVR liability | — | — | $28,200 | $28,200 | - The forward contract liability, initially $106.2 million on June 22, 2023, increased to $164.3 million by June 30, 2023, and was settled for $189.7 million on July 7, 2023, with the issuance of Series A Preferred Stock[61][62] - The CVR liability decreased by $1.3 million between June 30, 2023, and September 30, 2023, primarily due to changes in the likelihood of pegtarviliase disposition and milestone timing[66][67] 4. Cash Equivalents and Marketable Securities This section details the company's cash equivalents and marketable securities, which significantly increased, with a portfolio shift towards commercial paper and corporate bonds, and notes uninsured cash deposits | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change | | :---------------------- | :-------------------------- | :-------------------------- | :----- | | Total cash equivalents | $72,365 | $26,005 | +178.3% | | Total marketable securities | $113,007 | $20,848 | +442.1% | - As of September 30, 2023, marketable securities had total unrealized losses of $115 thousand, primarily from commercial paper and corporate bonds, but no allowance for credit losses was recognized[69] - The Company had $16.9 million of U.S. cash deposits in excess of the FDIC insured limit as of September 30, 2023[70] - Contractual maturities of marketable securities due in one year or less increased from $20,848 thousand at December 31, 2022, to $102,518 thousand at September 30, 2023[71] 5. Accrued and Other Current Liabilities As of September 30, 2023, the company's accrued and other current liabilities increased to $15.9 million, primarily driven by higher accrued professional and consulting fees and accrued compensation | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Accrued compensation | $5,368 | $4,589 | +17.0% | | Accrued contracted R&D costs | $6,669 | $6,972 | -4.3% | | Accrued professional & consulting fees | $3,484 | $946 | +268.3% | | Total accrued & other current liabilities | $15,861 | $12,837 | +23.6% | 6. Related Party Transactions Aeglea assumed Spyre's obligations under the Paragon Agreement, incurring significant R&D expenses and related payables to Paragon, and also recognized stock compensation expense for the Parapyre Option Obligation - Aeglea assumed Spyre's obligations under the Paragon Agreement, including $19.0 million in unpaid expenses at the acquisition date[74] - The Company recognized $19.4 million and $20.8 million in Research and development expenses for services provided by Paragon for the three and nine months ended September 30, 2023, respectively[75] - As of September 30, 2023, related party accounts payable totaled $19.8 million, including $16.8 million for reimbursable costs under the Paragon Agreement and $3.0 million for the Parapyre Option Obligation liability[82] - The Company exercised its option for the SPY001 program in July 2023, with potential future milestone payments up to $22.0 million to Paragon[77] - Stock compensation expense related to the Parapyre Option Obligation was $2.7 million and $2.9 million for the three and nine months ended September 30, 2023, respectively[81] 7. Asset Acquisition On June 22, 2023, Aeglea acquired Spyre for $113.2 million as an asset acquisition, primarily for IBD-related IPR&D assets, recognizing $130.2 million in IPR&D - On June 22, 2023, Aeglea acquired Spyre, a preclinical stage biotechnology company, in an asset acquisition[83] - The transaction involved issuing 517,809 shares of common stock and 364,887 shares of Series A Preferred Stock to former Spyre security holders[84] - The acquisition was classified as an asset acquisition because substantially all of the fair value of the gross assets acquired was concentrated in Spyre's option to exclusively license IPR&D[86] - The total cost to acquire the asset was $113.2 million, which included $110.0 million in consideration transferred and $3.2 million in transaction costs[88] - Acquired in-process research and development (IPR&D) was recorded at $130.2 million[88] 8. Paragon Agreement Aeglea assumed Spyre's rights and obligations under the Paragon Agreement, including R&D service payments and annual equity option grants, and has exercised the SPY001 program option with potential milestone payments up to $22.0 million - Aeglea assumed Spyre's rights and obligations under the Paragon Agreement, including $19.0 million in unpaid expenses at the acquisition date[89] - The Company incurred $19.4 million and $20.8 million in costs reimbursable to Paragon for the three and nine months ended September 30, 2023, respectively, recorded as Research and development expenses[90] - On July 12, 2023, Aeglea exercised its option for the SPY001 research program, obligating the Company to pay Paragon up to $22.0 million upon achievement of specific development and clinical milestones[91][92] 9. Series A Non-Voting Convertible Preferred Stock Aeglea issued Series A preferred stock as part of the Spyre acquisition and private placement, with cash redemption rights if stockholders don't approve conversion, raising going concern doubts, and a special meeting is set for November 21, 2023 - On June 26, 2023, the Company completed a private placement of 721,452 shares of Series A Preferred Stock for gross proceeds of $210.0 million (net $197.3 million)[97] - An additional 364,887 shares of Series A Preferred Stock were issued on July 7, 2023, as part of the consideration for the Asset Acquisition[98] - If stockholder approval for conversion to common stock is not obtained, holders can require cash settlement at fair value, which was $532.3 million as of September 30, 2023[95] - A special meeting of stockholders is scheduled for November 21, 2023, to submit the Conversion Proposal for approval[95][99] - Each share of Series A Preferred Stock will automatically convert into 40 shares of common stock upon stockholder approval, subject to certain limitations[96] 10. Liabilities, Convertible Preferred Stock and Stockholders' (Deficit) Equity This section details equity changes, including proceeds from the 2022 registered direct offering, outstanding pre-funded warrants, and equity incentives, with significant stock compensation expense recognized - The Company received net proceeds of approximately $42.9 million from a registered direct offering of common stock and pre-funded warrants in May 2022[100] - As of September 30, 2023, 250,000 pre-funded warrants for common stock were outstanding, with a $0.0025 exercise price and no expiration date[102] - The 2016 Equity Incentive Plan had 293,497 shares available for future issuance as of September 30, 2023[107] - During the nine months ended September 30, 2023, 3,583,880 inducement awards were granted under the 2018 Equity Inducement Plan[108] Stock-based compensation expense (in thousands) | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Research and development | $2,965 | $639 | $4,136 | $2,031 | | General and administrative | $1,820 | $926 | $4,269 | $3,653 | | Total stock-based compensation expense | $4,785 | $1,565 | $8,405 | $5,684 | 11. Strategic License Agreements The company's exclusive license and supply agreement with Immedica for pegzilarginase was terminated on July 27, 2023, following the sale of global rights to Immedica, resulting in zero deferred revenue as of September 30, 2023 - The exclusive license and supply agreement with Immedica for pegzilarginase was terminated on July 27, 2023, following the sale of global rights to Immedica[125] - For the nine months ended September 30, 2023, the Company recognized $0.9 million in revenue under the Immedica Agreement, primarily from PEACE Phase 3 and PIP trials, drug supply, and royalties[124] - As of September 30, 2023, there was no deferred revenue associated with the Immedica Agreement, compared to $3.6 million as of December 31, 2022[124][127] 12. Sale of Pegzilarginase to Immedica On July 27, 2023, Aeglea sold global rights to pegzilarginase to Immedica for $15.0 million upfront and up to $100.0 million in contingent milestones, recognizing a $14.6 million gain, with proceeds allocated to CVR holders - On July 27, 2023, the Company sold the global rights to pegzilarginase to Immedica for $15.0 million in upfront cash proceeds and up to $100.0 million in contingent milestone payments[128] - A $14.6 million gain on the sale of the in-process research and development asset was recognized[129] - The upfront payment and contingent milestone payments, if paid, will be distributed to holders of Aeglea's CVR[130] 13. Net Loss Per Share The company computes net loss per common share using the two-class method, excluding convertible preferred stock from basic EPS due to no loss obligation, and diluted EPS equals basic EPS due to anti-dilutive potential securities - Net loss attributable per common stockholder is computed using the two-class method, considering convertible preferred stock as participating securities[131] - Series A Preferred Stock was excluded from the calculation of basic net loss per share because holders do not have an obligation to fund losses[132] - Diluted net loss per share is the same as basic net loss per share for all periods presented, as the inclusion of potentially dilutive securities (options, unvested RSUs, Series A Preferred Stock) would be anti-dilutive[133][134] 14. Restructuring Charges In April 2023, Aeglea implemented a restructuring plan, reducing its workforce by 83% and abandoning its Austin office, incurring $10.9 million in total charges recognized in Q2 2023 - The Company implemented a restructuring plan in April 2023, resulting in an approximate 83% reduction of its workforce by June 30, 2023[136] - Restructuring expenses included $6.4 million in cash severance payments and other employee-related costs, and $1.0 million in non-cash stock-based compensation expense related to accelerated vesting[136] - The Company recognized an impairment loss of $0.9 million related to the operating lease right-of-use asset and $1.7 million related to leasehold improvements due to abandoning its Austin, Texas office space[139][140] - Total restructuring costs amounted to $10.9 million, all recognized during the second quarter of 2023, with no further charges expected[140] 15. Novation of Manufacturing Agreements On September 19, 2023, Aeglea novated two manufacturing agreements from Paragon to WuXi Biologics: a Biologics Master Services Agreement for SPY001 development and GMP manufacturing, and a Cell Line License Agreement for non-exclusive global cell line technology - On September 19, 2023, Aeglea novated a Biologics Master Services Agreement (MSA) and a Cell Line License Agreement from Paragon to WuXi Biologics (Hong Kong) Limited[141] - The WuXi Biologics MSA governs development activities and GMP manufacturing and testing for the SPY001 program[142] - The Cell Line License Agreement provides Aeglea with a non-exclusive, worldwide, sublicensable license to WuXi Biologics' know-how, cell line, and biological materials for manufacturing therapeutic products, specifically for the SPY001 program[145] - A non-refundable license fee of $0.2 million was paid to WuXi Biologics, with potential royalty payments of less than one percent of global net sales if third-party manufacturers are used for commercial supplies[146] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition and operating results, focusing on business transformation, product pipeline, related party relationships, corporate developments, and restructuring, highlighting increased net loss and future funding needs Acquisition of Spyre Aeglea acquired Spyre, gaining an option to license IPR&D for four research programs, and subsequently exercised the option for the SPY001 program - Aeglea acquired Spyre on June 22, 2023, gaining an option to license in-process research and development (IPR&D) related to four research programs[150][151] - On July 12, 2023, Aeglea exercised the option for the SPY001 program, focused on antibodies for inflammatory bowel disease (IBD), with expected patent expiration no earlier than 2044[151] Overview Following the Spyre acquisition, Aeglea transformed into a preclinical IBD biotechnology company with a portfolio of novel monoclonal antibody candidates, facing substantial going concern doubt - Following the Spyre acquisition, Aeglea has reshaped its business into a preclinical stage biotechnology company focused on developing next generation therapeutics for inflammatory bowel disease (IBD)[152] - The company's portfolio of novel monoclonal antibody product candidates aims to improve efficacy, safety, and dosing convenience in IBD care[152] - Substantial doubt exists about the company's ability to continue as a going concern if stockholders do not timely approve the conversion of Series A Preferred Stock, which could trigger a cash redemption[153][154] Our Portfolio This section outlines the company's product portfolio, including SPY001 and SPY002 entering first-in-human studies in 2024, and the discovery-stage SPY003 program - SPY001 (anti-α4β7 mAb), the most advanced product candidate, is expected to enter first-in-human (FIH) studies in the first half of 2024, with interim healthy volunteer data by the end of 2024[157] - SPY002 (anti-TL1A mAb), a co-lead product candidate, is expected to begin FIH studies in the second half of 2024, with healthy volunteer interim data in the first half of 2025[158] - SPY003 (anti-IL-23 mAb) is a discovery stage program with an IND/CTN expected in 2025[159] - The company plans to advance combination programs (SPY120, SPY130, SPY230) and precision immunology approaches for IBD treatment[161][162] Our Relationship with Paragon and Parapyre Aeglea assumed Spyre's obligations under the Paragon Agreement, incurring significant R&D expenses and related party payables, and recognized stock compensation for the Parapyre Option Obligation - Aeglea assumed Spyre's obligations under the Paragon Agreement, including $19.0 million in unpaid expenses at the acquisition date[164][165] - The Company recognized $19.4 million and $20.8 million in research and development expenses due to Paragon for the three and nine months ended September 30, 2023, respectively[166] - As of September 30, 2023, $16.8 million was unpaid and owed to Paragon under the Paragon Agreement[166] - Stock compensation expense related to the Parapyre Option Obligation was $2.7 million and $2.9 million for the three and nine months ended September 30, 2023, respectively[167] Corporate Developments This section highlights corporate developments, including the sale of pegzilarginase global rights and key executive appointments in Q3 and Q4 2023 - In July 2023, Aeglea sold the global rights to pegzilarginase to Immedica for $15 million upfront and up to $100 million in contingent milestone payments, terminating the previous license agreement[168] - Scott Burrows was appointed Chief Financial Officer effective September 1, 2023[169] - Heidy Abreu King-Jones was appointed Chief Legal Officer and Corporate Secretary on September 1, 2023[170] - Dr. Cameron Turtle was appointed principal executive officer effective October 6, 2023[170] Restructuring During Q2 2023, Aeglea implemented a restructuring plan, reducing its workforce by 83%, selling lab equipment, and abandoning its Austin headquarters lease, with all related charges recognized - During the second quarter of 2023, Aeglea implemented a restructuring plan, reducing its workforce by 83%, selling lab equipment, and abandoning its corporate headquarters lease in Austin, TX[171] - All charges related to the restructuring activities were recognized during the second quarter of 2023, with no further charges expected under the plan[171] Critical Accounting Policies and Estimates This section highlights critical accounting policies and estimates requiring significant judgment, including accrued R&D costs, IPR&D valuation, CVR liability, and stock-based compensation - The preparation of financial statements requires significant judgments and estimates, particularly for accrued research and development costs, valuation of acquired IPR&D, CVR liability, stock-based compensation, lease asset impairment, and revenue recognition[174] - The fair value of equity transferred in the Spyre acquisition was determined by considering the per share value of the PIPE financing[174] Results of Operations This section provides a comparative analysis of the company's operating results for the three and nine months ended September 30, 2023 and 2022 Comparison of the Three Months Ended September 30, 2023 and 2022 In Q3 2023, net loss increased to $40.1 million, up 120%, driven by a $25.4 million non-cash charge and higher IBD R&D expenses, partially offset by a $14.6 million gain from pegzilarginase sale | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | Dollar Change | % Change | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------ | :--------- | | Total revenue | $0 | $174 | $(174) | (100)% | | Research and development | $24,660 | $11,977 | $12,683 | 106% | | General and administrative | $8,584 | $6,952 | $1,632 | 23% | | Gain on sale of in-process research and development asset | $(14,609) | $0 | $(14,609) | * | | Change in fair value of forward contract liability | $(25,360) | $0 | $(25,360) | * | | Net loss | $(40,107) | $(18,234) | $(21,873) | * | - The increase in research and development expenses was primarily due to a $22.4 million increase in preclinical development and manufacturing expenses for the IBD pipeline, partially offset by a $10.0 million decrease in legacy rare disease pipeline expenses[179] - General and administrative expenses increased primarily due to a $1.1 million increase in legal costs and a $0.6 million increase in employee separation costs[180] Comparison of the Nine Months Ended September 30, 2023 and 2022 For the nine months ended September 30, 2023, net loss increased to $275.6 million, up 324%, driven by $130.2 million in acquired IPR&D and $83.5 million non-cash charges | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Dollar Change | % Change | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------ | :--------- | | Total revenue | $886 | $2,161 | $(1,275) | (59)% | | Research and development | $55,822 | $44,328 | $11,494 | 26% | | General and administrative | $25,874 | $23,452 | $2,422 | 10% | | Acquired in-process research and development | $130,188 | $0 | $130,188 | * | | Gain on sale of in-process research and development asset | $(14,609) | $0 | $(14,609) | * | | Change in fair value of forward contract liability | $(83,530) | $0 | $(83,530) | * | | Net loss | $(275,610) | $(64,993) | $(210,617) | * | - The increase in research and development expenses was primarily due to a $23.6 million increase in preclinical development and manufacturing expenses for the IBD pipeline and a $2.4 million increase in restructuring costs, partially offset by a $14.5 million decrease in legacy rare disease pipeline activities[190] - General and administrative expenses increased due to a $2.6 million increase in restructuring costs, a $1.1 million increase in legal fees, and a $0.5 million increase in employee separation costs, partially offset by a $1.8 million decrease in legacy commercial readiness activities[185] Liquidity and Capital Resources This section discusses the company's liquidity and capital resources, including funding sources, future requirements, cash flow analysis, and contractual obligations Sources of Liquidity Since inception, Aeglea has raised approximately $716.2 million from financing and licensing, with recent liquidity from a $42.9 million 2022 offering, a $197.3 million 2023 private placement, and a $15.0 million asset sale - Since inception through September 30, 2023, the Company has raised approximately $716.2 million of gross proceeds primarily from equity/debt financings and licensing[189] - Net proceeds from the 2022 registered direct offering were $42.9 million[193] - Net proceeds from the June 2023 PIPE transaction (Series A Preferred Stock) were approximately $197.3 million[195] - The sale of global rights to pegzilarginase to Immedica in July 2023 generated $15.0 million in upfront cash proceeds[192] - Primary use of cash is to fund the development of product candidates, including research and development and general and administrative expenses[196] Future Funding Requirements and Operational Plan The company had an accumulated deficit of $701.2 million and anticipates continued losses, with substantial going concern doubt contingent on stockholder approval for Series A preferred stock conversion - The Company had an accumulated deficit of $701.2 million as of September 30, 2023, and anticipates continued operating losses[197] - Substantial doubt exists about the Company's ability to continue as a going concern within one year, contingent on stockholder approval for the conversion of Series A Preferred Stock[198][199] - Future funding will be required through equity or debt financings, research grants, collaborations, or licensing agreements[197] - Failure to raise additional capital could lead to delays, scaling back, or discontinuation of product development, or relinquishing rights to product candidates[229] Cash Flows For the nine months ended September 30, 2023, the company experienced $68.9 million cash outflow from operations and $73.1 million from investing, offset by $197.5 million from financing, resulting in a $55.5 million net cash increase | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | Change (YoY) | | :------------------------------------------ | :--------------------------------------- | :--------------------------------------- | :------------- | | Net cash used in operating activities | $(68,874) | $(62,004) | +11.1% | | Net cash (used in) and provided by investing activities | $(73,121) | $43,008 | -270.0% | | Net cash provided by financing activities | $197,471 | $42,686 | +362.6% | | Net increase in cash, cash equivalents, and restricted cash | $55,483 | $23,538 | +135.7% | - Cash used in operating activities for the nine months ended September 30, 2023, was $68.9 million, offset by non-cash expenses such as acquired IPR&D ($130.2 million) and change in fair value of forward contract liability ($83.5 million)[201] - Cash used in investing activities for the nine months ended September 30, 2023, was $73.1 million, primarily due to $112.6 million in marketable securities purchases, partially offset by $21.0 million from maturities/sales and $15.0 million from the sale of IPR&D assets[203] - Cash provided by financing activities for the nine months ended September 30, 2023, was $197.5 million, primarily from the net proceeds of the Series A Preferred Stock issuance in the PIPE[205] Contractual Obligations and Other Commitments The company has potential future milestone payment obligations to Paragon of up to $22.0 million for the SPY001 program, with similar amounts for other programs if options are exercised, while most vendor agreements are cancelable within 30-60 days - The Company has potential future obligations of up to $22.0 million in milestone payments to Paragon for the SPY001 program[207] - If options for the remaining three research programs (SPY002, SPY003, SPY004) are exercised, similar milestone payments of up to $22.0 million per program would be obligated[207] - Agreements with contract research organizations, contract manufacturing organizations, and other vendors are generally cancelable upon 30 to 60 days' prior written notice[208] Recently Adopted Accounting Pronouncements The company early adopted ASU 2020-06 on January 1, 2023, which eliminated certain accounting models for convertible instruments and changed diluted EPS calculation, applied to all Series A preferred stock - The Company early adopted ASU 2020-06, 'Accounting for Convertible Instruments and Contracts in an Entity's Own Equity,' effective January 1, 2023, using the modified retrospective method[209] - ASU 2020-06 eliminated cash conversion and beneficial conversion feature models for certain convertible debt and preferred stock and changed the accounting for diluted earnings-per-share for convertible instruments[209] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity, but a hypothetical 10% change is not expected to materially affect its short-term, low-risk investment portfolio, and foreign currency exchange rate risk is also deemed immaterial - The Company's primary exposure to market risk is interest rate sensitivity, but it is not significant as most investments are short-term and low-risk marketable securities[210] - A hypothetical 10% change in interest rates is not expected to have a material effect on the total market value of the investment portfolio[210] - As of September 30, 2023, the Company held $203.6 million in cash, cash equivalents, and marketable securities, predominantly denominated in U.S. dollars[211] - Foreign currency exchange rate risk is not material; a hypothetical 10% change would not have a material impact on consolidated financial statements[212] Item 4. Controls and Procedures As of September 30, 2023, management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level, with no material changes to internal control over financial reporting during the quarter - As of September 30, 2023, the Company's disclosure controls and procedures were evaluated and concluded to be effective at the reasonable assurance level[213] - There were no changes in internal control over financial reporting during the quarter ended September 30, 2023, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[214] PART II. OTHER INFORMATION This part covers other information, including legal proceedings, risk factors, equity sales, defaults, mine safety, and a list of exhibits Item 1. Legal Proceedings Management believes there are no pending legal claims or actions against the company that could materially adversely affect its results of operations, financial condition, or cash flows - Management believes there are currently no claims or actions pending against the Company that could have a material adverse effect on its results of operations, financial condition, or cash flows[216] Item 1A. Risk Factors Investing in the company's common stock involves high risks, including uncertainties related to the Spyre acquisition, going concern ability, preclinical development, third-party reliance, and intellectual property Risk Factor Summary Investing in the company's common stock involves a high degree of risk, categorized across financial, development, regulatory, intellectual property, and operational areas - Investing in the Company's common stock involves a high degree of risk[217] - Key risk categories include financial condition and capital requirements, discovery/development/commercialization, government regulation, intellectual property, reliance on third parties, employee matters/managing growth, and common stock[218][219][221][222][223] Risks Related to Our Financial Condition and Capital Requirements The company faces risks of insufficient capital, impacting its going concern ability if Series A preferred stock conversion is not approved, and anticipates continued losses requiring substantial funding that may dilute stockholders - The Company will need to raise additional capital to fund operations and service debt obligations; inability to do so will prevent continuation as a going concern[226] - If stockholders do not timely approve the conversion of Series A Preferred Stock, holders may require cash settlement, raising substantial doubt about the Company's ability to continue as a going concern[226] - The Company has never generated revenue from product sales and anticipates incurring significant losses for the foreseeable future, with an accumulated deficit of $701.2 million as of September 30, 2023[231][235] - Raising additional capital through equity or convertible debt securities will dilute the ownership interest of existing stockholders[241][243] Risks Related to Discovery, Development and Commercialization All company programs are in preclinical development, facing intense competition and potential failure or delays, with SPY001 and SPY002 success being critical despite clinical trial risks - The Company's programs are in preclinical stages of development and may fail or suffer delays, as all programs are unproven in humans[249] - The Company faces significant competition from multinational biopharmaceutical companies with greater financial resources and expertise[246] - Success is substantially dependent on SPY001 and SPY002, but their anticipated clinical trials may not be successful, and preliminary data may change[254][265] - Difficulties in patient enrollment, significant adverse events, or undesirable side effects in future clinical trials could halt development or limit commercial potential[264][267] - Any approved products may not achieve adequate market acceptance among clinicians, patients, and payors, hindering commercial success[271] Risks Related to Government Regulation Regulatory approval processes are lengthy and unpredictable, potentially delaying or failing product commercialization, requiring strict CMC compliance, and posing risks from biosimilar competition and ongoing regulatory obligations - The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming, and inherently unpredictable, potentially delaying or preventing commercialization[276] - Failure to meet chemistry, manufacturing, and control requirements could prevent product approval[280] - Programs approved as biologics may face competition sooner than anticipated due to biosimilar pathways[281][282] - Even with regulatory approval, the Company will be subject to extensive ongoing regulatory obligations and review, with potential penalties for non-compliance[283][284] - The Company is exposed to risks from healthcare legislative reform, fraud and abuse laws, and strict price controls in foreign governments, which could adversely affect revenue and business[286][287][288][290] Risks Related to Our Intellectual Property The company's ability to protect its patents and proprietary rights is uncertain, risking loss of competitive advantage, potential patent infringement claims, and weakened IP protection due to changes in patent law or non-compliance - The Company's ability to protect its patents and other proprietary rights is uncertain, potentially leading to a loss of competitive advantage[293] - Pending and future patent applications may not result in issued patents, and existing patents may be challenged, narrowed, or found invalid/unenforceable[294] - The Company may be subject to patent infringement claims or need to file claims to protect its intellectual property, incurring substantial costs and liability[304] - Changes to patent laws (e.g., Leahy-Smith Act) and geopolitical instability could diminish the value of patents and impair protection[312][315] - Failure to identify relevant third-party patents or correctly interpret their scope/expiration could adversely affect the ability to develop and market products[317] Risks Related to Our Reliance on Third Parties The company heavily relies on third-party collaborations, licensing, preclinical research, clinical trials, and manufacturing, and their failure to perform could adversely affect business, regulatory approval, or product commercialization - The Company relies on collaborations and licensing arrangements with third parties, including Paragon, for discovery capabilities and in-licenses; failure to maintain these could negatively impact the business[325][326] - The Company relies on third parties (investigators, CROs, CMOs) to conduct and support preclinical studies and clinical trials; their failure to perform could delay or prevent regulatory approval[329][331] - Reliance on third-party manufacturing facilities or CMOs for product manufacturing poses risks, including supply disruptions, non-compliance with cGMP, and manufacturing difficulties[332][333] Risks Related to Employee Matters, Managing Growth and Other Risks Related to Our Business The company anticipates significant growth, posing management challenges and reliance on talent, alongside risks of employee misconduct, cybersecurity breaches, NOL carryforward limitations, and compliance with evolving regulations - The Company expects significant growth in employees and operations, requiring effective management and recruitment/training of qualified personnel[335] - High dependence on key personnel and the ability to attract and retain highly qualified individuals is critical for business strategy implementation[336][337] - Risks include employee misconduct, security/data privacy breaches, limitations on net operating loss carryforwards, and compliance with stringent privacy, data protection, and environmental regulations[340][341][348][349][351] - Adverse legislative or regulatory tax changes, such as those from the Inflation Reduction Act of 2022, could negatively impact financial condition[352] Risks Related to Our Common Stock Investment in common stock carries risks including cash settlement if Series A preferred stock conversion is not approved, potential Nasdaq delisting, anti-takeover provisions, future dilution from equity issuances, and high market price volatility - Failure to obtain stockholder approval for the conversion of Series A Preferred Stock could require cash settlement, materially harming operations and raising going concern doubts[356] - Failure to meet Nasdaq Capital Market listing requirements, such as the Minimum Bid Price Requirement, could result in delisting[357][358] - Anti-takeover provisions in charter documents, Delaware law, and Series A Preferred Stock terms could make acquisitions more difficult[362][363] - Future sales of shares by existing stockholders and future issuances of equity and debt could result in additional dilution to stockholders[369][371] - The market price of the Company's Common Stock has historically been volatile and may decline in the future due to various factors, including regulatory approvals, competition, and macroeconomic conditions[374][375] General Risk Factors As a public company, the company incurs compliance costs and management burdens, with potential stock price impact from insufficient analyst coverage or internal control failures, and faces risks from financial institution failures affecting operational payments - The Company incurs significant legal, accounting, and other expenses associated with public company reporting requirements, which can be time-consuming and costly[378] - Failure to maintain proper and effective internal controls could impair the ability to produce accurate financial statements, leading to investor loss of confidence and stock price decline[380][383] - The failure of financial institutions where the Company holds cash deposits (often exceeding federally-insured limits) could adversely affect its ability to pay operational expenses[354][355] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. No unregistered sales of equity securities or use of proceeds were reported this quarter Item 3. Defaults Upon Senior Securities. No defaults upon senior securities were reported this quarter Item 4. Mine Safety Disclosures. Not applicable Item 5. Other Information. No other information was reported this quarter Item 6. Exhibits. This section lists exhibits filed or furnished as part of the 10-Q quarterly report, including key documents such as merger agreements, certificates of designation, and manufacturing agreements - Key exhibits include the Agreement and Plan of Merger (Spyre acquisition), Certificate of Designation of Series A Non-Voting Convertible Preferred Stock, Asset Purchase Agreement (pegzilarginase sale), Biologics Master Services Agreement, Cell Line License Agreement, and Novation Agreement (WuXi Biologics)[390] Signatures This section confirms the report was signed by Scott Burrows, Chief Financial Officer, on November 9, 2023 - The report was signed by Scott Burrows, Chief Financial Officer (Principal Financial Officer, Principal Accounting Officer, and Duly Authorized Signatory), on November 9, 2023[394][395]