CG Oncology(US:CGON)2024-03-26 10:05PART I Item 1. Business CG Oncology, Inc. is a late-stage clinical biopharmaceutical company focused on developing cretostimogene, an oncolytic immunotherapy, for bladder cancer - CG Oncology is a late-stage clinical biopharmaceutical company developing cretostimogene for bladder cancer, with a primary focus on high-risk Non-Muscle Invasive Bladder Cancer (NMIBC) unresponsive to Bacillus Calmette Guerin (BCG) therapy16 - The company's pipeline includes BOND-003 (Phase 3 monotherapy) for high-risk BCG-unresponsive NMIBC (topline data expected by end of 2024), CORE-001 (Phase 2 combination) with pembrolizumab, and PIVOT-006 (Phase 3 adjuvant) for intermediate-risk NMIBC1618 - Cretostimogene has received fast track designation from the FDA for the treatment of BCG-unresponsive, high-risk NMIBC patients with carcinoma in-situ with or without Ta or T1 papillary tumors to improve complete response (CR)17 Cretostimogene Interim Clinical Trial Results (Selected) | Trial | Patient Population | CR at Any Time | Maintained CR at 6 Months | Safety Highlights | | :---- | :----------------- | :------------- | :------------------------ | :---------------- | | BOND-003 (Phase 3 Monotherapy) | High-risk BCG-unresponsive NMIBC | 75.7% (50/66 evaluable) | 74.4% (32/43 evaluable responders) | Generally well-tolerated, mostly Grade 1/2 AEs, no Grade 3+ TRAEs, no discontinuations due to TRAEs | | CORE-001 (Phase 2 Combination with Pembrolizumab) | High-risk BCG-unresponsive NMIBC | 85% (29/34 evaluable) | 82% (27/33 evaluable patients) | Generally well-tolerated, one Grade 2 SAE related to cretostimogene, two Grade 3 SAEs related to pembrolizumab | - The company's strategy includes completing BOND-003 for FDA approval, expanding cretostimogene monotherapy across NMIBC indications (intermediate-risk, BCG-exposed/naïve), continuing combination therapy evaluations, building in-house commercial capabilities for the U.S., and leveraging CMC expertise for scalable manufacturing262728 - The global bladder cancer treatment market is forecast to be approximately $9.9 billion by 2028, with NMIBC accounting for ~75% of newly diagnosed patients. High-risk NMIBC patients (40% of NMIBC) face an elevated risk of progression to more aggressive MIBC21313336 - Current high-risk NMIBC treatment with BCG therapy has limitations, including a 50% recurrence rate and a chronic global shortage of BCG. Radical cystectomy, the standard of care for BCG-unresponsive patients, is often avoided due to significant patient burden, morbidity, and mortality235152535455 - Cretostimogene is an engineered oncolytic immunotherapy designed to selectively replicate in Rb gene pathway-defective cancer cells and activate an anti-tumor immune response, with intravesical administration similar to BCG therapy5765666768 - The company has license and collaboration agreements with Kissei Pharmaceutical Co., Ltd. for development and commercialization in the Kissei Territory (Japan and other Asian countries) and with Lepu Biotech Co., Ltd. for the Lepu Territory (mainland China, Hong Kong, Macau)101102105106 Key Financial Terms of License and Collaboration Agreements | Agreement | Upfront Payment | Potential Milestone Payments | Royalty on Net Sales (to CG Oncology) | | :---------- | :-------------- | :--------------------------- | :----------------------------------- | | Kissei License Agreement | $10.0 million | Up to $100.0 million | Mid-twenties percentage in Kissei Territory | | Lepu License Agreement | $4.5 million | Up to $60.0 million | High single-digit percentage in Lepu Territory | - The company relies on patent, trade secret, and trademark protection for cretostimogene, with method-of-use patents expected to expire between 2036 and 2038. As a biological product, cretostimogene may qualify for 12-year reference product exclusivity under the BPCIA107108109 - The U.S. biologics development process involves extensive regulation from preclinical testing through BLA approval and post-marketing requirements, with expedited programs like Fast Track and Breakthrough Therapy available but not guaranteeing faster approval116117123127132133134135136138 - The company is subject to various healthcare laws and regulations, including anti-kickback, fraud and abuse, and data privacy laws, as well as healthcare reform legislation like the ACA and IRA, which could impact coverage, reimbursement, and pricing145146147148149150151152153154155156157 - As of December 31, 2023, the company had 61 full-time employees, with 44 engaged in research and development activities, and focuses on attracting and retaining highly qualified personnel158159 Item 1A. Risk Factors The company faces substantial risks due to its limited operating history, significant accumulated losses, and dependence on the single product candidate, cretostimogene - The company has a limited operating history, has incurred significant operating losses since inception ($48.6 million in 2023, $35.4 million in 2022), and expects to incur substantial losses for the foreseeable future, with an accumulated deficit of $129.9 million as of December 31, 2023167168 - The company is entirely dependent on the success of cretostimogene, its only product candidate, and will require substantial additional capital to finance operations beyond 2027, with potential for dilution or relinquishing rights if unable to secure funding on acceptable terms170171177 - Clinical and preclinical drug development is lengthy, expensive, and uncertain, with prior results not necessarily predictive of future outcomes. Cretostimogene's novel oncolytic immunotherapy approach presents additional challenges in regulatory approval179180183184 - Use of cretostimogene or future product candidates could be associated with adverse side effects, potentially delaying or precluding regulatory approval, limiting commercial profile, or causing clinical trial suspensions199200201202203204 - The company relies heavily on third parties for conducting clinical trials (CROs) and manufacturing cretostimogene, increasing risks related to performance, regulatory compliance, supply chain, and potential disclosure of trade secrets233237243 - Commercial success is uncertain, depending on market acceptance, coverage, and adequate reimbursement from third-party payors, which are increasingly challenging prices and implementing cost-containment measures256259261262264265266 - The biopharmaceutical industry is highly competitive, with numerous companies developing treatments for NMIBC, many having significantly greater financial and operational resources267269270 - The company's ability to obtain, maintain, and enforce patent and other intellectual property protection is critical but uncertain, facing risks of invalidation, infringement claims, and challenges from changes in patent laws321322323325329335337352 - Ownership of common stock carries risks including potential price volatility, significant influence by executive officers and principal stockholders, no anticipated dividends, and potential dilution from future stock sales370373374375 - The company is subject to various U.S. federal, state, and foreign healthcare laws and regulations (e.g., Anti-Kickback Statute, False Claims Act, HIPAA, ACA, IRA), with non-compliance potentially leading to significant penalties and adverse business impacts287288289290291293294295296 Item 1B. Unresolved Staff Comments The company has no unresolved staff comments from the SEC - There are no unresolved staff comments403 Item 1C. Cybersecurity The company has implemented a cybersecurity risk management program based on the NIST Cybersecurity Framework, integrated into its overall enterprise risk management - The company's cybersecurity risk management program is based on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF) principles: Identify, Protect, Detect, Respond, and Recover403 - The program is integrated into the overall enterprise risk management, including assessments, a dedicated security team, use of external service providers, employee training, and an incident response process404405 - The Board of Directors, through its Audit Committee, oversees cybersecurity and other information technology risks, receiving periodic reports from management406407408 - Management, including the Director of Information Technology with 35 years of risk management experience, is responsible for assessing and managing material cybersecurity threats409410 - No risks from known cybersecurity threats have materially affected or are reasonably likely to materially affect the company's operations, business strategy, results of operations, or financial condition to date405 Item 2. Properties The company's principal executive offices are located in Irvine, California, with an additional office in Emeryville, California - The principal executive offices are in Irvine, California (1,249 square feet, lease until August 2026)411 - Additional office space is leased in Emeryville, California (lease until August 2025)411 - The company believes existing facilities are adequate and suitable additional space will be available as needed411 Item 3. Legal Proceedings A specific complaint was filed in March 2024 by ANI Pharmaceuticals, Inc., seeking a 5% royalty on cretostimogene net sales, which the company disputes - On March 4, 2024, ANI Pharmaceuticals, Inc. filed a complaint seeking a declaratory judgment that an assignment and technology transfer agreement obligates the company to pay a 5% royalty on cretostimogene net sales413 - The company disputes these allegations and intends to vigorously defend the matter413 - Litigation, regardless of outcome, can adversely impact the company due to defense and settlement costs, diversion of management resources, and other factors412 Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable414 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock began trading on the Nasdaq Global Select Market in January 2024 following its initial public offering (IPO), with 66.6 million shares outstanding as of January 31, 2024 - The company's common stock (CGON) began trading on the Nasdaq Global Select Market on January 25, 2024, at an initial public offering (IPO) price of $19.00 per share417 - As of January 31, 2024, there were 66,636,192 shares of common stock outstanding, held by approximately 111 holders of record418 - The company has never declared or paid any cash dividends on its capital stock and intends to retain future earnings for business development419 Equity Issuances and Proceeds (in $) | Event | Date | Shares Issued | Price Per Share | Gross Proceeds | | :---- | :--- | :------------ | :-------------- | :------------- | | Series F Preferred Stock Issuance | July 2023 | 81,587,937 | $1.2872 | 105,000,000 | | IPO (Common Stock) | Jan 2024 | 23,000,000 | $19.00 | 437,000,000 | | IPO Net Proceeds | Jan 2024 | N/A | N/A | 400,400,000 | - In 2023, options to purchase 3,346,939 shares of common stock were granted with a weighted average exercise price of $5.78425 - The net proceeds from the IPO are held in cash, cash equivalents, and marketable securities, with no material change in the planned use of proceeds429 Item 6. [Reserved] This item is reserved and contains no information Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The company is a late-stage clinical biopharmaceutical company focused on cretostimogene for bladder cancer, having incurred significant operating losses and negative cash flows since inception - The company has incurred significant operating losses and negative cash flows from operations since its inception, with net losses of $48.6 million in 2023 and $35.4 million in 2022, leading to an accumulated deficit of $129.9 million as of December 31, 2023435 - The company's operations have been primarily funded by proceeds from redeemable convertible preferred stock sales ($307.9 million gross proceeds through Dec 31, 2023) and term debt (repaid in 2023)436464 Key Financial Highlights (in thousands) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | Change (2023 vs 2022) | | :-------------------------------- | :---------------------- | :---------------------- | :-------------------- | | Research and collaboration revenue | $204 | $191 | +$13 | | Research and development expenses | $45,752 | $29,029 | +$16,723 | | General and administrative expenses | $9,901 | $6,408 | +$3,493 | | Total operating expenses | $55,653 | $35,437 | +$20,216 | | Loss from operations | $(55,449) | $(35,246) | $(20,203) | | Total other income (expense), net | $6,842 | $(197) | +$7,039 | | Net loss and comprehensive loss | $(48,607) | $(35,443) | $(13,164) | | Net cash used in operating activities | $(45,679) | $(29,804) | $(15,875) | | Net cash used in investing activities | $(121,195) | $(55,352) | $(65,843) | | Net cash provided by financing activities | $86,997 | $119,692 | $(32,695) | | Cash, cash equivalents and marketable securities (period end) | $187,700 | $143,481 | +$44,219 | - As of December 31, 2023, cash, cash equivalents, and marketable securities totaled $187.7 million. Following the January 2024 IPO, the company received $400.4 million in net proceeds, which are estimated to fund operations through 2027437438441463468 - Research and development expenses increased by $16.7 million in 2023, primarily due to higher clinical trial expenses (CRO fees, CMC) and increased R&D headcount459 - General and administrative expenses increased by $3.5 million in 2023, driven by increased personnel-related expenses, professional consulting fees (legal, accounting), and facilities/travel/marketing costs460 - The company relies on third parties for the manufacture, packaging, labeling, storage, and distribution of cretostimogene, aiming for an efficient infrastructure without internal manufacturing facilities440 - Future funding requirements are expected to increase substantially due to ongoing clinical development, potential commercialization, and public company operating costs, necessitating additional financing through equity, debt, or collaborations439466467469 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is interest rate sensitivity on its cash, cash equivalents, and marketable securities, though the short-term nature of these instruments is expected to limit material impact - The primary market risk exposure is interest rate sensitivity on cash, cash equivalents, and marketable securities, which consist of short-term U.S. government securities and money market funds492493 - Due to the short-term nature of its investment portfolio, a sudden change in market interest rates is not expected to have a material impact on financial condition or results of operations492493 - The company is not currently exposed to significant foreign currency exchange risk, as all employees and operations are in the U.S. and expenses are primarily denominated in USD494 - Inflation has not had a material effect on the company's business, financial condition, or results of operations to date, though it could increase labor and R&D costs in the future495 Item 8. Financial Statements and Supplementary Data This section refers to the company's consolidated financial statements and the report of its independent registered public accounting firm, which are included elsewhere in the Annual Report - The consolidated financial statements and the report of the independent registered public accounting firm are included in this Annual Report on Form 10-K starting on page F-1497 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with the company's accountants on accounting or financial disclosure matters - There are no changes in or disagreements with accountants on accounting and financial disclosure498 Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2023 - Management, with the participation of the principal executive officer and principal financial officer, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2023499500 - The Annual Report does not include a management's assessment or an attestation report from the registered public accounting firm regarding internal control over financial reporting, due to transition periods and exemptions for newly public and emerging growth companies under SEC rules and the JOBS Act501502 - There have been no changes in internal control over financial reporting during the year ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting502 Item 9B. Other Information No officers or directors adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended December 31, 2023 - None of the company's officers or directors adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended December 31, 2023503504 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - This item is not applicable505 PART III Item 10. Directors, Executive Officers and Corporate Governance This section outlines the company's executive officers and board of directors, including their bios and independence status, and details the board's risk oversight - The executive officers as of March 25, 2024, include Arthur Kuan (Chairman & CEO), Ambaw Bellete (President & COO), Corleen Roche (CFO & Secretary), and Vijay Kasturi, M.D. (CMO)508509511512513514515 - The board of directors consists of seven members, with all directors except Mr. Kuan determined to be independent according to Nasdaq listing requirements524525 - The board is divided into three classes with staggered three-year terms, which may delay changes in control or management526 - The board leadership structure includes Arthur Kuan as Chairman and CEO, and Leonard Post, Ph.D., as the lead independent director, to ensure independent oversight of management527528 - The board oversees risk management through its Audit, Compensation, and Nominating and Corporate Governance committees, which regularly discuss major risk exposures with management530531532 - All members of the Audit, Compensation, and Nominating and Corporate Governance committees are independent directors, with specific financial expertise on the Audit Committee534536537 - The company maintains an insider trading compliance policy that prohibits officers, directors, and employees from pledging stock as collateral or engaging in hedging transactions541 - A written code of business conduct and ethics applies to all directors, officers, and employees, available on the company's website545546 Item 11. Executive Compensation This section details the compensation for the company's named executive officers (NEOs) for 2023, including base salaries, performance-based cash bonuses, and equity-based incentive awards - The named executive officers (NEOs) for 2023 were Arthur Kuan (Chairman & CEO), Ambaw Bellete (President & COO), and Vijay Kasturi, M.D. (CMO). Corleen Roche joined as CFO in January 2024547 2023 Summary Compensation Table for Named Executive Officers (in $) | Name | Year | Salary | Bonus | Option Awards | Non-Equity Incentive Plan Compensation | All Other Compensation | Total | | :--- | :--- | :----- | :---- | :------------ | :------------------------------------- | :--------------------- | :---- | | Arthur Kuan | 2023 | 449,000 | — | 3,293,022 | 189,000 | 2,974 | 3,933,996 | | Arthur Kuan | 2022 | 394,000 | — | 694,269 | 140,000 | 1,130 | 1,229,399 | | Ambaw Bellete | 2023 | 322,000 | 189,500 | 1,967,465 | 179,740 | 369,970 | 3,028,675 | | Vijay Kasturi, M.D. | 2023 | 152,000 | 56,000 | 2,144,844 | 87,448 | 4,240 | 2,444,532 | - Effective January 1, 2024, NEOs' annual base salaries increased (Kuan to $625k, Bellete to $495k, Kasturi to $465k, Roche to $450k). Target annual bonuses also increased post-IPO (Kuan to 55%, Bellete to 45% of base salary)557574 - Equity-based incentive awards, primarily stock options, are granted with exercise prices no less than fair market value and generally vest over four years, with some performance-based vesting tied to clinical, operational, or regulatory milestones559560561562563564565 - Non-employee directors receive an annual cash retainer of $36,000 (with additional retainers for chairs/lead independent director and committee members) and equity compensation, including initial and annual option grants587594595 - The company has adopted a compensation recovery (clawback) policy compliant with Nasdaq Listing Rules and provides indemnification agreements and D&O liability insurance for its directors and officers586597598599 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details the beneficial ownership of the company's common stock by its executive officers, directors, and significant stockholders (5% or more) as of March 25, 2024 Beneficial Ownership of Common Stock as of March 25, 2024 | Name of Beneficial Owner | Number of Shares Beneficially Owned | Percentage of Shares Beneficially Owned | | :--------------------------------------- | :---------------------------------- | :-------------------------------------- | | Entities affiliated with ORI Capital | 4,941,368 | 7.4% | | Decheng Capital Global Life Sciences Fund IV, L.P. | 5,358,812 | 8.0% | | Entities affiliated with Longitude Venture Partners | 4,662,281 | 7.0% | | Kissei Pharmaceutical Co., Ltd. | 3,543,533 | 5.3% | | Entities affiliated with Foresite Capital | 3,595,203 | 5.4% | | TCG Crossover Fund I, L.P. | 3,570,206 | 5.4% | | Arthur Kuan | 308,508 | * | | Ambaw Bellete | 26,218 | * | | Vijay Kasturi | 3,609 | * | | James J. Mulé, IPh.D. | 61,794 | * | | Leonard Post, Ph.D. | 139,009 | * | | Simone Song | 5,555,296 | 8.3% | | All executive officers and directors as a group (10 persons) | 1,155,066 | 1.8% | - As of March 25, 2024, executive officers, directors, and greater than 5% stockholders collectively own approximately 39.5% of the outstanding common stock, giving them significant influence over matters submitted to stockholders for approval373606 Equity Compensation Plan Information as of December 31, 2023 (adjusted for reverse stock split) | Plan Category | Number of securities to be issued upon the exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans | | :------------------------------------------ | :------------------------------------------------------------------------ | :----------------------------------------------------------------------- | :------------------------------------------------------------------------------------------ | | Equity compensation plans approved by security holders | 5,532,871 | $4.12 | 124,136 | | Equity compensation plans not approved by security holders | — | — | — | | Total | 5,532,871 | $4.12 | 124,136 | - The 2024 Incentive Award Plan and 2024 Employee Stock Purchase Program became effective at the time of the initial public offering, replacing the 2015 and 2022 Plans for new grants607799800 Item 13. Certain Relationships and Related Transactions, and Director Independence This section details transactions and relationships involving the company's directors, executive officers, and significant stockholders, including preferred stock financings and consulting agreements Redeemable Convertible Preferred Stock Financings (Shares Acquired by Affiliates) | Participant | Series E Redeemable Convertible Preferred Stock | Series F Redeemable Convertible Preferred Stock | | :------------------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Entities affiliated with ORI Capital | 37,474,236 | — | | Decheng Capital Global Life Sciences Fund IV, L.P. | 21,547,685 | 4,402,320 | | Entities affiliated with Foresite Capital | — | 23,306,401 | | Entities affiliated with Longitude Venture Partners | 21,547,685 | 4,402,320 | | TCG Crossover Fund I, L.P. | — | 23,306,401 | - In October 2023, Abundant Supply Global Limited (affiliated with ORI Capital) sold 27,190,800 Series C preferred shares to other major stockholders, including Decheng Capital Global, TCG Crossover Fund I, Longitude Prime Fund, and entities affiliated with Foresite Capital616 - Consulting agreements were in place with Danforth Advisors (for interim CFO services, Stephen DiPalma) and Lion Healthcare Strategies (for corporate/strategic consulting, Ambaw Bellete), with payments totaling $372,824 and $357,908 respectively in 2023624625 - Major stockholders, including Foresite Capital, TCG Crossover, Decheng Capital Global, Longitude Capital, and Simone Hong Fang, participated in the company's January 2024 IPO, purchasing shares at the initial public offering price626 - The Investors' Rights Agreement, Voting Agreement, and Right of Refusal and Co-Sale Agreement terminated upon the closing of the IPO, though registration rights under the Investors' Rights Agreement continue for five years620621623 - The board of directors adopted a written related person transaction policy, effective upon the IPO, requiring audit committee review and approval for transactions exceeding $120,000 or one percent of average total assets629 Item 14. Principal Accounting Fees and Services This section details the audit fees paid to Ernst & Young LLP, the company's independent registered public accounting firm, for the fiscal years 2023 and 2022 Principal Accounting Fees and Services (in $) | Fee Category | Fiscal Year Ended December 31, 2023 | Fiscal Year Ended December 31, 2022 | | :----------- | :---------------------------------- | :---------------------------------- | | Audit Fees | $1,481,000 | $265,000 | | Audit-Related Fees | — | — | | Tax Fees | — | — | | All Other Fees | — | — | | Total Fees | $1,481,000 | $265,000 | - Audit Fees include services for the audit of financial statements and the issuance of consents and comfort letters related to registration statements, including the IPO631 - The Audit Committee has a policy requiring pre-approval for all audit and permissible non-audit services provided by the independent registered public accounting firm632 PART IV Item 15. Exhibits, Financial Statement Schedules This section indicates that the company's financial statements are included in Part II, Item 8 of the Annual Report, with all financial statement schedules omitted - The financial statements of CG Oncology, Inc. are included in Part II, Item 8 of this Annual Report634 - All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto635 - A list of exhibits is set forth on the Exhibit Index immediately preceding the signature page of this Annual Report636 Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided637