Aprea Therapeutics(US:APRE)2020-05-15 20:31PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents Aprea Therapeutics, Inc.'s unaudited condensed consolidated financial statements for the quarter ended March 31, 2020, including balance sheets, statements of operations and comprehensive loss, statements of convertible preferred stock and stockholders' deficit, and cash flows, along with accompanying notes detailing the company's business, accounting policies, and financial position Condensed Consolidated Balance Sheets | Metric | March 31, 2020 ($) | December 31, 2019 ($) | |:----------------------------|--------------------|-----------------------| | Cash and cash equivalents | 122,513,357 | 130,088,869 | | Total current assets | 124,604,298 | 133,044,747 | | Total assets | 125,125,130 | 133,607,885 | | Total current liabilities | 11,544,228 | 9,061,734 | | Total liabilities | 11,771,516 | 9,364,355 | | Total stockholders' equity | 113,353,614 | 124,243,530 | Condensed Consolidated Statements of Operations and Comprehensive Loss | Metric | Three Months Ended March 31, 2020 ($) | Three Months Ended March 31, 2019 ($) | Change ($) | Change (%) | |:----------------------------------------------|:--------------------------------------|:--------------------------------------|:-------------|:-----------| | Research and development | 9,096,122 | 3,678,444 | 5,417,678 | 147.29% | | General and administrative | 2,776,468 | 729,326 | 2,047,142 | 280.68% | | Total operating expenses | 11,872,590 | 4,407,770 | 7,464,820 | 169.36% | | Interest income (expense) | 224,442 | (3,348) | 227,790 | -6803.76% | | Foreign currency gain | 2,247,891 | 935,916 | 1,311,975 | 140.18% | | Total other income (expense) | 2,472,333 | 932,568 | 1,539,765 | 165.11% | | Net loss | (9,400,257) | (3,475,202) | (5,925,055) | 170.51% | | Foreign currency translation | (2,424,653) | (2,031,175) | (393,478) | 19.37% | | Total comprehensive loss | (11,824,910) | (5,506,377) | (6,318,533) | 114.75% | | Net loss per share, basic and diluted | (0.45) | (2.97) | 2.52 | -84.85% | | Weighted-average common shares outstanding | 21,052,726 | 1,171,193 | 19,881,533 | 16975.48% | Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Deficit - Total stockholders' equity decreased from $124,243,530 at December 31, 2019, to $113,353,614 at March 31, 2020, primarily due to a net loss of $9,400,257 and a foreign currency translation loss of $2,424,65318 - Additional paid-in capital increased by $934,962, reflecting $29,491 from stock option exercises and $905,471 from stock-based compensation during the three months ended March 31, 202018 Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2020 ($) | Three Months Ended March 31, 2019 ($) | |:--------------------------------|:--------------------------------------|:--------------------------------------| | Net cash used in operating | (7,541,625) | (4,197,346) | | Net cash used in investing | (12,165) | — | | Net cash provided by financing | 29,523 | 5,432,654 | | Net increase (decrease) in cash | (7,524,267) | 1,235,308 | | Cash and cash equivalents—end | 122,513,357 | 65,682,547 | Notes to Condensed Consolidated Financial Statements 1. Nature of business and basis of presentation - Aprea Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on developing cancer therapeutics that reactivate mutant tumor suppressor protein p53, with principal operations starting in 200621 - The Company completed a corporate reorganization in September 2019, making Aprea Therapeutics AB a wholly-owned subsidiary22 - The Company believes its cash balance of approximately $122.5 million as of March 31, 2020, is sufficient to fund operations into 202327 2. Summary of significant accounting policies - The financial statements are prepared in conformity with U.S. GAAP and on a going concern basis, consolidating the accounts of Aprea Therapeutics, Inc. and its wholly-owned subsidiaries2429 - The Company adopted ASU No. 2018-07 (Stock Compensation) and ASU 2016-13 (Credit Losses) on January 1, 2020, with no material impact on financial condition or results of operations5051 - Net loss per share is calculated using the weighted-average number of common shares outstanding, with potentially dilutive securities excluded due to anti-dilutive effects from net losses47 3. Leases - The Company adopted ASC 842 on January 1, 2019, recognizing right-of-use assets and lease liabilities for operating leases, primarily for office and laboratory space in Boston (expiring December 2021) and Solna, Sweden (expiring June 2022)5354 | Metric | Three Months Ended March 31, 2020 ($) | Three Months Ended March 31, 2019 ($) | |:--------------------------------------------------------------------|:--------------------------------------|:--------------------------------------| | Operating lease cost | 55,768 | 25,782 | | Operating cash flows paid for amounts included in lease liabilities | 62,909 | 30,409 | | Future Lease Payments | Operating Leases ($) | |:----------------------|:---------------------| | 2020 | 181,068 | | 2021 | 243,719 | | 2022 | 58,747 | | Total Lease Payments | 483,534 | | Less: Imputed Interest| (17,475) | | Total Lease Liabilities | 466,059 | 4. Accrued expenses | Accrued Expense Category | March 31, 2020 ($) | December 31, 2019 ($) | |:-------------------------|:-------------------|:----------------------| | Professional fees | 103,067 | 207,917 | | Compensation and benefits| 1,109,672 | 961,790 | | Research and development | 6,637,811 | 4,992,311 | | Other | 448,219 | 480,535 | | Total accrued expenses | 8,298,769 | 6,642,553 | 5. Stockholders' equity (deficit) - The Company's authorized capital stock is 440,000,000 shares, comprising 400,000,000 common stock shares ($0.001 par value) and 40,000,000 preferred stock shares ($0.001 par value)58 - Stock-based compensation expense significantly increased to $905,471 for the three months ended March 31, 2020, from $97,946 in the prior year period60 6. Income Taxes - The Company reported no income tax expense due to operating losses and has a full valuation allowance against net deferred tax assets, indicating uncertainty about their future realization61 - The CARES Act, enacted March 27, 2020, is not expected to materially impact the Company's income taxes due to its history of operating losses65 7. Commitments and contingencies - As of March 31, 2020, the Company has not recorded a provision for any contingent losses, as no material liabilities were deemed probable and reasonably estimable66 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of Aprea Therapeutics' financial condition and operational results, highlighting its focus on developing APR-246 for cancer, significant operating losses, and the impact of the COVID-19 pandemic. It details the components of operating expenses, critical accounting policies, and liquidity, emphasizing the need for future financing to support ongoing development and potential commercialization Overview - Aprea Therapeutics is a clinical-stage biopharmaceutical company developing novel cancer therapeutics that reactivate mutant p53 tumor suppressor protein, with lead candidate APR-246 (eprenetapopt) in late-stage clinical development for hematologic malignancies69 - APR-246 has received Orphan Drug, Fast Track, and Breakthrough Therapy designations from the FDA for MDS, and Orphan Drug designation from the European Commission for MDS, AML, and ovarian cancer69 - The Company incurred net losses of $9.4 million for Q1 2020 and $3.5 million for Q1 2019, with an accumulated deficit of $99.9 million as of March 31, 202072 - The COVID-19 pandemic initially caused a decrease in patient screening and enrollment in clinical trials, but screening activity has recently increased. The Company has not observed disruptions in its clinical supply chain for APR-246 to date8081 Components of our results of operations - The Company has not generated any revenue from product sales and does not expect to in the near future, relying on potential future product sales or collaboration/license agreements83 - Research and development expenses are expensed as incurred and include costs for CROs, CMOs, personnel, consultants, laboratory supplies, and regulatory compliance848586 - General and administrative expenses primarily cover executive, finance, corporate, business development, and administrative functions, including legal, accounting, insurance, and personnel costs93 - Foreign currency gain increased due to the strengthening of the U.S. dollar against the Swedish Krona96 Critical accounting policies and use of estimates - Accrued research and development expenses are estimated based on contract terms, service progress, and vendor information, with potential adjustments for variations in actual performance101102 - Stock-based compensation expense is measured at fair value on the grant date using the Black-Scholes option pricing model and recognized over the service period103105 - The fair value of common stock for private periods was determined by the board, considering third-party valuations and various objective and subjective factors, including R&D progress and market conditions105106 Emerging growth company and smaller reporting company status - The Company is an 'emerging growth company' (EGC) and 'smaller reporting company,' allowing for reduced disclosure requirements, but has irrevocably opted out of the extended transition period for new accounting standards111113115441442443 Results of operations | Metric | Three Months Ended March 31, 2020 ($) | Three Months Ended March 31, 2019 ($) | Change ($) | |:--------------------------------------|:--------------------------------------|:--------------------------------------|:-------------| | Research and development | 9,096,122 | 3,678,444 | 5,417,678 | | General and administrative | 2,776,468 | 729,326 | 2,047,142 | | Total operating expenses | 11,872,590 | 4,407,770 | 7,464,820 | | Interest income (expense) | 224,442 | (3,348) | 227,790 | | Foreign currency gain | 2,247,891 | 935,916 | 1,311,975 | | Total other income (expense) | 2,472,333 | 932,568 | 1,539,765 | | Net loss | (9,400,257) | (3,475,202) | (5,925,055) | - Research and development expenses increased by $5.4 million, primarily due to the advancement of the pivotal Phase 3 clinical trial of APR-246 for TP53 mutant MDS116 - General and administrative expenses rose by $2.1 million, driven by increases in insurance, non-cash stock-based compensation, legal and accounting fees, and personnel costs, largely due to public company operations117 Liquidity and capital resources - As of March 31, 2020, the Company had $122.5 million in cash and cash equivalents, expected to fund operations into 2023127 | Cash Flow Activity | Three Months Ended March 31, 2020 ($) | Three Months Ended March 31, 2019 ($) | |:--------------------------------|:--------------------------------------|:--------------------------------------| | Net cash used in operating | (7,541,625) | (4,197,346) | | Net cash used in investing | (12,165) | — | | Net cash provided by financing | 29,523 | 5,432,654 | - Cash used in operating activities increased by $3.2 million, primarily due to a $5.9 million increase in net loss, partially offset by changes in operating assets and liabilities and non-cash stock-based compensation121 - Future funding requirements are expected to increase substantially due to ongoing development of APR-246 and other product candidates, as well as costs associated with operating as a public company124126 Contractual obligations and commitments - Details regarding contractual obligations are provided in Note 3 'Leases' to the condensed consolidated financial statements133 Recent accounting pronouncements - New accounting pronouncements are discussed in Note 2 to the condensed consolidated financial statements134 Off-balance sheet arrangements - The Company did not have any off-balance sheet arrangements during the periods presented or currently135 Item 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the Company's exposure to market risks, specifically interest rate risk and foreign currency exchange rate risk, noting that historical fluctuations in interest income have been insignificant and no derivative financial instruments are used to hedge foreign exchange exposure - The Company's primary market risk exposure is interest income sensitivity from cash equivalents (bank deposits and money market accounts), though historical fluctuations have been insignificant136 - Foreign currency exchange rate risk arises from non-U.S. dollar functional currency subsidiaries (Aprea AB and Aprea Personal AB), but the Company does not believe it has significant direct foreign exchange risk and does not use derivative instruments to hedge this exposure137138 Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as of March 31, 2020, concluding they were effective at a reasonable assurance level. There have been no material changes in internal control over financial reporting during the most recent fiscal quarter - As of March 31, 2020, the Company's disclosure controls and procedures were evaluated by management and deemed effective at a reasonable level of assurance139140 - There have been no material changes in the Company's internal control over financial reporting during the most recent fiscal quarter141 PART II OTHER INFORMATION Item 1. Legal Proceedings The Company is not currently involved in any material legal proceedings - The Company is not currently subject to any material legal proceedings142 Item 1A. Risk Factors This section details significant risks associated with investing in Aprea Therapeutics, Inc., covering financial stability, product development and commercialization, reliance on third parties, intellectual property protection, regulatory compliance, human resources, and common stock volatility. Key risks include substantial losses, the need for additional funding, the unproven nature of its therapeutic approach, intense competition, and the impact of the COVID-19 pandemic on operations and clinical trials Risks related to our financial position and need for additional capital - The Company has incurred significant losses since inception, with a net loss of $9.4 million for Q1 2020 and an accumulated deficit of $99.9 million as of March 31, 2020, and expects to continue incurring losses for the foreseeable future145 - The Company will need substantial additional funding to support ongoing operations, clinical trials, and potential commercialization, which may not be available on acceptable terms or at all, potentially forcing delays or termination of programs153154 - Raising additional capital through equity or convertible debt could dilute existing stockholders' ownership interests and impose restrictive covenants on operations157158 Risks related to the discovery, development and commercialization of our product candidates - The Company's future success is substantially dependent on the timely marketing approval and commercialization of its lead product candidate, APR-246, which is currently in multiple clinical trials160 - Enrollment in clinical trials, particularly for indications with small patient populations and exacerbated by COVID-19, may be difficult, leading to delays or prevention of marketing approvals166167170 - The reactivation of p53 is a novel and unproven therapeutic approach, and there is no guarantee of demonstrating safety and efficacy in larger-scale clinical trials for APR-246171 - Serious adverse events, including deaths, have occurred in APR-246 clinical trials, which could lead to trial suspension, termination, or denial of marketing approval174176177 - Clinical trials are lengthy, expensive, and uncertain; preclinical and early-stage results may not predict later success, and regulatory authorities may disagree with trial design or data interpretation178179181184186187 - The Company faces substantial competition from major pharmaceutical and biotechnology companies with greater resources and expertise in the highly competitive cancer drug sector204205206 - IT system failures, cybersecurity attacks, or data breaches could compromise sensitive information, disrupt operations, and expose the Company to liability and reputational harm, especially given the lack of formally implemented policies and procedures211212213 Risks related to our dependence on third parties - The Company relies on third parties (CROs, clinical data management organizations, medical institutions, clinical investigators) to conduct clinical trials and some research, which reduces control and poses risks if they fail to perform satisfactorily or meet deadlines243244246247 - The Company is dependent on a single third-party manufacturer for the active pharmaceutical ingredient (API) of APR-246, increasing the risk of insufficient supply, delays, or unacceptable costs if the manufacturer cannot perform as agreed249251257 - Entering into strategic collaborations for product development and commercialization carries risks, including limited control over collaborator resources, potential non-performance, and disagreements that could delay or terminate programs259260261 Risks related to our intellectual property - The Company's commercial success depends on obtaining and maintaining patent, trademark, and trade secret protection for its technologies and product candidates, including APR-246, for which it does not own composition-of-matter patents264265266276 - Method-of-use and formulation patent claims for APR-246 may not prevent competitors from marketing identical APIs for different uses or with different formulations, and off-label use is difficult to prevent275277 - Issued patents covering the Company's product candidates could be narrowed, invalidated, or found unenforceable if challenged in court or before administrative bodies, potentially limiting the ability to prevent competition278279280283 - The Company may be subject to claims challenging inventorship of its intellectual property, which could lead to litigation, loss of rights, and significant costs284 - Failure to obtain patent term extension or data exclusivity for product candidates could allow competitors to enter the market sooner, materially harming the business285286 - The Company may be unable to acquire or in-license necessary third-party proprietary rights for its product candidates or technologies on reasonable terms, potentially forcing abandonment of development programs287288289291 - Changes in U.S. patent law, such as the America Invents Act, could increase uncertainties and costs in patent prosecution and enforcement, potentially diminishing the value of patents292293294295 - Lawsuits to protect or enforce patents are costly, time-consuming, and may be unsuccessful, potentially leading to substantial damages, injunctions, or diversion of management attention296297300301302304 - Protecting intellectual property rights globally is expensive and challenging, as foreign laws may not offer the same protection as the U.S., and compulsory licensing laws or enforcement difficulties could impair competitive position306307 - Non-compliance with procedural requirements by governmental patent agencies could lead to abandonment or lapse of patent rights, allowing competitors to enter the market earlier308309 - Claims that employees or consultants have wrongfully used or disclosed trade secrets of former employers, or claims asserting ownership of the Company's IP, could result in litigation, loss of rights, and significant expenses310311312 - Confidentiality agreements may not prevent unauthorized disclosure of trade secrets, and competitors could independently develop equivalent information, harming the Company's competitive position313314315 Risks related to regulatory and marketing approval and other legal compliance matters - The Company has never obtained marketing approval for a product candidate, and the approval process is unpredictable, expensive, and time-consuming, with potential delays or denials from regulatory authorities319320322323324325327 - Failure to obtain marketing approval in foreign jurisdictions, which have varying regulatory requirements and pricing controls, would prevent product candidates from being marketed abroad and could be impacted by events like Brexit329330331332333 - Even with orphan drug designation for APR-246, exclusivity may not prevent competing products if they demonstrate clinical superiority or if the Company cannot assure sufficient supply334335336337338 - Post-approval, products are subject to ongoing regulatory requirements, including safety reporting, manufacturing compliance (cGMPs), and promotional restrictions, with non-compliance leading to severe penalties339340341342343344345 - Changes in regulatory policies, such as those from the 21st Century Cures Act or executive actions, could increase the difficulty and cost of obtaining marketing approval and affect product pricing346347348349 - Breakthrough therapy, fast track, or priority review designations do not guarantee faster development or approval, and the FDA retains discretion to grant or withdraw such designations367369370372373374 - Relationships with healthcare providers and payors are subject to anti-kickback, fraud and abuse, and other healthcare laws (e.g., False Claims Act, HIPAA, Sunshine Act), with potential for significant penalties for non-compliance375376378381382384386388389 - Employee misconduct, including non-compliance with regulatory standards or fraud, could lead to significant liability, regulatory sanctions, and reputational harm390391 - Failure to comply with environmental, health, and safety laws could result in fines, penalties, or substantial costs, impacting research and development efforts392393394395 - International operations are subject to anti-bribery (FCPA), anti-corruption, and trade control laws, with non-compliance risking significant civil and criminal penalties and reputational damage396397398399400401402 - Security breaches, data loss, or IT system disruptions could compromise sensitive information, leading to legal claims, regulatory penalties (e.g., HIPAA, CCPA), reputational harm, and operational disruptions403404405406407409410 - Clinical trial programs in the EEA/UK are subject to GDPR, imposing stringent data protection requirements, restrictions on data transfers, and potential for significant fines for non-compliance411412413 Risks related to employee matters and managing growth - The Company's future success is highly dependent on retaining key executives and attracting qualified scientific, clinical, manufacturing, and sales/marketing personnel, which is challenging given industry competition414415416 - Anticipated significant growth in employees and operations, particularly in drug development and commercialization, may be difficult to manage effectively due to limited financial resources and management experience417418 Risks related to tax matters - The Company has significant deferred tax assets ($19.7 million as of December 31, 2019) but has a full valuation allowance, indicating uncertainty about their realization due to insufficient future taxable income, potential corporate tax rate reductions, or ownership changes419420421422424 - The Tax Cuts and Jobs Act of 2017 (TCJA) and its GILTI provisions could make financial results difficult to predict, requiring the Company to include foreign subsidiary income in taxable income even without cash distributions425428 - Foreign subsidiaries may become subject to U.S. federal income tax and branch profits tax if deemed engaged in a U.S. trade or business, which could reduce after-tax returns426427 Risks related to our common stock - Executive officers, directors, and principal stockholders collectively own approximately 90% of common stock, allowing them to exert significant control over corporate decisions and potentially prevent acquisitions429430 - Provisions in the corporate charter and Delaware law could make an acquisition more difficult and limit stockholders' ability to influence management, potentially depressing the stock price431432433 - The price of the Company's common stock has been and is likely to remain volatile, influenced by clinical trial results, regulatory actions, competition, and general market conditions, including the impact of COVID-19436437438 - As an 'emerging growth company' and 'smaller reporting company,' reduced disclosure requirements may make the common stock less attractive to investors, potentially leading to a less active trading market and increased volatility440441443 - The Company does not anticipate paying cash dividends, making capital appreciation the sole source of gain for investors in the foreseeable future448449 - Sales of a substantial number of common stock shares by existing stockholders in the public market could cause the stock price to fall450 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities during the period. It also details the completion of the Company's IPO on October 7, 2019, which generated approximately $90.9 million in net proceeds, none of which have been used to date, with no material change in the planned use of proceeds - No unregistered sales of equity securities occurred during the reported period455 - The Company completed its IPO on October 7, 2019, selling 6,516,667 shares of common stock at $15.00 per share, generating approximately $90.9 million in net proceeds455456 - None of the net proceeds from the IPO have been used to date, and there has been no material change in the planned use of proceeds457 Item 3. Defaults Upon Senior Securities This item is not applicable to the Company for the reporting period - This item is not applicable458 Item 4. Mine Safety Disclosures This item is not applicable to the Company for the reporting period - This item is not applicable458 Item 5. Other Information There is no other information to report under this item - No other information is reported under this item458 Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act, and XBRL Instance Taxonomy documents | Exhibit Number | Description of Document | |:---------------|:-----------------------------------------------------------------------------------------------------------------------| | 31.1 | Certification of the Registrant's Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | 31.2 | Certification of the Registrant's Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | | 32.1* | Certification of the Registrant's Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | 32.2* | Certification of the Registrant's Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | 101.INS | XBRL Instance Taxonomy | | 101.SCH | XBRL Taxonomy Extension Schema Document | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | | 101.LAB | XBRL Taxonomy Extension Labels Linkbase Document | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |