Kineta(KA) - 2019 Q4 - Annual Report

Part I Business Proteostasis Therapeutics is a clinical-stage biopharmaceutical company developing proprietary triple combination therapies for cystic fibrosis using a theratyping approach, facing intense competition and regulatory oversight while relying on third-party manufacturing and strategic partnerships Overview The company is a clinical-stage biopharmaceutical firm developing novel CF treatments through a theratyping approach, utilizing a pipeline of proprietary CFTR modulators and advancing its triple combination therapy through ex vivo studies after completing Phase 2 trials - The company's core strategy is "theratyping," which aims to match CFTR modulators to individual patient responses rather than relying solely on genotype[17] - The pipeline consists of three investigational CFTR modulators: posenacaftor (PTI-801, a corrector), dirocaftor (PTI-808, a potentiator), and nesolicaftor (PTI-428, an amplifier)[21] - Completed Phase 2 studies with the triple combination in patients with F508del mutations and is now using ex vivo organoid assays to identify potential responders among patients with rare mutations for future trials[21] Our Strategy The company's strategy centers on advancing its proprietary triple combination therapy for CF patients with rare and common mutations through theratyping-guided trials like CHOICES and MORE, while also expanding research capabilities and pursuing external collaborations - Develop a proprietary triple combination therapy (posenacaftor, dirocaftor, nesolicaftor) for patients with rare CFTR mutations, using an ex vivo organoid study (theratyping) to select patients for the CHOICES clinical trial[30] - Continue developing the triple combination for patients with the common F508del homozygous mutation, with plans for a pivotal study named the MORE trial[30] - Expand internal capabilities by establishing biobanks of patient-derived cells in Europe for CF and other rare diseases to aid in drug discovery[31] - Pursue additional collaborative partnerships, like the existing one with Genentech, to develop and commercialize novel compounds in areas outside of CF[33] Industry Overview—Cystic Fibrosis Cystic Fibrosis is a rare genetic disease caused by CFTR gene mutations, leading to thick mucus buildup, with current treatments focusing on CFTR modulators and emerging theratyping approaches using patient-derived organoids CF Patient Population by Region | | Number of Patients in | % of Patients | % of Patients | % of Patients | | :--- | :--- | :--- | :--- | :--- | | | National CF Registries | Homozygous for F508del | Heterozygous for F508del | without F508del | | United States | 30,755 | 44% | 41% | 15% | | Canada | 4,370 | 47% | 41% | 12% | | Europe (35 countries) | 48,204 | 40% | 41% | 19% | | Australia | 3,151 | 48% | 37% | 15% | - CF is caused by mutations in the CFTR gene, which disrupts ion flow and leads to thick mucus accumulation in vital organs, causing progressive respiratory failure[37] - Key clinical endpoints for CF therapies are FEV1 (a measure of lung function) and sweat chloride concentration (a measure of CFTR activity)[51][54] - Patient-derived organoid assays are an emerging ex vivo method to measure CFTR protein activity and predict in vivo therapeutic response, supporting a 'theratyping' approach to treatment[55][56] Our Solution The company is developing a proprietary triple combination therapy for CF patients, combining a corrector, potentiator, and a novel amplifier designed to enhance CFTR protein activity and improve clinical outcomes - The company's solution is a proprietary triple combination therapy featuring three classes of CFTR modulators: posenacaftor (corrector), dirocaftor (potentiator), and nesolicaftor (amplifier)[58] - Amplifiers, a novel class of modulator, selectively increase the amount of newly synthesized CFTR protein, providing additional substrate for correctors and potentiators to enhance overall CFTR activity[58][60] Our Product Candidates The company's lead Phase 3-ready triple combination therapy for CF demonstrated an 8-percentage-point ppFEV1 improvement in Phase 2, and is advancing for rare mutations via the CHOICES trial, supported by multiple favorable regulatory designations Phase 2 Triple Combination Trial Results (F508del Homozygous) | Metric | Result | Significance | Source Chunk | | :--- | :--- | :--- | :--- | | ppFEV1 Improvement | 8 percentage points over placebo | p ≤ 0.01 | 65, 70, 79 | | Sweat Chloride Reduction | -29 mmol/L vs. placebo | p < 0.0005 | 26, 80 | - The company is part of the HIT-CF consortium and plans to initiate the CHOICES trial in the second half of 2020, a personalized medicine-based study for CF patients in Europe with rare mutations[71][82] - The company has received Fast Track designation for posenacaftor and the triple combination program, Breakthrough Therapy designation for nesolicaftor, and Orphan Drug Designation in both the U.S. and E.U. for nesolicaftor[90][91][92] Manufacturing and Supply The company fully outsources cGMP-grade manufacturing of its small molecule product candidates to third-party contract manufacturers, with plans to qualify additional suppliers before potential NDA submission - The company outsources all manufacturing and does not own any manufacturing facilities[95] - Relies on third parties for cGMP-grade production of posenacaftor, dirocaftor, and nesolicaftor for all preclinical and clinical testing[95] - The company intends to qualify additional manufacturers to ensure redundant supply prior to any potential NDA submission[95] Competition The CF biopharmaceutical market is highly competitive, dominated by Vertex Pharmaceuticals' approved therapies, with many competitors possessing significantly greater resources, necessitating superior efficacy and safety for the company's success - The CF market is highly competitive, with Vertex Pharmaceuticals' Kalydeco, Orkambi, Symdeko/Symkevi, and Trikafta being the only approved drugs treating the underlying cause of the disease[98] - Key competitors include Vertex, AbbVie Inc., F. Hoffmann-LaRoche Ltd., Novartis AG, and Gilead Sciences, Inc., many of whom have significantly greater resources[98] Intellectual Property The company protects its CFTR modulator compounds and combination therapies through issued U.S. patents expiring between 2035-2036 and pending applications potentially extending to 2040, supplemented by trade secrets - Owns two issued U.S. patents for nesolicaftor (amplifier) expected to expire in 2035, with pending applications potentially extending to 2040[100] - Owns one issued U.S. patent for posenacaftor (corrector) expected to expire in 2036, with pending applications potentially extending to 2038[101] - Has pending patent applications for dirocaftor (potentiator) and its combinations, which if issued, are expected to expire between 2037 and 2038[102] Licenses The company holds key licensing agreements, including an exclusive worldwide license with Genentech for non-CF targets, a collaboration with the Cystic Fibrosis Foundation for milestone and royalty payments, and has terminated prior agreements with Biogen and Astellas - Genentech Agreement (2018): Granted Genentech an exclusive worldwide license for non-CF small molecule modulators, receiving a $5.0 million upfront payment and is eligible for up to $96.0 million in milestones and low single-digit royalties[105][106] - CFF Agreement (2012): Obligates the company to make potential future sales-based milestone payments to CFF up to $34.2 million and royalties up to $22.8 million for the first commercialized product from the collaboration[109] - The license agreement with Harvard University was terminated in December 2017, and the collaboration agreement with Astellas Pharma expired in December 2018[114][115] Government Regulation The company's drug development and commercialization are subject to extensive government regulation in the U.S. (FDA, GLP, GCP, cGMP, expedited programs) and E.U. (MAA, GDPR, orphan drug programs), with ongoing requirements for labeling, safety, pricing, and reimbursement - The U.S. drug approval process requires extensive preclinical and clinical trials (Phase 1, 2, 3) under GLP and GCP regulations before submitting a New Drug Application (NDA) to the FDA[122][127] - The company may utilize FDA's expedited programs, such as Fast Track, Breakthrough Therapy, and Priority Review, to facilitate development and review of its drug candidates[131][132][135] - In the European Union, marketing authorization requires an MAA, which can be submitted through a centralized or decentralized procedure, and is subject to data exclusivity rules and pediatric investigation plan (PIP) requirements[171][172][177] - Operations in Europe are subject to the General Data Protection Regulation (GDPR), which imposes strict requirements on the processing and transfer of personal data, with significant penalties for non-compliance[180][182] Employees As of March 5, 2020, the company employed 44 full-time and 1 part-time individuals, with the majority in research and development, maintaining good employee relations without union representation - As of March 5, 2020, the company employed 44 full-time and 1 part-time employee[185] - The workforce is split with 28 in R&D and 16 in general & administrative roles[185] Risk Factors The company faces significant financial risks due to historical losses and capital needs, high dependency on lead CF product success amid intense competition and uncertain regulatory pathways, reliance on third-party operations, intellectual property challenges, stock volatility, and potential impacts from the COVID-19 pandemic - Financial Risk: The company has a history of significant losses ($59.1 million in 2019) and an accumulated deficit of $336.7 million; it will require substantial additional capital to fund future operations, including the MORE trial, and may be forced to delay or cut programs if funding is not secured[190][201][202] - Development & Regulatory Risk: The business depends heavily on the success of its lead candidates (posenacaftor, dirocaftor, nesolicaftor); clinical development is long, costly, and uncertain, with no guarantee of regulatory approval, and failures or delays could result from competition for patients, safety concerns, or unfavorable results[217][220][229] - Competition Risk: The company faces intense competition from well-established players like Vertex Pharmaceuticals, whose products are the current standard of care for CF; competitors have greater resources and may develop more effective or rapidly approved therapies[284][285][286] - Third-Party Reliance: The company relies on CROs to conduct clinical trials and on third-party manufacturers for its product supply; any failure or delay by these partners could significantly disrupt development programs[263][269] - Market & Stock Risk: The company's stock price is volatile, recently regained compliance with Nasdaq's minimum bid price requirement but faces the risk of future delisting, and future capital raises could cause significant dilution to existing stockholders[382][387][390] - COVID-19 Risk: The COVID-19 pandemic could adversely impact business and clinical trials through enrollment delays, diversion of healthcare resources, and interruptions to trial activities and supply chains[260][261] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None Properties The company leases approximately 30,000 square feet of office and laboratory space for its Boston headquarters under a 10-year agreement expiring April 30, 2028 - The company leases approximately 30,000 square feet of office and laboratory space in Boston, Massachusetts[416] - The lease term is 10 years, expiring on April 30, 2028[416] Legal Proceedings The company is not currently involved in any legal proceedings and anticipates no material adverse impact from future ordinary course litigation - The company is not a party to any legal proceedings and is unaware of any pending or threatened claims[417] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the Nasdaq Global Market under 'PTI', with 21 stockholders of record as of March 6, 2020, and no dividends have been paid or are anticipated, nor have any equity securities been repurchased - Common stock trades on the Nasdaq Global Market under the symbol "PTI"[421] - The company has never declared or paid dividends and does not intend to in the foreseeable future[423] Selected Consolidated Financial Data As a smaller reporting company, Proteostasis Therapeutics is exempt from providing the information for this item - The company is a smaller reporting company and is not required to provide this information[427] Management's Discussion and Analysis of Financial Condition and Results of Operations For 2019, the company reported a net loss of $59.1 million, an improvement from 2018, with revenue increasing to $5.0 million and $69.5 million in cash expected to fund operations for at least 12 months, though additional capital is needed for pivotal trials Comparison of Operations (2019 vs. 2018) | Financial Metric | 2019 (in thousands) | 2018 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Revenue | $5,000 | $2,840 | $2,160 | | Research and development | $52,319 | $50,312 | $2,007 | | General and administrative | $13,835 | $15,710 | ($1,875) | | Net Loss | ($59,125) | ($61,832) | ($2,707) | - As of December 31, 2019, the company had cash, cash equivalents, and short-term investments of $69.5 million and an accumulated deficit of $336.7 million[439][477] - Management believes existing cash will fund operations for at least the next 12 months, but additional funding is required for the MORE trial and potential commercialization[439][477] Cash Flow Summary (2019 vs. 2018) | Cash Flow Activity | 2019 (in thousands) | 2018 (in thousands) | | :--- | :--- | :--- | | Cash used in operating activities | ($53,222) | ($58,844) | | Cash provided by (used in) investing activities | $46,065 | ($44,805) | | Cash provided by financing activities | $3,355 | $101,613 | Quantitative and Qualitative Disclosure About Market Risk As a smaller reporting company, Proteostasis Therapeutics is exempt from providing the information for this item - The company is a smaller reporting company and is not required to provide this information[495] Financial Statements and Supplementary Data This section confirms the inclusion of required financial statements and supplementary data within the report, commencing on page F-1 - The required financial statements and supplementary data can be found on pages F-1 through F-27 of the Annual Report[496] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting principles, practices, or financial statement disclosure - None Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019, with no material changes reported, and an auditor's attestation is not required due to emerging growth company status - Management concluded that disclosure controls and procedures were effective as of December 31, 2019[500] - Management concluded that internal control over financial reporting was effective as of December 31, 2019[502] - The company is exempt from providing an auditor's attestation report on internal control over financial reporting as an emerging growth company[503] Other Information Controller Eric Larson resigned effective March 19, 2020, with CEO Meenu Chhabra appointed interim, and executive employment agreements were amended to increase severance periods from six to nine months - Eric Larson, the principal financial and accounting officer, resigned effective March 19, 2020; CEO Meenu Chhabra was appointed as interim replacement[505][506] - The company amended employment agreements for its Vice Presidents and higher, increasing the severance period from six to nine months for termination without cause or for good reason[510][511][514] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2020 Annual Meeting of Stockholders definitive proxy statement - Information is incorporated by reference from the company's 2020 proxy statement[518] Executive Compensation Information concerning executive compensation is incorporated by reference from the company's 2020 Annual Meeting of Stockholders definitive proxy statement - Information is incorporated by reference from the company's 2020 proxy statement[519] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of beneficial owners and management is incorporated by reference from the company's 2020 Annual Meeting of Stockholders definitive proxy statement - Information is incorporated by reference from the company's 2020 proxy statement[520] Certain Relationships and Related Transactions, and Director Independence Information concerning related party transactions and director independence is incorporated by reference from the company's 2020 Annual Meeting of Stockholders definitive proxy statement - Information is incorporated by reference from the company's 2020 proxy statement[521] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2020 Annual Meeting of Stockholders definitive proxy statement - Information is incorporated by reference from the company's 2020 proxy statement[522] Part IV Exhibits, Financial Statement Schedules This section provides a comprehensive list of financial statements and exhibits filed with the Form 10-K, including corporate governance documents, material agreements, and executive employment agreements, many incorporated by reference - Lists all financial statements, schedules, and exhibits filed with the report[525] - Key exhibits include corporate governance documents, material agreements (e.g., with CFF and Genentech), and executive employment agreements[528][529] Form 10-K Summary This item is not applicable to the company's filing - Not applicable