Leap Therapeutics(LPTX) - 2020 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements and notes for the periods ended June 30, 2020 Condensed Consolidated Balance Sheets The balance sheet reflects a significant increase in cash and total assets from financing activities, a decrease in liabilities, and a shift in stockholders' equity from a deficit to a positive balance Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2020 | December 31, 2019 | Change | % Change | | :-------------------------------- | :------------ | :---------------- | :----- | :------- | | Cash and cash equivalents | $64,887 | $3,891 | $60,996 | 1567.6% | | Total current assets | $65,280 | $4,241 | $61,039 | 1439.3% | | Total assets | $67,673 | $7,448 | $60,225 | 808.6% | | Total current liabilities | $6,836 | $8,486 | $(1,650) | -19.4% | | Total liabilities | $7,940 | $9,197 | $(1,257) | -13.7% | | Total stockholders' equity (deficiency) | $59,733 | $(1,749) | $61,482 | N/A | Condensed Consolidated Statements of Operations The company reported its first license revenue and a decreased net loss for the period, driven by lower research and development expenses Condensed Consolidated Statements of Operations Highlights (in thousands, except per share) | Metric | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | Change | % Change | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | Change | % Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :----- | :------- | :--------------------------- | :--------------------------- | :----- | :------- | | License revenue | $375 | $- | $375 | N/A | $750 | $- | $750 | N/A | | Research and development | $5,350 | $6,136 | $(786) | -12.8% | $9,953 | $12,926 | $(2,973) | -23.0% | | General and administrative | $2,521 | $2,325 | $196 | 8.4% | $4,674 | $4,330 | $344 | 7.9% | | Total operating expenses | $7,871 | $8,461 | $(590) | -7.0% | $14,627 | $17,256 | $(2,629) | -15.2% | | Net loss | $(6,516) | $(8,366) | $1,850 | -22.1% | $(13,747) | $(16,969) | $3,222 | -19.0% | | Net loss per share (Basic & Diluted) | $(0.12) | $(0.37) | $0.25 | -67.6% | $(0.57) | $(0.82) | $0.25 | -30.5% | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss was primarily driven by net loss, with additional impact from foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Loss Highlights (in thousands) | Metric | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | Change | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :----- | :--------------------------- | :--------------------------- | :----- | | Net loss | $(6,516) | $(8,366) | $1,850 | $(13,747) | $(16,969) | $3,222 | | Foreign currency translation adjustments | $(867) | $44 | $(911) | $45 | $20 | $25 | | Comprehensive loss | $(7,383) | $(8,322) | $939 | $(13,702) | $(16,949) | $3,247 | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased significantly due to substantial proceeds from public offerings and private placements of stock Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands, except shares) | Metric | June 30, 2020 | December 31, 2019 | Change | | :-------------------------------- | :------------ | :---------------- | :----- | | Common Stock Shares Outstanding | 59,657,742 | 24,194,877 | 35,462,865 | | Common Stock Amount | $60 | $24 | $36 | | Additional Paid-in Capital | $268,770 | $193,319 | $75,451 | | Accumulated Deficit | $(209,218) | $(195,168) | $(14,050) | | Total Stockholders' Equity (Deficiency) | $59,733 | $(1,749) | $61,482 | - Major equity transactions during the six months ended June 30, 2020, include[29][111][112][113][114][115][116][117]: * Proceeds from June 2020 Public Offering: $48,276 thousand (net of issuance costs) * Issuance of Series A & B Convertible Preferred Stock: $25,322 thousand (net of underwriting discounts) * Conversion of Series B Preferred Stock to common stock: 11,531,133 shares * Dividend attributable to down round feature of 2017 Warrants: $303 thousand * Beneficial conversion feature from Series A & B convertible preferred stock: $9,399 thousand recognized as a dividend Condensed Consolidated Statements of Cash Flows A significant net increase in cash was driven by substantial financing activities that offset cash used in operations Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | Change | | :-------------------------------- | :--------------------------- | :--------------------------- | :----- | | Net cash used in operating activities | $(13,377) | $(14,051) | $674 | | Net cash provided by (used) in investing activities | $25 | $(100) | $125 | | Net cash provided by financing activities | $74,382 | $13,582 | $60,800 | | Net increase (decrease) in cash and cash equivalents | $60,996 | $(537) | $61,533 | | Cash and cash equivalents at end of period | $64,887 | $15,747 | $49,140 | - Key financing activities for the six months ended June 30, 2020, included[189]: * $48.5 million from the June 2020 Public Offering * $27.0 million from the issuance of Series A and B Preferred Stock in the January 2020 Private Placement * $0.4 million from the exercise of common stock warrants and stock options Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of the company's business, accounting policies, and specific financial transactions 1. Nature of Business, Basis of Presentation and Liquidity Leap Therapeutics is a biopharmaceutical company developing novel cancer therapeutics and has sufficient cash to fund operations for at least the next 12 months - Leap Therapeutics is a biopharmaceutical company focused on acquiring and developing novel therapeutics at the leading edge of cancer biology, targeting tumor-promoting and immuno-oncology pathways[36] - As of June 30, 2020, the company had an accumulated deficit of $209.2 million and incurred a net loss of $13.7 million for the six months ended June 30, 2020[40] - The company believes its cash and cash equivalents of $64.9 million as of June 30, 2020, will be sufficient to fund operating expenses for at least the next 12 months from the issuance date of these financial statements[40] 2. Summary of Significant Accounting Policies This section outlines key accounting policies, including consolidation, use of estimates, R&D incentives, foreign currency, warrants, fair value, leases, and revenue recognition - The company recognizes other income from Australian research and development incentives when there is reasonable assurance of receipt, with a refundable tax offset of 43.5% for the periods presented[43][45] - The company adopted ASU 2017-11 on January 1, 2019, reclassifying 2017 Warrants from liability to equity and prospectively recognizing the effect of down round features as a dividend[53][54][55] - The company adopted ASU 2016-02 on January 1, 2019, recognizing right-of-use assets and lease liabilities on the balance sheet for operating leases with terms greater than one year[60][63] - Revenue is recognized under ASC Topic 606 when the customer obtains control of promised goods or services, with upfront payments amortized over the performance period[64][66] 3. BeiGene Exclusive Option and License Agreement The company entered an exclusive option and license agreement with BeiGene, Ltd for DKN-01, recognizing initial license revenue in 2020 - Leap Therapeutics entered into an exclusive option and license agreement with BeiGene, Ltd on January 3, 2020, for DKN-01 development and commercialization in Asia (excluding Japan), Australia, and New Zealand[78] - The agreement included an upfront cash payment of $3.0 million and potential future option exercise and milestone payments of up to $132.0 million, plus tiered royalties on product sales[79] License Revenue and Contract Liabilities (in thousands) | Metric | 3 Months Ended June 30, 2020 | 6 Months Ended June 30, 2020 | Balance at June 30, 2020 | | :-------------------------------- | :--------------------------- | :--------------------------- | :----------------------- | | License Revenue | $375 | $750 | N/A | | Deferred revenue - current | N/A | N/A | $1,500 | | Deferred revenue - non current | N/A | N/A | $750 | | Total contract liabilities | N/A | N/A | $2,250 | 4. Accrued Expenses Accrued expenses decreased primarily due to reductions in clinical trial accruals, professional fees, and payroll-related expenses Accrued Expenses (in thousands) | Category | June 30, 2020 | December 31, 2019 | Change | | :-------------------- | :------------ | :---------------- | :----- | | Clinical trials | $1,539 | $1,828 | $(289) | | Professional fees | $110 | $609 | $(499) | | Payroll and related expenses | $583 | $1,004 | $(421) | | Total Accrued Expenses | $2,232 | $3,441 | $(1,209) | 5. Leases The company recognized right-of-use assets and lease liabilities for its operating leases following the adoption of ASU 2016-02 - As of June 30, 2020, the company recorded a right-of-use asset of $711 thousand and a lease liability of $742 thousand on its consolidated balance sheets[91] Future Operating Lease Payments (in thousands) | Year | Amount | | :--- | :----- | | 2020 | $214 | | 2021 | $434 | | 2022 | $146 | | Total Lease Payments | $794 | | Less: imputed interest | $(52) | | Total operating lease liabilities | $742 | 6. Warrants The company has various outstanding warrants classified as equity, with a down round feature triggering a dividend in 2020 Outstanding Warrants as of June 30, 2020 | Date Exercisable | Number of Shares Issuable | Exercise Price | | :--------------- | :------------------------ | :------------- | | 1/23/2017 | 54,516 | $0.01 | | 11/14/2017 | 2,549,840 | $1.055 | | 2/5/2019 | 7,491,442 | $1.95 | | 3/5/2020 | 14,413,902 | $0.001 | | 3/5/2020 | 25,945,035 | $2.11 | | 6/22/2020 | 2,250,000 | $0.001 | | Total | 52,704,735 | | - In connection with the January 2020 Private Placement, the 2017 Warrants were repriced from $1.75 to $1.055, resulting in a $303 thousand dividend recorded during the six months ended June 30, 2020[98] - During the six months ended June 30, 2020, 208,254 of 2017 Warrants were exercised for $220 thousand in gross proceeds, and 65,700 of 2019 Warrants were exercised for $128 thousand[99][100] 7. Common Stock Common stock outstanding increased significantly due to public offerings and private placements that raised substantial net proceeds - In January 2020, the company completed a private placement of Series A and B Preferred Stock, generating approximately $25.3 million in net proceeds[111] - In March 2020, Series A Preferred Stock converted to pre-funded warrants (14,413,902 shares at $0.001 exercise price), and Series B Preferred Stock converted to 11,531,133 shares of common stock[102][103][112] - In June 2020, the company completed a public offering, issuing 20,250,000 shares of common stock and 2,250,000 pre-funded warrants, generating approximately $48.3 million in net proceeds[116][117] 8. Equity Incentive Plans The company operates under two equity incentive plans, with details on stock option activity and related compensation expenses provided Stock Option Activity (Six Months Ended June 30, 2020) | Metric | Options | Weighted Average Exercise Price Per Share | | :-------------------------------- | :------ | :-------------------------------------- | | Outstanding at December 31, 2019 | 4,024,566 | $7.48 | | Granted | 1,750,000 | $2.18 | | Exercised | (32,778) | $1.53 | | Forfeited | (260,157) | $6.96 | | Outstanding at June 30, 2020 | 5,481,631 | $5.85 | | Options exercisable at June 30, 2020 | 2,791,017 | $9.12 | Stock-Based Compensation Expense (in thousands) | Category | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Research and development | $249 | $179 | $438 | $355 | | General and administrative | $290 | $720 | $658 | $1,491 | | Total | $539 | $899 | $1,096 | $1,846 | - During the six months ended June 30, 2020, the company granted 660,606 Restricted Stock Units (RSUs) to an executive officer, which will cliff vest after three years or upon a change of control[126][127] 9. Net Loss Per Share Net loss per share improved year-over-year due to a lower net loss and a higher number of weighted average common shares outstanding Net Loss Per Share Attributable to Common Stockholders (in thousands, except per share) | Metric | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss attributable to common stockholders | $(6,516) | $(8,366) | $(23,821) | $(17,328) | | Weighted average common shares outstanding | 52,442,597 | 22,906,025 | 42,037,405 | 21,081,869 | | Net loss per share (Basic & Diluted) | $(0.12) | $(0.37) | $(0.57) | $(0.82) | Anti-Dilutive Securities Excluded from EPS Calculation | Security Type | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Restricted stock units | 660,606 | - | 660,606 | - | | Options to purchase common stock | 5,481,631 | 4,058,962 | 5,481,631 | 4,058,962 | | Warrants to purchase common stock | 36,040,833 | 10,369,752 | 36,040,833 | 10,369,752 | | Total | 42,183,070 | 14,428,714 | 42,183,070 | 14,428,714 | 10. Commitments and Contingencies The company has manufacturing commitments for DKN-01, potential future royalty payments, and is involved in ongoing patent opposition proceedings in Europe - As of June 30, 2020, the company had $794 thousand in noncancelable commitments under manufacturing agreements for DKN-01[135] - The company has license agreements with Eli Lilly and Company and Lonza Sales AG, which stipulate low single-digit royalty payments on net sales of developed products, if and when achieved[136][137] - The company is appealing decisions from the European Patent Office (EPO) regarding patent oppositions for its TRX518 antibody, with hearings scheduled for September 2020 for one appeal and another pending scheduling[139][140] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on financial condition, results of operations, liquidity, and critical accounting policies Company Overview Leap Therapeutics is a biopharmaceutical company developing novel cancer therapies with two clinical-stage programs, DKN-01 and TRX518 - Leap Therapeutics is a biopharmaceutical company developing novel therapies to treat cancer by inhibiting tumor-promoting pathways and harnessing the immune system[143] - The company's two clinical-stage programs are DKN-01, a monoclonal antibody inhibiting DKK1 for various cancers, and TRX518, a monoclonal antibody targeting GITR to enhance anti-tumor immune response[144] Recent Developments The company advanced DKN-01 development, completed a public offering, and deprioritized the development of TRX518 - DKN-01 development progress includes ongoing clinical trials in esophagogastric, hepatobiliary, gynecologic, and prostate cancers, and an exclusive option and license agreement with BeiGene, Ltd[144] - Updated clinical data for DKN-01 in gynecologic cancers showed an overall response rate (ORR) of 10% and disease control rate (DCR) of 50% in endometrial cancer patients with Wnt signaling alteration[144] - The U.S. FDA granted Orphan Drug Designation for DKN-01 for the treatment of gastric and gastroesophageal junction cancer, providing benefits like market exclusivity and tax credits[145] - The company completed a $51.75 million public offering of common stock and pre-funded warrants in June 2020[144] - TRX518 development has been deprioritized as of November 2019[144] Financial Overview Revenues are primarily from the BeiGene Agreement, while research and development expenses are expected to increase as DKN-01 development continues - Revenues are derived from performance obligations under the BeiGene Agreement, recognized using a proportional performance model over the service period[146] - Research and development expenses include costs for nonclinical studies, clinical trials, manufacturing, regulatory filings, and personnel, and are expected to increase with DKN-01 development[148] Research and Development Expenses by Program (in thousands) | Program | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | Change | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | Change | | :-------------------- | :--------------------------- | :--------------------------- | :----- | :--------------------------- | :--------------------------- | :----- | | DKN-01 program | $4,555 | $3,247 | $1,308 | $7,998 | $8,622 | $(624) | | TRX518 program | $795 | $2,889 | $(2,094) | $1,955 | $4,304 | $(2,349) | | Total R&D expenses | $5,350 | $6,136 | $(786) | $9,953 | $12,926 | $(2,973) | | Australian R&D incentives | $30 | $61 | $(31) | $115 | $136 | $(21) | General and Administrative Expenses General and administrative expenses consist of salaries, stock-based compensation, and professional fees, and are expected to increase - General and administrative expenses primarily include salaries, stock-based compensation for executive, finance, and administrative functions, as well as legal, patent, consulting, accounting, and audit services[155] - The company anticipates increased general and administrative expenses due to higher headcount for research activities and increased costs associated with being a public company[156] Interest income Interest income is generated from the company's cash and cash equivalents - Interest income consists primarily of interest earned on cash and cash equivalents[157] Research and development incentive income The company receives incentive income from the Australian government's R&D Incentive program for eligible research activities - Research and development incentive income is derived from the Australian government's R&D Incentive program, which offers a tax offset for eligible R&D activities[158] - Eligible companies with an aggregated turnover of less than A$20 million per annum can receive a 43.5% refundable tax offset[164] Foreign currency translation adjustment Foreign currency translation adjustments reflect gains or losses from revaluing foreign currency transactions of the Australian subsidiary - Foreign currency translation adjustments consist of gains (losses) due to the revaluation of foreign currency transactions associated with the Australian subsidiary, attributable to changes in foreign currency exchange rates[160] Critical Accounting Policies and Estimates The company's critical accounting policies involve significant judgment, particularly in revenue recognition, accrued R&D expenses, and stock-based compensation - Critical accounting policies requiring significant judgment and complexity include revenue recognition, accrued research and development expenses, research and development incentive receivable, and stock-based compensation[166] - The company adopted ASU 2017-11 (Earnings Per Share, Distinguishing Liabilities from Equity, and Derivatives and Hedging) and ASU 2016-02 (Leases) on January 1, 2019[162] - Revenue recognition under ASC Topic 606 involves a five-step model, requiring key assumptions to determine stand-alone selling prices for performance obligations[163][165] Results of Operations The company recognized its first license revenue and saw decreased net losses, driven by reduced R&D expenses for the TRX518 program Comparison of the Three Months Ended June 30, 2020 and 2019 Net loss decreased by $1.9 million due to new license revenue and a $0.6 million reduction in operating expenses Results of Operations (Three Months Ended June 30, in thousands) | Metric | 2020 | 2019 | Change | | :-------------------------------- | :--- | :--- | :----- | | License revenue | $375 | $- | $375 | | Research and development | $5,350 | $6,136 | $(786) | | General and administrative | $2,521 | $2,325 | $196 | | Total operating expenses | $7,871 | $8,461 | $(590) | | Net loss | $(6,516) | $(8,366) | $1,850 | - The decrease in R&D expenses by $0.7 million was primarily due to a $0.9 million decrease in clinical trial costs, partially offset by a $0.2 million increase in consulting fees[170] - General and administrative expenses increased by $0.2 million, driven by higher legal, audit, and consulting fees ($0.3 million) and payroll ($0.2 million), partially offset by a $0.3 million decrease in stock-based compensation[171] Comparison of the Six Months Ended June 30, 2020 and 2019 Net loss decreased by $3.2 million, driven by new license revenue and a $2.6 million reduction in operating expenses Results of Operations (Six Months Ended June 30, in thousands) | Metric | 2020 | 2019 | Change | | :-------------------------------- | :--- | :--- | :----- | | License revenue | $750 | $- | $750 | | Research and development | $9,953 | $12,926 | $(2,973) | | General and administrative | $4,674 | $4,330 | $344 | | Total operating expenses | $14,627 | $17,256 | $(2,629) | | Net loss | $(13,747) | $(16,969) | $3,222 | - The $2.9 million decrease in R&D expenses was primarily due to a $2.7 million decrease in clinical trial costs and a $0.4 million decrease in consulting fees[178] - General and administrative expenses increased by $0.4 million, mainly due to a $0.6 million increase in payroll and related expenses and a $0.5 million increase in legal, audit, and consulting fees[179] Financial Position, Liquidity and Capital Resources The company's cash position significantly increased from financing activities, providing sufficient capital to fund operations for at least the next 12 months - As of June 30, 2020, the company had an accumulated deficit of $209.2 million and incurred a net loss of $13.7 million for the six months ended June 30, 2020[184] - Cash and cash equivalents totaled $64.9 million as of June 30, 2020, an increase of $61.0 million from December 31, 2019[17][184] - Net cash provided by financing activities for the six months ended June 30, 2020, was $74.4 million, primarily from public offerings and private placements of stock[189] Off-Balance Sheet Arrangements The company did not have any off-balance sheet arrangements - The company did not have any off-balance sheet arrangements during the periods presented and does not currently have any[191] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures The company's management concluded that its disclosure controls and procedures were effective as of June 30, 2020 - As of June 30, 2020, management, with the participation of the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective[194] Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the six months ended June 30, 2020 - During the six months ended June 30, 2020, there were no changes in internal control over financial reporting that materially affected, or are reasonably likely to affect, internal control over financial reporting[195] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ongoing patent opposition proceedings before the European Patent Office concerning its TRX518 antibody - The company has filed an appeal of the EPO Opposition Division's decision regarding a TRX518 patent, seeking broader claims, with a hearing scheduled for September 2020[139] - Another patent covering TRX518 in combination with chemotherapy was revoked by the EPO Opposition Division, and the company has filed an appeal seeking a reversal of this decision[140] Item 1A. Risk Factors The company highlights the material adverse impact of the COVID-19 pandemic on its business and clinical development of DKN-01 - The ongoing COVID-19 outbreak could materially adversely impact the company's business and operations, including the development of its lead product candidate, DKN-01[201] - Potential disruptions include delays in initiating, conducting, and completing clinical trials and laboratory operations due to remote work, facility closures, travel restrictions, and reduced capacity of third-party collaborators[201] - The ultimate extent of COVID-19's impact remains highly uncertain and depends on future developments such as the virus's spread, severity, duration, and effectiveness of containment measures[202] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report Item 4. Mine Safety Disclosures There were no mine safety disclosures to report Item 5. Other Information The company received and subsequently canceled and repaid a promissory note under the Paycheck Protection Program - On April 23, 2020, the company received a $662,420 unsecured promissory note under the Paycheck Protection Program (PPP)[206] - The company decided to cancel the PPP Note and fully repaid the entire principal amount to Silicon Valley Bank on April 28, 2020[206][207] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report, including warrants, agreements, certifications, and XBRL formatted financials - Exhibits include Form of Pre-Funded Warrant to Purchase Common Stock, Employment Agreement, Certifications of CEO and CFO, and XBRL formatted financial statements[210][212]