Unity Biotechnology(UBX) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements Unity Biotechnology, Inc.'s unaudited Q1 2019 financial statements report a net loss of $18.8 million and changes in financial position Condensed Balance Sheets The condensed balance sheet as of March 31, 2019, shows total assets decreased to $160.8 million and stockholders' equity declined to $146.6 million Condensed Balance Sheet Summary (in thousands) | | March 31, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Total current assets | $151,840 | $172,965 | | Total assets | $160,797 | $181,375 | | Total current liabilities | $11,111 | $16,582 | | Total liabilities | $14,194 | $20,682 | | Total stockholders' equity | $146,603 | $160,693 | Condensed Statements of Operations and Comprehensive Loss For Q1 2019, the company reported a net loss of $18.8 million, an increase from $16.1 million in Q1 2018, primarily due to increased operating expenses Statement of Operations Highlights (in thousands, except per share data) | | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Research and development | $16,505 | $13,025 | | General and administrative | $4,477 | $3,457 | | Total operating expenses | $19,737 | $16,482 | | Loss from operations | $(19,737) | $(16,482) | | Net loss | $(18,767) | $(16,133) | | Net loss per share, basic and diluted | $(0.44) | $(4.69) | Condensed Statements of Stockholders' Equity The statement details changes in stockholders' equity for Q1 2019, with the accumulated deficit increasing to $182.0 million due to the net loss - For the three months ended March 31, 2019, total stockholders' equity decreased from $160.7 million to $146.6 million. The change was primarily driven by the net loss of $18.8 million, partially offset by increases in additional paid-in capital from stock-based compensation ($2.0 million) and stock option exercises ($0.3 million)[15] Condensed Statements of Cash Flows For Q1 2019, net cash used in operating activities was $20.6 million, offset by $40.1 million from investing activities, resulting in a $19.7 million net cash increase Cash Flow Summary (in thousands) | | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(20,596) | $(11,883) | | Net cash provided by investing activities | $40,060 | $12,947 | | Net cash provided by financing activities | $282 | $54,392 | | Net increase in cash, cash equivalents and restricted cash | $19,746 | $55,456 | Notes to Condensed Financial Statements The notes provide crucial context, detailing the company's focus on therapeutics, operating losses, capital needs, IPO, license agreements, and significant lease commitments - The company is a biotechnology firm focused on researching and developing therapeutics to extend human healthspan. It has incurred operating losses and has an accumulated deficit of $182.0 million as of March 31, 2019, and expects to need additional capital to fund future operations[21][22] - In May 2018, the company closed its IPO, receiving net proceeds of approximately $75.9 million. In connection with the IPO, all outstanding convertible preferred stock was converted into common stock[27] - The company has license agreements that include contingent consideration based on achieving preclinical, clinical, and sales milestones. These potential payments include up to $70.3 million in cash and 533,336 additional shares of common stock[63] - In February 2019, the company entered into a new 10-year lease for office and laboratory space in South San Francisco, with total future minimum lease payments under all operating leases amounting to $52.6 million as of March 31, 2019[69][70] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, noting an increased net loss of $18.8 million for Q1 2019 due to higher expenses, and outlines liquidity and future capital needs Results of Operations Total operating expenses increased by $3.3 million to $19.7 million in Q1 2019, driven by higher R&D and G&A expenses, partially offset by a gain from contingent consideration Comparison of Operations (in thousands) | | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Increase / (Decrease) | | :--- | :--- | :--- | :--- | | Research and development | $16,505 | $13,025 | $3,480 | | General and administrative | $4,477 | $3,457 | $1,020 | | Fair value of contingent consideration | $(1,245) | — | $(1,245) | | Total operating expenses | $19,737 | $16,482 | $3,255 | | Net loss | $(18,767) | $(16,133) | $2,634 | - The $3.5 million increase in R&D expenses was primarily due to a $1.5 million rise in personnel-related expenses and a $2.1 million increase in direct research and development activities[98] - The $1.0 million increase in G&A expenses was mainly driven by a $1.5 million increase in personnel-related expenses (including $0.6 million in non-cash stock-based compensation) and a $0.2 million increase in insurance expense, partially offset by a decrease in professional services[99] Liquidity and Capital Resources As of March 31, 2019, the company had $150.2 million in cash and marketable securities, expecting funds to last into 2021, but substantial additional capital will be required - As of March 31, 2019, the company had $150.2 million in cash, cash equivalents and marketable securities[103] - The company believes its existing cash resources will be sufficient to fund projected operations through at least the next 12 months and into 2021, including through key clinical data readouts[106] - Future funding requirements are substantial and depend on many factors, including the progress of clinical trials, regulatory costs, and manufacturing expenses. The company expects to finance future needs through equity or debt financings or collaborations[105][107] - Net cash used in operating activities was $20.6 million for the three months ended March 31, 2019, an increase from $11.9 million in the prior-year period, primarily due to the higher net loss and changes in operating assets and liabilities[109][110] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes to its market risks from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2018 - There have been no material changes to the company's market risks from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018[121] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2019, the chief executive officer and chief financial officer concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[122] - There were no changes in the company's internal control over financial reporting during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[123] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports that it is not currently a party to any material litigation or other material legal proceedings - The company is not currently a party to any material litigation or other material legal proceedings[125] Item 1A. Risk Factors This section outlines significant risks, including the company's limited operating history, need for financing, unproven therapeutic approach, early-stage drug candidates, reliance on third parties, and intense competition Risks Related to Financial Condition and Capital Requirements This subsection details financial risks, including the company's limited operating history, significant accumulated losses of $182.0 million, and the critical need for substantial additional capital - The company is a clinical-stage biopharmaceutical firm with a limited operating history, no products approved for sale, and has incurred significant losses since inception, with an accumulated deficit of $182.0 million as of March 31, 2019[127][129] - The company will require substantial additional financing to achieve its goals. Failure to obtain this capital could force it to delay, limit, reduce, or terminate product development and commercialization efforts[130] - Due to limited resources, the company must prioritize certain drug candidates and indications, which carries the risk of focusing on programs that do not yield a successful product while failing to capitalize on more promising opportunities[135] Risks Related to Business and Development This subsection outlines operational and developmental risks, including the novel and unproven senolytic therapeutic approach, dependence on early-stage drug candidates, and reliance on third-party manufacturers and CROs - The company's therapeutic approach of using senolytic molecules to treat age-related diseases is novel, which exposes it to unforeseen risks and makes it difficult to predict the time, cost, and potential for regulatory approval[143] - The business is dependent on the successful development, regulatory approval, and commercialization of its drug candidates, all of which are in early stages of development. Its lead candidate, UBX0101, is in a Phase 1 clinical study[147] - The company relies on third-party suppliers for manufacturing and has no internal manufacturing capabilities. The loss of these suppliers or their failure to comply with regulations would materially harm the business[190] - The company faces significant competition from pharmaceutical and biotechnology companies with greater financial and operational resources[202] Risks Related to Intellectual Property This subsection details intellectual property risks, including potential infringement, challenges in obtaining and enforcing patents, protecting trade secrets, and varying international patent laws - The company's commercial success depends on its ability to operate without infringing on the patents of third parties, and it may face costly litigation if accused of infringement[239] - The company's ability to compete could be adversely affected if it is unable to obtain, maintain, and enforce intellectual property protection for its technology platform and products[246] - Patent laws are complex and uncertain, and recent changes like the Leahy-Smith Act could increase the costs and uncertainties surrounding patent prosecution and enforcement[256][258] - Protecting intellectual property rights globally is prohibitively expensive, and the laws of some foreign countries do not protect these rights as extensively as U.S. law, potentially allowing competitors to use the company's technologies in those jurisdictions[271] Risks Related to Government Regulation This subsection discusses extensive government regulations, including ongoing scrutiny post-approval, potential generic/biosimilar competition, and the impact of healthcare legislation on pricing and reimbursement - Even if a drug candidate obtains regulatory approval, it will remain subject to extensive and ongoing regulatory scrutiny regarding manufacturing, labeling, advertising, and post-marketing studies[276][278] - If approved, the company's small molecule drugs could face generic competition under the Hatch-Waxman Act, and its biologic drug candidates could face competition from biosimilars under the BPCIA, which could materially reduce sales[287][290] - Enacted and future healthcare legislation, including the Affordable Care Act and other cost-containment measures, may increase the difficulty and cost of obtaining marketing approval and could negatively affect product prices[298] - The company's business operations and relationships with healthcare professionals and payors are subject to broad healthcare fraud and abuse laws, such as the Anti-Kickback Statute and the False Claims Act, violations of which can result in significant penalties[306][308] Risks Related to Ownership of Our Common Stock This subsection highlights risks for common stock investors, including high price volatility, potential illiquidity, significant control by principal stockholders, and reduced disclosures as an 'emerging growth company' - The trading price of the company's common stock may be highly volatile and subject to wide fluctuations[311] - As of March 31, 2019, executive officers, directors, and holders of 5% or more of capital stock beneficially owned approximately 66.1% of the company's voting stock, giving them significant control over matters subject to stockholder approval[320] - The company is an "emerging growth company" and takes advantage of reduced disclosure and governance requirements, which may make its common stock less attractive to some investors[317] - The company's ability to use its net operating loss carryforwards (NOLs) may be limited by ownership changes under Section 382 of the Internal Revenue Code[328] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter, the company issued 133,333 common shares under a license agreement and confirmed no material change in IPO proceeds use - The company sold 133,333 shares of common stock to Ascentage Pharma Group Corp. Limited in a transaction exempt from registration under Section 4(2) of the Securities Act[335] - There has been no material change in the planned use of proceeds from the company's IPO as described in the prospectus[336] Item 3. Default Upon Senior Securities The company reported no defaults upon senior securities - None[338] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[339] Item 5. Other Information The company reported no other information for this period - None[340] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including compensation programs, CEO/CFO certifications, and XBRL data files - Exhibits filed include management compensation plans, license and lease agreements (incorporated by reference), CEO/CFO certifications, and XBRL data files[342]