Eledon Pharmaceuticals(ELDN) - 2021 Q2 - Quarterly Report

Part I: Financial Information This part details the company's financial statements, management's discussion and analysis, market risk disclosures, and internal controls Item 1. Financial Statements This section presents the company's consolidated financial statements, showing a net loss increase and detailing cash position and accumulated deficit Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheets (in thousands) | | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $101,133 | $114,195 | | Total current assets | $102,582 | $115,630 | | Goodwill | $48,648 | $48,648 | | In-process research and development | $32,386 | $32,386 | | Total assets | $184,305 | $197,185 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $2,677 | $2,483 | | Total liabilities | $5,784 | $6,589 | | Total stockholders' equity | $178,521 | $190,596 | | Total liabilities and stockholders' equity | $184,305 | $197,185 | Condensed Consolidated Statements of Operations and Comprehensive Loss This section outlines the company's revenues, expenses, and net loss for the reported periods Condensed Consolidated Statements of Operations (in thousands, except per share data) | | Three Months Ended June 30 | Six Months Ended June 30 | | :--- | :--- | :--- | :--- | :--- | | | 2021 | 2020 | 2021 | 2020 | | Research and development | $4,242 | $832 | $9,895 | $2,480 | | General and administrative | $3,729 | $1,269 | $7,081 | $2,999 | | Total operating expenses | $7,971 | $2,591 | $16,976 | $5,969 | | Loss from operations | $(7,971) | $(2,591) | $(16,976) | $(5,969) | | Net loss | $(7,384) | $(2,586) | $(15,883) | $(10,763) | | Net loss per share, basic and diluted | $(0.50) | $(2.74) | $(1.07) | $(11.31) | Condensed Consolidated Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(12,612) | $(5,218) | | Net cash (used in) provided by financing activities | $(450) | $5,191 | | Net change in cash and cash equivalents | $(13,062) | $(27) | | Cash and cash equivalents at beginning of period | $114,195 | $8,791 | | Cash and cash equivalents at end of period | $101,133 | $8,764 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies, significant transactions, and financial commitments - The company is a clinical-stage biopharmaceutical firm focused on developing AT-1501, an anti-CD40L antibody, for autoimmune diseases, organ/cell transplantation, and ALS. This focus follows the acquisition of Anelixis Therapeutics, Inc. in September 2020[36] - Management performed an analysis and concluded that the company's cash and cash equivalents of $101.1 million as of June 30, 2021, are sufficient to meet its anticipated cash needs for at least the next 12 months[43][44] - The company has a license agreement with ALSTDI for AT-1501, which requires up to $6.0 million in remaining milestone payments for the first product, plus potential sales-based milestones and low single-digit royalties[79] - The acquisition of Anelixis was accounted for as a business combination, with total purchase consideration valued at $86.8 million. This resulted in the recognition of $32.4 million in In-Process Research and Development (IPR&D) and $48.6 million in goodwill[103][106][110] Item 2. MD&A of Financial Condition and Results of Operations This section discusses the company's financial performance, liquidity, and clinical development progress for AT-1501 Business Overview and Clinical Pipeline This section outlines the company's strategic focus on developing AT-1501 for various indications and its clinical trial progress - The company's lead compound is AT-1501, an anti-CD40L antibody engineered to improve safety and provide dosing advantages over other anti-CD40 approaches[119] - Eledon is pursuing up to four indications for AT-1501: kidney allograft rejection, islet cell allograft rejection, autoimmune nephritis, and ALS[123] - A Phase 2a clinical trial of AT-1501 in ALS was initiated in October 2020, and clearance was received from Health Canada in November 2020 to start a Phase 2 trial in islet cell transplantation[123][130] Results of Operations This section analyzes the significant increase in operating expenses, primarily driven by higher R&D and G&A costs Comparison of Operating Expenses (in thousands) | | Three Months Ended June 30 | Six Months Ended June 30 | | :--- | :--- | :--- | :--- | :--- | | | 2021 | 2020 | 2021 | 2020 | | Research and development | $4,242 | $832 | $9,895 | $2,480 | | General and administrative | $3,729 | $1,269 | $7,081 | $2,999 | | Total operating expenses | $7,971 | $2,591 | $16,976 | $5,969 | - R&D expenses for Q2 2021 increased by $3.4 million year-over-year, mainly due to costs for clinical trial materials, clinical studies for AT-1501, and increased personnel and stock compensation costs[145] - G&A expenses for Q2 2021 increased by $2.5 million year-over-year, primarily from higher stock-based compensation, personnel costs due to increased headcount, legal fees, and insurance premiums[146] Liquidity and Capital Resources This section details the company's cash position, funding sources, and future capital requirements for clinical development - The company had cash and cash equivalents of $101.1 million as of June 30, 2021[159] - The company expects to continue incurring net operating losses and will require additional financing to advance its product candidates through clinical development and potential commercialization[160][161] Summary of Net Cash Flow (in thousands) | | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(12,612) | $(5,218) | | Net cash (used in) provided by financing activities | $(450) | $5,191 | | Net change in cash and cash equivalents | $(13,062) | $(27) | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that the company, as a Smaller Reporting Company, is exempt from providing market risk disclosures - The company is designated as a Smaller Reporting Company and is not required to provide disclosures about market risk[172] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2021[174] - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2021[175] Part II: Other Information This part covers legal proceedings, risk factors, and other required disclosures Item 1. Legal Proceedings This section states that the company is not currently involved in any material legal proceedings - The company is not currently a party to any material legal proceedings[83][177] Item 1A. Risk Factors This section outlines significant risks across operations, regulatory compliance, commercialization, third-party reliance, intellectual property, and common stock Risks Related to Operations This section details operational risks, including the company's limited operating history, history of losses, and dependence on its lead product - The company has a short operating history and incurred a net loss of $15.9 million for the six months ended June 30, 2021, with an accumulated deficit of $96.3 million. It may never achieve profitability[179][180] - The business is substantially dependent on the successful development and commercialization of its early-stage product candidate, AT-1501, which faces a high risk of failure[184] - The COVID-19 pandemic has caused and may continue to cause disruptions, including delays in clinical studies, data collection, and manufacturing[189] - The company will require additional funding to complete the development of its lead drug candidate and may be forced to curtail operations or cease altogether if unable to raise capital[204] Risks Related to Regulatory Approval and Compliance This section addresses risks associated with obtaining regulatory approvals, post-marketing compliance, and cybersecurity vulnerabilities - Obtaining regulatory approval from the FDA and other authorities is an expensive, lengthy, and uncertain process. Failure to obtain approval for AT-1501 would prevent its commercialization[209] - Any approved product will be subject to extensive post-marketing regulations, and failure to comply could result in restrictions, withdrawal from the market, or penalties[214] - Business operations are subject to anti-kickback, fraud, and abuse laws, which could expose the company to criminal sanctions, civil penalties, and reputational harm[222] - Internal and third-party IT systems are vulnerable to security breaches, which could disrupt development programs and compromise sensitive data, leading to significant financial and legal harm[227] Risks Related to Commercialization This section discusses challenges in achieving market acceptance, building sales capabilities, facing competition, and securing adequate reimbursement - Even if approved, product candidates may fail to achieve market acceptance from physicians, patients, and payers, which is necessary for commercial success[233] - The company currently has no marketing or sales force and will need to build these capabilities or partner with third parties to commercialize its products[239] - The company faces substantial competition from major pharmaceutical and biotechnology companies with greater resources, including Novartis, Abbvie, Sanofi, and Bristol Myers Squibb, who are developing similar therapeutics[240][241] - Failure to obtain or maintain adequate insurance coverage and reimbursement from government and private payers could limit the ability to market products and generate revenue[249] Risks Related to Dependence on Third Parties This section highlights risks stemming from reliance on third parties for manufacturing, clinical testing, and regulatory submissions - The company relies on third parties for the manufacturing of its product candidates, which increases the risk of insufficient quantities, unacceptable cost or quality, and potential delays in development or commercialization[256] - Reliance on third-party manufacturers entails risks such as regulatory compliance failures, breach of agreements, and misappropriation of proprietary information[261] - The company depends on CROs and other contractors for research, clinical testing, and regulatory submissions, making its success partially dependent on their performance[265] Risks Related to Intellectual Property This section covers risks concerning patent protection, potential litigation, and the ability to safeguard trade secrets - The company's success depends on its ability to obtain and maintain patent protection for its technology and products, a process that is expensive, time-consuming, and uncertain[268][269] - The company may become involved in expensive and time-consuming lawsuits to protect or enforce its patents, or defend against infringement claims from others[275][276] - The company relies on trade secrets and proprietary know-how, and if it is unable to protect their confidentiality, its business and competitive position could be harmed[282] Risks Related to Common Stock This section addresses risks related to stock price volatility, internal control effectiveness, potential acquisition difficulties, and dividend policy - The company's stock price is expected to be volatile due to factors common in the biopharmaceutical industry, such as clinical trial results and regulatory decisions[284] - Failure to maintain effective internal control over financial reporting could harm operating results and the ability to operate the business[288] - Provisions in the company's corporate charter and Delaware law could make an acquisition more difficult and prevent attempts by stockholders to replace management[291] - The company does not expect to pay any cash dividends in the foreseeable future[294] Item 2-6. Other Required Disclosures This section confirms the absence of unregistered equity sales, senior security defaults, or mine safety disclosures - The company reported no unregistered sales of equity securities, defaults upon senior securities, or mine safety issues during the reporting period[295][296][297]