Cabaletta Bio(CABA) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements, management's discussion and analysis, market risk disclosures, and internal controls for the period Item 1. Financial Statements (Unaudited) The unaudited condensed financial statements for the period ended September 30, 2022, show a net loss of $37.3 million for the nine-month period, an increase from $32.4 million in the prior year period, driven by higher research and development and general administrative expenses. The company's cash, cash equivalents, and investments decreased to $85.9 million from $122.2 million at the end of 2021, primarily due to cash used in operating activities. The company has no revenue and continues to fund operations through equity financing Condensed Balance Sheets The balance sheet reflects a significant decrease in total assets, primarily driven by a reduction in cash and cash equivalents Condensed Balance Sheet Data (in thousands) | Account | September 30, 2022 (Unaudited) | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $61,163 | $122,222 | | Short-term investments | $24,732 | $0 | | Total current assets | $88,175 | $124,541 | | Total Assets | $91,675 | $126,336 | | Liabilities & Equity | | | | Total current liabilities | $5,801 | $8,380 | | Total stockholders' equity | $85,874 | $117,956 | | Total Liabilities and Stockholders' Equity | $91,675 | $126,336 | - Total assets decreased by 27.4% from December 31, 2021, to September 30, 2022, primarily due to a significant reduction in cash and cash equivalents used to fund operations[14] Condensed Statements of Operations and Comprehensive Loss The statements show an increased net loss for the nine-month period, primarily due to rising research and development and general and administrative expenses Condensed Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $8,216 | $8,169 | $26,900 | $22,575 | | General and administrative | $3,562 | $3,394 | $10,937 | $9,845 | | Total operating expenses | $11,778 | $11,563 | $37,837 | $32,420 | | Loss from operations | $(11,778) | $(11,563) | $(37,837) | $(32,420) | | Net loss | $(11,427) | $(11,560) | $(37,283) | $(32,401) | | Net loss per share | $(0.39) | $(0.45) | $(1.29) | $(1.31) | - For the nine months ended September 30, 2022, the net loss increased to $37.3 million from $32.4 million in the prior-year period, driven by a 19.2% increase in R&D expenses and an 11.1% increase in G&A expenses[17] Condensed Statements of Cash Flows Cash flow statements indicate a significant increase in cash used for operations and a substantial decrease in cash provided by financing activities Condensed Statements of Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(34,249) | $(23,594) | | Net cash (used in) provided by investing activities | $(26,901) | $5,150 | | Net cash provided by financing activities | $91 | $35,275 | | Net (decrease) increase in cash and cash equivalents | $(61,059) | $16,831 | | Cash and cash equivalents—end of period | $61,163 | $118,260 | - Cash used in operating activities increased by 45% year-over-year for the nine-month period, reflecting higher net loss and changes in operating assets and liabilities. Financing activities provided minimal cash in 2022 compared to $35.3 million in 2021, which included proceeds from stock issuance[28] Notes to Unaudited Condensed Financial Statements These notes provide critical context on the company's business model, financial position, liquidity outlook, and significant post-period events including a new license agreement and lawsuit dismissal - The company is a clinical-stage biotechnology firm focused on engineered T cell therapies for autoimmune diseases and does not expect to generate revenue until a product candidate is approved and commercialized[31][33] - As of September 30, 2022, the company had cash, cash equivalents, and investments of $85.9 million and an accumulated deficit of $149.9 million. Management believes current cash will fund operations for at least 12 months from the filing date[34][35] - Subsequent to the quarter end, on October 7, 2022, the company entered into an exclusive license agreement with Nanjing IASO Biotherapeutics, involving a $2.5 million upfront payment and potential future milestones up to $162 million, plus royalties[93] - A shareholder class action lawsuit filed in February 2022, alleging misleading statements regarding the DesCAARTes™ trial, was voluntarily dismissed by the plaintiff on October 17, 2022[75] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's focus on developing engineered T cell therapies through its CABA™ platform, including CARTA and CAART approaches. The lead CARTA candidate, CABA-201, targets a broad range of autoimmune diseases, while the lead CAART candidate, DSG3-CAART, is in a Phase 1 trial for mPV. For the nine months ended September 30, 2022, R&D expenses increased to $26.9 million and G&A expenses rose to $10.9 million, contributing to a net loss of $37.3 million. The company believes its existing cash of $85.9 million will fund operations through the second quarter of 2024 but will require substantial additional financing for future development and commercialization Business Overview and Pipeline This section details the company's clinical-stage focus on engineered T cell therapies for autoimmune diseases, highlighting key candidates and their development status - Cabaletta is a clinical-stage company focused on engineered T cell therapies for autoimmune diseases, utilizing two platforms: CARTA (chimeric antigen receptor T cells for autoimmunity) and CAART (chimeric autoantibody receptor T cells)[97] - The lead CARTA candidate, CABA-201, is a CD19-CAR T therapy with potential across diseases like SLE, rheumatoid arthritis, and myositis. The company obtained an exclusive license for its CD19 binder from IASO in October 2022[97][98] - The lead CAART candidate, DSG3-CAART, is in the DesCAARTes™ Phase 1 trial for mucosal pemphigus vulgaris (mPV). The company is prioritizing a combination sub-study with pre-treatment to follow the A5 cohort[99][101] - The MuSK-CAART program for myasthenia gravis received FDA fast track and orphan drug designation, with plans to initiate the MusCAARTes™ trial in Q4 2022[101] Results of Operations This section analyzes the drivers behind the company's increased net loss, specifically focusing on the rise in research and development and general and administrative expenses Comparison of Operating Results (in thousands) | Period | R&D Expense | G&A Expense | Net Loss | | :--- | :--- | :--- | :--- | | Three Months Ended Sep 30, 2022 | $8,216 | $3,562 | $(11,427) | | Three Months Ended Sep 30, 2021 | $8,169 | $3,394 | $(11,560) | | Nine Months Ended Sep 30, 2022 | $26,900 | $10,937 | $(37,283) | | Nine Months Ended Sep 30, 2021 | $22,575 | $9,845 | $(32,401) | - For the nine months ended Sep 30, 2022, R&D expenses increased by $4.3 million year-over-year, primarily due to a $3.2 million increase in personnel costs from higher headcount and a $1.3 million increase in clinical trial costs for the DesCAARTes™ and MusCAARTes™ trials[131] - General and administrative expenses for the nine months ended Sep 30, 2022 increased by $1.1 million year-over-year, driven by a $1.2 million rise in personnel costs and a $0.5 million increase in administrative costs, partially offset by lower D&O insurance[133] Liquidity and Capital Resources This section details the company's cash position, accumulated deficit, and projected liquidity runway, along with past and potential future financing activities - As of September 30, 2022, the company had $85.9 million in cash, cash equivalents, and investments, with an accumulated deficit of $149.9 million[135][136] - Management believes existing cash will fund operating expenses and capital expenditure requirements through the second quarter of 2024[138] - The company has an "at-the-market" (ATM) offering program for up to $75.0 million. In 2021, it sold 4.8 million shares for net proceeds of $48.3 million. No shares were sold under the ATM program in 2022[140] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is interest rate sensitivity on its cash, cash equivalents, and investments, which totaled $85.9 million as of September 30, 2022. Due to the short-term nature of these holdings, management believes a 100 basis point change in interest rates would not have a material effect. The company also notes potential impacts from rising inflation on labor and program costs - The company's main market risk is interest rate sensitivity on its $85.9 million in cash and investments. A 1% change in interest rates is not expected to have a material effect on fair market value[156] - Inflation is identified as a risk that could increase the cost of labor and clinical trials, potentially affecting business operations[156] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2022. There were no material changes in internal control over financial reporting during the quarter, despite many employees working remotely due to the COVID-19 pandemic - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[157] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[160] PART II. OTHER INFORMATION This section covers legal proceedings, comprehensive risk factors, and other miscellaneous disclosures relevant to the company's operations Item 1. Legal Proceedings A purported stockholder filed a class action complaint against the company and certain officers and directors on February 28, 2022, alleging false or misleading statements regarding the DesCAARTes™ Phase 1 clinical trial. This complaint was voluntarily dismissed by the plaintiff on October 17, 2022 - A securities class action lawsuit was filed against the company in February 2022 concerning disclosures related to the DesCAARTes™ trial[162] - The lawsuit was voluntarily dismissed by the plaintiff on October 17, 2022[162] Item 1A. Risk Factors The company outlines extensive risks related to its business, technology, and industry. Key risks include its early stage of development, the novel nature of its CAR T and CAAR T cell therapies, and the potential for serious adverse events like CRS and neurotoxicity. The company is highly dependent on the success of its initial product candidates (CABA-201, DSG3-CAART, MuSK-CAART) and faces challenges in clinical trial enrollment, manufacturing complexity, and reliance on third parties like the University of Pennsylvania. Financial risks include a history of net losses, the need for substantial additional funding, and potential stock price volatility. The company also highlights regulatory, intellectual property, and market competition risks - The company is in the early stages of development and its success is highly dependent on advancing product candidates through clinical trials and obtaining regulatory approval, which is a long and uncertain process[165] - Cellular therapies are a novel approach, and there is a risk of serious adverse events such as neurotoxicity and cytokine release syndrome (CRS), which could halt clinical development and negatively impact commercial potential[178] - The company has a history of net losses and anticipates incurring substantial losses for the foreseeable future, requiring significant additional financing to fund development and commercialization[261][277] - The company relies heavily on in-licensed intellectual property and collaborations, particularly with the University of Pennsylvania (Penn) and IASO, and failure to maintain these agreements could severely harm the business[286] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of equity securities in the reported period[515] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities[516] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[517] Item 5. Other Information The company reported no other information for the period - None[517] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including corporate governance documents, the exclusive license agreement with Nanjing IASO Biotherapeutics, and officer certifications - A list of exhibits filed with the Form 10-Q is provided, including the Exclusive License Agreement with Nanjing IASO Biotherapeutics Co., LTD., dated October 7, 2022[519][520]