Cabaletta Bio(CABA) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited financial statements and management's analysis of its financial performance Financial Statements (Unaudited) This section presents Cabaletta Bio's unaudited condensed financial statements, including balance sheets, operations, equity, and cash flows, with detailed notes Condensed Balance Sheets The condensed balance sheet shows the company's financial position as of September 30, 2023, compared to December 31, 2022, reflecting increased assets and equity from financing activities Condensed Balance Sheet Data (in thousands) | Assets & Liabilities | Sep 30, 2023 (unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $115,501 | $81,607 | | Short-term investments | $48,890 | $24,940 | | Total Current Assets | $166,178 | $108,834 | | Total Assets | $173,287 | $116,968 | | Liabilities & Equity | | | | Total current liabilities | $10,616 | $9,489 | | Total Liabilities | $12,364 | $12,448 | | Total stockholders' equity | $160,923 | $104,520 | | Total Liabilities and stockholders' equity | $173,287 | $116,968 | Condensed Statements of Operations and Comprehensive Loss The company reported increased operating expenses and a larger net loss for both the three and nine months ended September 30, 2023, compared to the same periods in 2022 Statement of Operations Data (in thousands) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Research and development | $38,019 | $26,900 | | General and administrative | $13,495 | $10,937 | | Total operating expenses | $51,514 | $37,837 | | Loss from operations | $(51,514) | $(37,837) | | Interest income | $4,725 | $554 | | Net loss | $(46,789) | $(37,283) | Condensed Statements of Stockholders' Equity Stockholders' equity increased from $104.5 million at the end of 2022 to $160.9 million as of September 30, 2023, primarily due to a public stock offering - Total stockholders' equity grew to $160.9 million at September 30, 2023, up from $104.5 million at December 31, 2022[83] - The primary drivers of the change in equity were net proceeds from the issuance of common stock, offset by a net loss of $46.8 million for the nine-month period[53][83] Condensed Statements of Cash Flows For the nine months ended September 30, 2023, cash used in operating and investing activities was offset by significant financing activities, resulting in a net cash increase Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(37,101) | $(34,249) | | Net cash used in investing activities | $(23,587) | $(26,901) | | Net cash provided by financing activities | $94,582 | $91 | | Net increase (decrease) in cash | $33,894 | $(61,059) | Notes to Unaudited Condensed Financial Statements These notes detail the company's accounting policies, financial instruments, key collaborations, significant commitments, and recent financing activities, including stock offerings - The company expects its cash, cash equivalents, and short-term investments of $164.4 million as of September 30, 2023, to be sufficient to fund operations for at least 12 months[38][60] - Under an agreement with IASO Biotherapeutics, Cabaletta paid a $2.5 million upfront fee and a $1.0 million milestone payment upon IND clearance for CABA-201, with IASO eligible for up to $162 million in total consideration plus royalties[73][160] - The company amended its agreement with Oxford Biomedica to include the CABA-201 program, involving an upfront fee of $0.5 million and a vector supply agreement with costs up to approximately $5.0 million[3][105] - In May 2023, the company raised net proceeds of $93.8 million from an underwritten public offering of 8,337,500 shares of common stock at $12.00 per share[143][235] - In December 2022, the company raised net proceeds of $32.6 million through an offering of common stock and pre-funded warrants[144][573] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, and liquidity, focusing on cell therapy development, increased expenses, and capital resources - The company is a clinical-stage biotechnology firm focused on engineered T cell therapies for autoimmune diseases, with two main platforms: CARTA (e.g., CABA-201) and CAART (e.g., DSG3-CAART)[182] - As of September 30, 2023, the company had $164.4 million in cash, cash equivalents, and short-term investments, which is expected to fund operations into Q4 2025[174][183][330] - The FDA has granted clearance for four CABA-201 IND applications in 2023 for treating SLE, myositis, systemic sclerosis, and generalized myasthenia gravis[129][182][183] Results of Operations Operating expenses increased significantly for both the three and nine-month periods ending September 30, 2023, compared to 2022, driven by higher R&D and G&A costs, partially offset by increased interest income Comparison of Operating Expenses (Nine Months Ended Sep 30, in thousands) | Expense Category | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Research and development | $38,019 | $26,900 | $11,119 | | General and administrative | $13,495 | $10,937 | $2,558 | | Total operating expenses | $51,514 | $37,837 | $13,677 | - The $11.1 million increase in 9-month R&D expenses was driven by $4.9 million in personnel costs, $3.7 million in development services, $2.4 million in intellectual property license costs, and $1.4 million in clinical trial costs[171] - The $2.6 million increase in 9-month G&A expenses was primarily due to a $1.9 million increase in personnel costs from higher headcount and a $0.6 million increase in administrative costs[572] - Interest income for the nine months ended September 30, 2023, increased by $4.2 million year-over-year, driven by higher interest rates on larger cash balances from financings[7] Liquidity and Capital Resources The company's liquidity is strong, with $164.4 million in cash and investments, expected to fund operations into Q4 2025, though substantial additional financing will be needed for future development - The company had an accumulated deficit of $212.4 million as of September 30, 2023[231] - In May 2023, the company raised approximately $93.5 million in net proceeds from an underwritten public offering[208][235] - The company maintains a $100.0 million "at-the-market" (ATM) offering program, under which no shares have been sold as of the report date[176] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is interest rate sensitivity on its $164.4 million in cash and investments, with no material impact from inflation or foreign currency risk to date - The company's main market risk is interest rate sensitivity affecting its $164.4 million in cash and investments[211] - The company does not believe inflation has had a material impact to date but acknowledges that rising costs could affect future clinical trials and labor expenses[211] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[212][244] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, such controls[575] PART II. OTHER INFORMATION This section details legal proceedings, key risk factors, equity sales, and other required disclosures Legal Proceedings As of September 30, 2023, the company is not involved in any material litigation or legal proceedings that are expected to have a material adverse impact on its financial position, results of operations, or cash flows - The company reports no material litigation or legal proceedings as of September 30, 2023[246] Risk Factors This section details significant risks, including clinical development, manufacturing, intellectual property, and the need for substantial future financing for the company's novel cell therapies - The company is a clinical-stage entity with a limited operating history and has incurred significant losses since inception, which are expected to continue[44][351] - The business is highly dependent on the success of its initial product candidates (DSG3-CAART, MuSK-CAART, CABA-201), which require significant additional development and funding[15][224] - The company relies heavily on intellectual property licensed from third parties, such as Penn and IASO, and the termination of these licenses would materially harm the business[23][334] - Manufacturing of the company's cell therapies is complex, and the company is reliant on third parties like Penn and WuXi, posing risks to supply for clinical trials and commercialization[45][432] Risks Related to Clinical Development The company faces significant clinical development risks due to the novelty of its cell therapies, including potential severe adverse events, challenges with preconditioning regimens, patient enrollment difficulties, and the unreliability of early trial data - The company's product candidates could cause severe side effects like neurotoxicity and Cytokine Release Syndrome (CRS), which have been life-threatening in other CAR T trials[16][220] - The use of preconditioning regimens (e.g., cyclophosphamide, fludarabine) in trials may increase the risk of adverse side effects and make it difficult to assess the efficacy of the product candidates alone[222][286][597] - Difficulties in enrolling patients in clinical trials for rare autoimmune diseases could significantly delay development activities and increase costs[45][270] - Early, interim, or topline data from open-label trials are subject to change and may not be predictive of final results, posing a risk to investor perception and regulatory review[264][297][579] Risks Related to Manufacturing and Supply Manufacturing the company's product candidates is a complex, patient-specific process with inherent risks, relying heavily on third-party manufacturers and a limited number of suppliers for critical raw materials - The company is reliant on Penn for manufacturing DSG3-CAART and CABA-201 and on WuXi for MuSK-CAART; failure or termination by these partners would disrupt operations[432][434] - The manufacturing process is complex and susceptible to failures, including contamination, equipment failure, and inconsistencies in cell growth, which could lead to lot failures and supply disruptions[436][437] - There is a limited number of manufacturers for the lentiviral vectors required for the company's product candidates, creating a significant supply chain risk[440][472] Risks Related to Our Intellectual Property The company's success depends heavily on maintaining intellectual property protection, primarily through in-licensed patents, facing risks of challenges, infringement claims, and difficulties in protecting trade secrets - The company heavily relies on in-licensed intellectual property from Penn, CHOP, and IASO; failure to comply with license terms could lead to the loss of rights essential to the business[334] - The company may be subject to lawsuits claiming infringement of third-party patents, which could block the commercialization of its products or result in significant damages and royalties[386][387] - Some in-licensed intellectual property was developed with U.S. government funding, making it subject to federal regulations, including "march-in" rights and a preference for U.S. manufacturing[376] Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities during the period covered by the report - The company reports no unregistered sales of equity securities[658] Defaults Upon Senior Securities The company reports that there have been no defaults upon senior securities - None[625] Mine Safety Disclosures This section is not applicable to the company - Not applicable[647] Other Information This section is not applicable to the company - Not applicable[659] Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to bylaws and licensing agreements, as well as certifications by the Principal Executive Officer and Principal Financial Officer - Filed exhibits include the Second Amendment to the License and Supply Agreement with Oxford Biomedica and certifications required by the Sarbanes-Oxley Act[649]