Carisma Therapeutics (CARM) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements Financial statements reflect significant impacts from the FDA's CRL, including asset impairment, contingent consideration revaluation, and restructuring charges Condensed Consolidated Balance Sheets The balance sheet strengthened with increased cash and positive stockholders' equity, driven by financing and a reduced contingent consideration liability Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $175,236 | $52,389 | +$122,847 | | Intangible assets | $14,700 | $46,400 | -$31,700 | | Total Assets | $235,671 | $122,823 | +$112,848 | | Liabilities & Equity | | | | | Contingent consideration (Total) | $56,600 | $108,840 | -$52,240 | | Total Liabilities | $74,663 | $132,050 | -$57,387 | | Total Stockholders' Equity (Deficit) | $161,008 | $(9,227) | +$170,235 | Condensed Consolidated Statements of Income (Operations) and Comprehensive Income (Loss) A significant non-cash gain on contingent consideration drove Q3 2021 net income to $71.7 million, offsetting impairment and restructuring charges Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | License and related revenue | $0 | $11,236 | $6,544 | $11,236 | | Intangibles impairment charge | $31,700 | $0 | $31,700 | $0 | | Change in fair value of contingent consideration | $(114,000) | $18,400 | $(52,240) | $(16,820) | | Restructuring charge | $5,522 | $0 | $5,522 | $0 | | Net Income (Loss) | $71,674 | $(22,608) | $(9,280) | $(7,388) | | Net income (loss) per share - diluted | $0.36 | $(0.19) | $(0.05) | $(0.07) | Condensed Consolidated Statements of Cash Flows Cash flow reflects increased use in operations, offset by $176.1 million in financing from an ATM offering, resulting in a net cash increase Cash Flow Summary for the Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(56,278) | $(22,328) | | Net cash used in investing activities | $(4) | $(8) | | Net cash provided by financing activities | $176,129 | $16,184 | | Net increase (decrease) in cash | $119,847 | $(6,152) | Notes to Condensed Consolidated Financial Statements Notes detail the accounting impacts of the FDA's CRL, including impairment of Vicineum's U.S. rights, revaluation of liabilities, and new legal proceedings - On August 13, 2021, the company received a Complete Response Letter (CRL) from the FDA, which stated it could not approve the Biologics License Application (BLA) for Vicineum in its present form[30][116] - The fair value of contingent consideration decreased by $52.2 million during the first nine months of 2021, driven by the CRL which led to reassessed assumptions including delays in commercialization and lower probabilities of clinical and regulatory success (now estimated at 45% to 55% globally)[48] - The company recorded a $31.7 million impairment charge, fully writing off the value of Vicineum's United States rights intangible asset due to the CRL, while the European Union rights were not impaired[51] - Following the CRL, the company initiated a restructuring plan on August 30, 2021, resulting in a $5.5 million charge in Q3 2021, comprising $2.8 million in severance and benefits and $2.7 million in contract termination costs[110][111] - The company is facing three securities class action lawsuits and two derivative lawsuits, all filed after the announcement of the CRL, alleging violations of securities laws and breach of fiduciary duties[114][238][239] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the CRL's impact on Vicineum's regulatory path, financial condition, restructuring efforts, and capital resources Overview The company's focus is on addressing the FDA's CRL for its lead candidate Vicineum, which includes pursuing further regulatory meetings and a potential new trial - The FDA issued a CRL for Vicineum's BLA on August 13, 2021, stating it could not be approved in its present form due to needs for additional clinical/statistical data and CMC issues[129] - The company participated in a CMC-focused Type A meeting with the FDA on October 29, 2021, and is preparing for a separate clinical-focused Type A meeting to determine the path forward[129][145] - On August 20, 2021, the company withdrew its Marketing Authorization Application (MAA) from the EMA for Vysyneum (Vicineum) to pause European regulatory efforts until there is more clarity from the FDA[129][145] - The company has established OUS partnerships for Vicineum, including with Qilu in Greater China, Hikma in the MENA region, and EIP in Turkey[150][154][155] Results of Operations Q3 2021 results were dominated by non-cash items from the CRL, including a $114.0 million gain on contingent consideration and a $31.7 million impairment charge Comparison of Operating Expenses for the Three Months Ended Sep 30 (in thousands) | Expense Category | Q3 2021 | Q3 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $4,967 | $10,196 | $(5,229) | (51)% | | General and administrative | $8,699 | $4,115 | $4,584 | 111% | | Restructuring charge | $5,522 | $0 | $5,522 | N/A | | Intangibles impairment charge | $31,700 | $0 | $31,700 | N/A | | Change in fair value of contingent consideration | $(114,000) | $18,400 | $(132,400) | (720)% | - The decrease in R&D expense in Q3 2021 was primarily due to lower costs for technology transfer and manufacturing ($6.3 million), partially offset by increased license and regulatory fees[177] - The increase in G&A expense in Q3 2021 was driven by pre-commercial launch planning for Vicineum ($2.4 million), higher employee compensation ($1.3 million), and increased legal fees related to lawsuits and an internal review ($0.9 million)[178] Liquidity and Capital Resources The company holds $175.2 million in cash, primarily from a recent ATM offering, which is expected to fund operations and a new clinical trial through 2023 - The company had cash and cash equivalents of $175.2 million as of September 30, 2021[201] - The company raised $175.0 million in net proceeds from its ATM offering during the nine months ended September 30, 2021[201] - Management believes current cash is sufficient to fund operations through 2023, which accounts for the costs of an additional clinical trial for Vicineum[201] Critical Accounting Policies and Use of Estimates The CRL triggered a reassessment of critical accounting estimates, leading to the impairment of an intangible asset and revaluation of contingent consideration - The receipt of the CRL was an impairment indicator, triggering a quantitative analysis of intangible assets and goodwill[217][218] - The analysis concluded that the Vicineum United States rights intangible asset was fully impaired, resulting in a $31.7 million charge[217] - The fair value of contingent consideration is based on significant unobservable inputs (Level 3), including financial forecasts, probabilities of success, and timing of milestones, all of which were revised downward following the CRL[219] Quantitative and Qualitative Disclosures About Market Risk The company is a smaller reporting company and is not required to provide the information under this item - As a smaller reporting company, Sesen Bio is not required to provide disclosures about market risk[231] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2021 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[232] - There were no changes in internal control over financial reporting during the third quarter of 2021 that materially affected, or are reasonably likely to materially affect, internal controls[234] PART II - OTHER INFORMATION Legal Proceedings The company is defending against multiple securities and derivative lawsuits filed in response to the CRL announcement - Three securities class action lawsuits were filed against the company and certain officers in the Southern District of New York, alleging violations of the Exchange Act related to statements about the Vicineum BLA[238] - Two derivative lawsuits were filed against the company's board and certain officers in the District of Massachusetts, alleging breach of fiduciary duties, waste of corporate assets, and other claims[239] - The company believes the lawsuits are without merit and intends to defend itself vigorously; the outcome and potential financial impact are currently uncertain[240] Risk Factors Primary risks involve the regulatory and commercial future of Vicineum, the success of a potential new trial, and the impact of ongoing litigation - The company is highly dependent on Vicineum, and its business could be materially harmed if it cannot resolve the issues in the FDA's CRL and EMA's report to obtain marketing approval[241] - The company expects it will need to conduct one or more additional clinical trials to address regulatory concerns, which will incur substantial costs, delay potential commercialization, and has an uncertain outcome[244] - The company's recent restructuring plan and headcount reduction may not yield anticipated savings and could disrupt business operations or employee retention[248] - Pending securities class action and shareholder derivative lawsuits could result in substantial damages and divert management's attention[248] Unregistered Sales of Equity Securities and Use of Proceeds The company did not issue any unregistered equity securities during the nine months ended September 30, 2021 - No unregistered equity securities were issued during the nine months ended September 30, 2021[251] Defaults Upon Senior Securities Not applicable Mine Safety Disclosures Not applicable Other Information None Exhibits This section provides an index of the exhibits filed with the Quarterly Report on Form 10-Q