Cerevel Therapeutics Holdings(CERE) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents Cerevel Therapeutics' unaudited condensed consolidated financial statements, detailing a net loss and significant cash position Condensed Consolidated Balance Sheets Reports total assets decreased to $894.4 million and total liabilities increased to $543.9 million as of June 30, 2023 Condensed Consolidated Balance Sheet Data (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $175,763 | $136,521 | | Marketable securities (current & non-current) | $649,300 | $813,635 | | Total Assets | $894,353 | $1,017,822 | | Liabilities | | | | Total current liabilities | $65,560 | $72,564 | | Financing liability (related party & other) | $112,310 | $57,348 | | 2027 convertible senior notes, net | $336,446 | $335,482 | | Total Liabilities | $543,853 | $496,584 | | Total Stockholders' Equity | $350,500 | $521,238 | Condensed Consolidated Statements of Operations and Comprehensive Loss Reports a net loss of $203.8 million for the six months ended June 30, 2023, driven by increased R&D and G&A expenses Statement of Operations Highlights (in thousands, except per share data) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Research and development | $152,262 | $127,562 | | General and administrative | $44,132 | $37,974 | | Loss from operations | ($196,394) | ($165,536) | | Other income (expense), net | ($20,855) | $5,809 | | Net loss | ($203,821) | ($158,765) | | Net loss per share, basic and diluted | ($1.30) | ($1.07) | Condensed Consolidated Statements of Cash Flows Details net cash used in operating activities of $172.3 million and a net increase in cash of $39.3 million for the six months ended June 30, 2023 Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net cash flows used in operating activities | ($172,250) | ($125,304) | | Net cash flows provided by investing activities | $172,536 | $25,752 | | Net cash flows provided by financing activities | $39,049 | $42,419 | | Net increase (decrease) in cash | $39,335 | ($57,133) | Notes to Condensed Consolidated Financial Statements Provides detailed disclosures on the company's operations, funding sufficiency, Pfizer license, financing liabilities, and convertible senior notes - The company is a clinical-stage biopharmaceutical firm focused on therapies for neuroscience diseases like schizophrenia, Alzheimer's, epilepsy, and Parkinson's disease[35] - Management believes that available cash, cash equivalents, and marketable securities as of June 30, 2023, are sufficient to fund operating expenses and capital requirements for at least the next 12 months[40] - The company has financing agreements with NovaQuest and Bain to receive up to a combined $125.0 million to support tavapadon development, with potential milestone and royalty payments totaling up to $531.3 million[51][52][53] - In August 2022, the company issued $345.0 million of 2.50% Convertible Senior Notes due 2027, with net proceeds of approximately $334.8 million[58] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's pipeline progress, financial results, and liquidity, highlighting increased expenses and sufficient capital for the next 12 months Our Pipeline Details the company's neuroscience pipeline, including key programs like tavapadon, emraclidine, and darigabat, with updated clinical trial timelines - Data for the two Phase 2 EMPOWER trials of emraclidine in schizophrenia are now expected in the second half of 2024 due to slower-than-expected U.S. enrollment and delays at ex-U.S. sites[118] - Data from the TEMPO-3 trial of tavapadon in late-stage Parkinson's is expected in H1 2024, with data from the TEMPO-1 and TEMPO-2 trials in early-stage Parkinson's expected in H2 2024[121] - A Phase 2 proof-of-concept trial of darigabat in panic disorder (ADAPT) was initiated in July 2023[119] Results of Operations Analyzes operating results, showing a 19% increase in total operating expenses to $196.4 million for the first six months of 2023 Research and Development Expense by Program (in thousands) | Program | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Tavapadon | $29,440 | $26,556 | | Emraclidine | $37,802 | $31,391 | | Darigabat | $13,352 | $10,820 | | Other R&D Programs | $7,284 | $12,004 | | Personnel & Equity-based Comp. | $50,336 | $35,342 | | Total R&D | $152,262 | $127,562 | - General and administrative expenses increased by 16% for the six months ended June 30, 2023, compared to 2022, primarily due to higher personnel costs, including equity-based compensation[156] - Other expense of $20.9 million for the first six months of 2023 was primarily due to net losses on the fair value remeasurement of financing liabilities, compared to a gain of $5.8 million in the same period of 2022[160][161] Liquidity and Capital Resources Discusses the company's liquidity, with $825.1 million in cash and marketable securities, and its strategy for funding future operations - The company's cash, cash equivalents, and marketable securities totaled $825.1 million as of June 30, 2023[164] - The company has raised significant capital through multiple public offerings and a $345.0 million convertible notes offering in August 2022[168][170][171] - Under its Funding Agreements for tavapadon, the company received $31.3 million in April 2023 and expects to receive a final tranche of $25.0 million in April 2024, subject to customary conditions[167] - Working capital decreased from $833.1 million at year-end 2022 to $686.1 million at June 30, 2023, primarily due to cash used in operating activities[177] Item 3. Quantitative and Qualitative Disclosures About Market Risk Identifies primary market risks as interest rate sensitivity on marketable securities and equity price risk on convertible notes - The company is exposed to interest rate risk on its portfolio of marketable securities; a hypothetical 100 basis point adverse change would result in a loss of approximately $3.1 million in fair value as of June 30, 2023[209] - The fair value of the 2027 Convertible Senior Notes is exposed to equity price risk, as it is dependent on the price and volatility of the company's common stock[211] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2023[215] - No material changes to the internal control over financial reporting were identified during the quarter ended June 30, 2023[216] PART II. OTHER INFORMATION Item 1. Legal Proceedings Reports no material legal proceedings were pending or threatened as of June 30, 2023 - As of June 30, 2023, the company was not subject to any material legal proceedings[101][218] Item 1A. Risk Factors Details numerous risks, including high development uncertainty, financial losses, funding needs, and reliance on product candidate success and third parties Risks Related to Our Business Outlines inherent business risks for a clinical-stage biopharmaceutical company, including development uncertainty, financial losses, and funding needs - The company is a clinical-stage entity with a history of significant financial losses and anticipates continued losses for the foreseeable future[226][227] - The company will require substantial additional funding and could be forced to delay or terminate programs if unable to raise capital[232] - The business is highly dependent on the successful clinical development, regulatory approval, and commercialization of its product candidates[243] - Enrollment difficulties have already impacted timelines for key trials, including the Phase 3 TEMPO program for tavapadon, the Phase 2 REALIZE trial for darigabat, and the Phase 2 EMPOWER trials for emraclidine[274] Risks Related to Our Dependence on Third Parties Highlights risks from heavy reliance on third-party CROs and CMOs for clinical trials and manufacturing, including quality control and funding conditions - The company relies on third-party CROs to conduct its clinical trials and is responsible for ensuring their compliance with GCPs[339] - All manufacturing is outsourced to third-party CMOs, creating risks related to supply, quality, regulatory compliance (cGMP), and cost[354] - Future payments under the Funding Agreements are subject to customary funding conditions, and the Funding Investors can suspend payments under certain circumstances, such as a material adverse event related to tavapadon[346] Risks Related to Our Intellectual Property Addresses intellectual property risks, primarily dependence on Pfizer-licensed IP, potential patent expiration, and infringement claims - The company is dependent on an exclusive license from Pfizer for substantially all of its current product portfolio; failure to comply with the license obligations could lead to its termination[421] - Composition of matter patents licensed from Pfizer are expected to expire between 2033 and 2039, not including any potential extensions, which may limit the commercial exclusivity period[428] - The company may face litigation from third parties claiming infringement of their intellectual property rights, which could be expensive and time-consuming[439] Risks Related to Our Common Stock and Convertible Senior Notes Covers risks related to stock price volatility, potential dilution from convertible notes, and significant indebtedness of $543.9 million - The conversion of some or all of the 2027 Notes will dilute the ownership interests of existing stockholders and could adversely affect the stock price[468] - As of June 30, 2023, the company had $543.9 million of liabilities, including secured financing liabilities and the 2027 Notes, which could limit cash flow for operations[471] - The company has no current plans to pay cash dividends, so return on investment depends on stock price appreciation[470] Item 5. Other Information Reports a director's adoption of a Rule 10b5-1 trading plan for the potential sale of up to 28,540 shares of common stock - A director, Marijn Dekkers, adopted a Rule 10b5-1 trading plan on May 11, 2023, for the sale of up to 28,540 shares of common stock[494]