Cullinan Oncology(US:CGEM)2021-08-09 16:00PART I FINANCIAL INFORMATION Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for the quarterly period ended June 30, 2021, highlighting total assets of $464.4 million and a net loss of $15.0 million for the six months ended June 30, 2021 Consolidated Balance Sheet Highlights (as of June 30, 2021 vs. Dec 31, 2020) | Metric | December 31, 2020 (in thousands) | June 30, 2021 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $168,198 | $123,670 | | Short-term investments | $42,008 | $213,035 | | Long-term investments | $0 | $119,637 | | Total Assets | $214,708 | $464,353 | | Total Liabilities | $5,813 | $14,394 | | Total Stockholders' Equity | $200,314 | $458,540 | Consolidated Statement of Operations Highlights (Six Months Ended June 30) | Metric | 2020 (in thousands) | 2021 (in thousands) | | :--- | :--- | :--- | | License revenue | $0 | $18,943 | | Research and development | $16,669 | $24,193 | | General and administrative | $2,994 | $9,982 | | Loss from operations | ($19,663) | ($15,232) | | Net loss | ($19,038) | ($15,020) | | Net loss per share | ($0.71) | ($0.37) | - In January 2021, the company completed its IPO, issuing 13,685,000 shares of common stock and receiving net proceeds of $264.5 million after deducting expenses38 - In January 2021, Pearl recognized $18.9 million in revenue from an upfront, non-refundable license fee from its agreement with Zai Lab, resulting in a $3.0 million R&D expense paid to Taiho Pharma969798 - The company's liquidity is strong, with cash, cash equivalents, and investments expected to fund operating expenses and capital expenditure requirements through at least the next twelve months from the report's issuance date42 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting the impact of its hub-and-spoke business model and the IPO, with R&D expenses increasing to $24.2 million and G&A expenses rising to $10.0 million for the six months ended June 30, 2021 - The company operates a hub-and-spoke business model with a central operating company and five partially-owned development subsidiaries advancing individual therapeutic candidates, including CLN-081, CLN-619, and CLN-049156158 Comparison of Operating Expenses (Six Months Ended June 30) | Expense Category | 2020 (in thousands) | 2021 (in thousands) | Change (in thousands) | Key Drivers | | :--- | :--- | :--- | :--- | :--- | | Research & Development | $16,669 | $24,193 | $7,524 | Increased activity for CLN-081, CLN-049, CLN-619; equity-based compensation | | General & Administrative | $2,994 | $9,982 | $6,988 | Public company costs (D&O insurance), equity-based compensation, increased headcount | - The company's liquidity position is strong, with cash, cash equivalents, and investments totaling $456.3 million as of June 30, 2021, expected to support operations through 2024216217227 - Future funding requirements are substantial and depend on the progress of clinical trials for key candidates like CLN-081, CLN-049, and CLN-619, as well as public company operating costs and potential in-licensing activities226227 Quantitative and Qualitative Disclosures About Market Risk The company has elected to use the scaled disclosure requirements available to Smaller Reporting Companies and, as a result, is not required to provide the information for this item - As a Smaller Reporting Company, the company has elected to omit disclosures regarding market risk253 Controls and Procedures Management, with the participation of the CEO and CFO, evaluated the company's disclosure controls and procedures as of June 30, 2021, concluding they were effective with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2021256 - There were no material changes to the company's internal control over financial reporting during the fiscal quarter ended June 30, 2021257 PART II OTHER INFORMATION Legal Proceedings The company reports that it is not currently a party to any litigation or legal proceedings that, in management's opinion, are probable to have a material adverse effect on its business - The company is not currently involved in any material legal proceedings260 Risk Factors This section outlines significant risks to the company's business, categorized into areas such as product development, financial condition, corporate structure, intellectual property, and third-party reliance Risks Related to the Development of Our Product Candidates The company's development efforts are early-stage and substantially dependent on its lead candidates, CLN-081, CLN-049, and CLN-619, facing risks of clinical trial failures, patient enrollment difficulties, and challenges with companion diagnostics - The business is substantially dependent on the success of its lead candidates: CLN-081, CLN-049, and CLN-619, where failure to advance them would materially harm the business283 - Preclinical and clinical trials may fail to demonstrate adequate safety and efficacy, which would prevent or delay regulatory approval and commercialization, with undesirable side effects potentially leading to trial suspension or termination262263305 - Difficulty in enrolling patients, particularly for genetically defined populations, could delay or prevent clinical trials and ultimate regulatory approval288289 Risks Related to Our Financial Condition and Capital Requirements The company has a limited operating history and has incurred significant losses since inception, with an accumulated deficit of $109.0 million as of June 30, 2021, requiring substantial additional funding to advance its product candidates - The company has a limited operating history, making it difficult to evaluate its success to date and assess future viability316 - Significant losses have been incurred since inception ($109.0 million accumulated deficit as of June 30, 2021), and these are expected to continue for the foreseeable future320322 - Substantial additional funding is required for development and commercialization, and inability to raise capital would force the company to delay, reduce, or eliminate programs328329 Risks Related to Our Corporate Structure The company's novel hub-and-spoke business model is unproven and may not succeed in building a valuable product pipeline, concentrating risk in single subsidiaries and presenting operational challenges due to reliance on a small central team - The differentiated hub-and-spoke business model is unproven and may not be successful in building a pipeline of commercially valuable product candidates338339 - A large portion of the company's value may be concentrated in one or a few subsidiaries, making the overall business vulnerable to setbacks in those specific programs350 - Reliance on a small central team for administrative and R&D services across the organization presents operational challenges and may not sufficiently incentivize value maximization at the subsidiary level354355 Risks Related to Our Intellectual Property The company's success is highly dependent on obtaining and maintaining robust intellectual property protection, facing risks of failing to secure broad patents, losing rights under in-licensing agreements, and costly infringement lawsuits - Failure to obtain and maintain adequate patent and other IP protection could allow competitors to develop similar products, eroding the company's competitive advantage461 - The company is party to license agreements and could lose important rights if it fails to comply with obligations such as diligence, milestone payments, and royalties475476 - The company may face costly and time-consuming litigation if third parties claim infringement of their intellectual property rights, which could delay or prevent product development487 Risks Related to Our Reliance on Third Parties The company outsources most development and manufacturing to third parties, creating risks of non-performance, delays, and non-compliance with regulations, particularly for complex biologic manufacturing - The company relies heavily on third-party CROs and CMOs to conduct preclinical studies, clinical trials, and manufacturing, where poor performance could delay or prevent regulatory approval533534 - Switching or adding new third-party contractors is costly and time-consuming, and can materially impact development timelines538 - Manufacturing of biologics is complex and subject to strict cGMP regulations, where any failure by third-party manufacturers to comply could result in production delays, recalls, or suspension of approvals553554557 Unregistered Sales of Equity Securities and Use of Proceeds This section details unregistered equity transactions, including the issuance of 34,434,262 shares of common stock in January 2021 as part of a pre-IPO reorganization and the granting of over 2.1 million stock options, confirming the use of $264.5 million net IPO proceeds as planned - In January 2021, the company issued 34,434,262 shares of common stock in exchange for units of its predecessor LLC as part of its reorganization, exempt from registration under Section 4(a)(2) of the Securities Act615620 - During the six months ended June 30, 2021, the company granted options to purchase an aggregate of over 2.1 million shares of common stock under its 2021 Stock Plan, deemed exempt from registration under Rule 701 of the Securities Act622 - The company received approximately $264.5 million in net proceeds from its IPO in January 2021, with no material change in the planned use of these proceeds from what was disclosed in the final prospectus626627 Defaults Upon Senior Securities This item is not applicable to the company - Not applicable629 Mine Safety Disclosures This item is not applicable to the company - Not applicable631 Other Information This item is not applicable to the company - Not applicable633 Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including a consulting agreement and required certifications by the Principal Executive Officer and Principal Financial Officer - The report includes several exhibits, notably a consulting agreement dated May 20, 2021, and certifications from the CEO and CFO as required by Sections 302 and 906 of the Sarbanes-Oxley Act634