Day One Biopharmaceuticals pany(DAWN) - 2023 Q3 - Quarterly Report

Part I Item 1. Interim Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, stockholders' equity, and cash flows, along with detailed notes. It highlights the company's financial position, performance, and cash movements for the periods ended September 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets | Metric | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | Change (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Cash and cash equivalents | $241,179 | $85,262 | +$155,917 | | Short-term investments | $164,359 | $257,007 | -$92,648 | | Total current assets | $413,291 | $347,874 | +$65,417 | | Total assets | $414,179 | $349,062 | +$65,117 | | Total current liabilities | $24,475 | $16,615 | +$7,860 | | Total liabilities | $24,552 | $17,023 | +$7,529 | | Total stockholders' equity | $389,627 | $332,039 | +$57,588 | Condensed Consolidated Statements of Operations | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Research and development | $33,163 | $22,035 | $93,173 | $59,598 | | General and administrative | $18,275 | $17,664 | $53,374 | $44,568 | | Total operating expenses | $51,438 | $39,699 | $146,547 | $104,166 | | Loss from operations | $(51,438) | $(39,699) | $(146,547) | $(104,166) | | Investment income, net | $5,291 | $1,895 | $12,163 | $2,086 | | Net loss attributable to common stockholders | $(46,150) | $(37,795) | $(134,406) | $(102,072) | | Net loss per share, basic and diluted | $(0.54) | $(0.53) | $(1.73) | $(1.61) | | Weighted-average number of common shares used in computing net loss per share, basic and diluted | 85,952,501 | 71,008,993 | 77,682,237 | 63,522,774 | Condensed Consolidated Statements of Comprehensive Loss | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net loss | $(46,150) | $(37,795) | $(134,406) | $(102,072) | | Unrealized gain (loss) on available-for-sale securities | $2 | $(389) | $64 | $(392) | | Total comprehensive loss | $(46,148) | $(38,184) | $(134,342) | $(102,464) | Condensed Consolidated Statements of Stockholders' Equity - Stockholders' equity increased from $332.039 million at December 31, 2022, to $389.627 million at September 30, 2023, primarily due to a follow-on offering that generated $161.409 million in net proceeds and share-based compensation expenses, partially offset by accumulated net losses[21][84] | Metric | Dec 31, 2022 (in thousands) | Sep 30, 2023 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Total Stockholders' Equity | $332,039 | $389,627 | | Additional Paid-In Capital | $601,771 | $793,699 | | Accumulated Deficit | $(269,668) | $(404,074) | Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash used in operating activities | $(105,481) | $(74,564) | | Net cash provided by (used in) investing activities | $97,998 | $(252,864) | | Cash provided by financing activities | $163,400 | $163,983 | | Net increase (decrease) in cash and cash equivalents | $155,917 | $(163,445) | | Cash and cash equivalents, end of period | $241,179 | $120,864 | Notes to Condensed Consolidated Financial Statements 1. Description of Business and Organization - Day One Biopharmaceuticals, Inc. is a clinical-stage biopharmaceutical company dedicated to developing and commercializing targeted therapies for people of all ages with life-threatening diseases, with an initial focus on pediatric cancer[29][119] - The company was formed in November 2018 as Hero Therapeutics Holding Company, LLC and converted to Day One Biopharmaceuticals, Inc. in May 2021[29][30] 2. Summary of Significant Accounting Policies - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and are consistent with the audited financial statements for the year ended December 31, 2022[32] - The company operates as one reporting and operating segment, focusing on identifying and advancing targeted therapies for genomically defined cancers[35] - The company is an "emerging growth company" but will be considered a "large accelerated filer" as of December 31, 2023, and will no longer qualify as an emerging growth company, losing certain exemptions[39][41] 3. Recurring Fair Value Measurements | Financial Assets | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Money market funds | $165,002 | $18,765 | | U.S. treasury securities | $150,963 | $145,785 | | U.S. government agency securities | $82,164 | $136,022 | | Total assets measured at fair value | $398,129 | $300,572 | - Unrealized losses on U.S. treasury and government agency securities were primarily caused by interest rate increases, with no securities in an unrealized loss position for more than 12 months[48] 4. Balance Sheet Items | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Prepaid research and development expenses | $4,075 | $3,007 | | Prepaid insurance | $1,453 | $1,592 | | Other prepaid expenses and other assets | $2,225 | $1,006 | | Total | $7,753 | $5,605 | | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Property and equipment, net | $213 | $20 | | Item | Sep 30, 2023 (in thousands) | Dec 31, 2022 (in thousands) | | :--------------------------------------- | :-------------------------- | :-------------------------- | | Accrued research and development expenses | $10,705 | $7,554 | | Accrued payroll related expenses | $7,001 | $6,129 | | Accrued professional service expenses | $2,532 | $2,088 | | Other | $409 | $179 | | Total | $20,647 | $15,950 | 5. Significant Agreements - Entered into a research collaboration and license agreement with Sprint Bioscience AB in August 2023 for VRK1 development, including a $3.0 million upfront payment and potential milestone payments up to $309.0 million[53][54] - Holds an exclusive worldwide license with Merck KGaA for pimasertib, with potential payments up to $364.5 million for milestones and high single-digit royalties[56][59] - Holds an exclusive worldwide license for tovorafenib (DAY101) through the Takeda Asset Agreement and Viracta License Agreement, with potential milestone payments up to $54.0 million to Viracta and mid-single-digit royalties[62][68] 6. Commitments and Contingencies | Period | September 30, 2023 (in thousands) | | :------------------ | :-------------------------------- | | Remaining in 2023 | $115 | | 2024 | $424 | | Total future minimum lease payments | $539 | - Entered into a manufacturing and supply agreement with Quotient Sciences - Philadelphia, LLC in July 2023 for tovorafenib (DAY101), with aggregate future minimum purchase obligations of approximately $17.2 million over the next five years[79][175] - A milestone payment of $5.0 million related to the Viracta License Agreement was achieved subsequent to September 30, 2023, due to FDA acceptance of the NDA for tovorafenib (DAY101)[78][116] 7. Common Stock - As of September 30, 2023, 87,042,933 shares of common stock were issued and outstanding[82] - A follow-on offering in June 2023 resulted in the issuance of 13,269,231 shares of common stock, generating net proceeds of approximately $161.4 million[84][166] - The company has an active at-the-market (ATM) offering program for up to $250.0 million, but no shares have been sold under this program as of September 30, 2023[86][167] 8. Share-based Compensation | Expense Type | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Research and development | $3,312 | $2,020 | $10,102 | $6,242 | | General and administrative | $6,294 | $6,556 | $18,428 | $14,167 | | Total | $9,606 | $8,576 | $28,530 | $20,409 | - As of September 30, 2023, unrecognized compensation cost related to unvested equity awards totaled $86.6 million, to be recognized over a weighted-average period of approximately 2.6 years[88] - The weighted-average grant date fair value of options granted under the 2021 Plan during the nine months ended September 30, 2023, was $13.37 per share, up from $9.02 per share in the prior year[101] 9. Net Loss Per Share | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net loss attributable to common stockholders | $(46,150) | $(37,795) | $(134,406) | $(102,072) | | Net loss per share, basic and diluted | $(0.54) | $(0.53) | $(1.73) | $(1.61) | | Weighted-average common shares | 85,952,501 | 71,008,993 | 77,682,237 | 63,522,774 | - Potentially dilutive securities, including stock options, unvested common shares, restricted stock units, and ESPP shares, totaling 12,067,550 as of September 30, 2023, were excluded from diluted net loss per share calculation due to their anti-dilutive effect[114] 10. Defined Contribution Plan | Period | 3 Months Ended Sep 30, 2023 (in millions) | 3 Months Ended Sep 30, 2022 (in millions) | 9 Months Ended Sep 30, 2023 (in millions) | 9 Months Ended Sep 30, 2022 (in millions) | | :-------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Matching Contributions | $0.2 | $0.3 | $1.0 | $0.8 | 11. Subsequent Event - FDA accepted the NDA for tovorafenib (DAY101) for relapsed or progressive pLGG on October 30, 2023, granting priority review with a PDUFA target action date of April 30, 2024[116] - The FDA acceptance triggered a $5.0 million milestone payment to Viracta under the Viracta License Agreement, which will be recorded as research and development expense[116] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, discussing key business developments, financial performance drivers, liquidity, and capital resources. It also covers critical accounting policies and the impact of the company's emerging growth status Overview - Day One Biopharmaceuticals is a clinical-stage biopharmaceutical company focused on developing and commercializing targeted therapies for life-threatening diseases, with an initial focus on pediatric cancer[118][119] - Tovorafenib (DAY101), the lead product candidate, is an oral, brain-penetrant, highly-selective type II RAF kinase inhibitor, which has demonstrated encouraging anti-tumor activity in pediatric and adult populations with specific genetic alterations[120] - Tovorafenib (DAY101) received Breakthrough Therapy Designation from the FDA in August 2020 for relapsed or progressive pLGG and its NDA was accepted for filing with priority review in October 2023, with a PDUFA target action date of April 30, 2024[121][126] - The pivotal Phase 2 FIREFLY-1 trial for tovorafenib (DAY101) in relapsed pLGG showed an overall response rate (ORR) of 67% in RANO-HGG evaluable patients and a clinical benefit rate of 93%[123] - The company has incurred net losses of $134.4 million and $102.1 million for the nine months ended September 30, 2023 and 2022, respectively, with an accumulated deficit of $404.1 million as of September 30, 2023[133] - Cash and cash equivalents and short-term investments totaled $405.5 million as of September 30, 2023, believed to be sufficient to fund operations into 2026[135] Significant Agreements - The MRKDG License Agreement with Merck KGaA for pimasertib involves potential payments up to $364.5 million for milestones and high single-digit royalties[140] - The Takeda Asset Agreement and Viracta License Agreement provide exclusive worldwide rights to tovorafenib (DAY101), with potential milestone payments up to $54.0 million to Viracta and mid-single-digit royalties[143][148] - A $5.0 million milestone payment to Viracta was triggered subsequent to September 30, 2023, due to FDA acceptance of the NDA for tovorafenib (DAY101)[148] - The Sprint License Agreement, entered in August 2023, grants an exclusive worldwide license for VRK1 development, with a $3.0 million upfront payment and potential milestone payments up to $309.0 million[130][153] Components of Results of Operations Research and development expenses - R&D expenses include costs for third-party CROs, CMOs, technology/IP licenses, and employee-related costs for R&D personnel[151][152] - The company expects R&D expenses to increase substantially due to ongoing clinical trials for tovorafenib (DAY101) and pimasertib, expansion of R&D efforts, and development of additional product candidates[154] General and administrative expenses - G&A expenses consist mainly of employee-related costs (salaries, bonuses, share-based compensation), professional services (legal, accounting, consulting), and other operational costs (rent, facilities, travel, IT)[156] - G&A expenses are projected to increase due to anticipated growth in personnel headcount to support R&D and commercial capabilities, as well as ongoing costs of operating as a public company[157] Results of operations Comparison of three months ended September 30, 2023 and 2022 | Metric | 3 Months Ended Sep 30, 2023 (in thousands) | 3 Months Ended Sep 30, 2022 (in thousands) | $ Change | % Change | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :------- | :------- | | Research and development | $33,163 | $22,035 | $11,128 | 50.5% | | General and administrative | $18,275 | $17,664 | $611 | 3.5% | | Total operating expenses | $51,438 | $39,699 | $11,739 | 29.6% | | Net loss attributable to common stockholders | $(46,150) | $(37,795) | $(8,355) | 22.1% | - R&D expenses increased by $11.1 million, or 50.5%, primarily due to a $5.8 million increase in third-party clinical trial and manufacturing costs, $2.3 million in personnel-related expenses, and a $3.0 million upfront license payment to Sprint[159] Comparison of nine months ended September 30, 2023 and 2022 | Metric | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | $ Change | % Change | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :------- | :------- | | Research and development | $93,173 | $59,598 | $33,575 | 56.3% | | General and administrative | $53,374 | $44,568 | $8,806 | 19.8% | | Total operating expenses | $146,547 | $104,166 | $42,381 | 40.7% | | Net loss attributable to common stockholders | $(134,406) | $(102,072) | $(32,334) | 31.7% | - R&D expenses increased by $33.6 million, or 56.3%, driven by a $22.8 million increase in third-party clinical trial and manufacturing costs, $10.3 million in personnel-related expenses, and a $3.0 million upfront license payment to Sprint[163] - G&A expenses increased by $8.8 million, or 19.8%, primarily due to a $9.5 million increase in employee compensation costs from headcount growth[165] Liquidity and Capital Resources Sources of liquidity - A follow-on offering in June 2023 generated net proceeds of approximately $161.4 million[166] - The company has an at-the-market (ATM) offering program for up to $250.0 million, but no shares have been sold as of September 30, 2023[167] - As of September 30, 2023, cash, cash equivalents, and short-term investments totaled $405.5 million, expected to fund operations into 2026[170] Cash flows | Cash Flow Activity | 9 Months Ended Sep 30, 2023 (in thousands) | 9 Months Ended Sep 30, 2022 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash used in operating activities | $(105,481) | $(74,564) | | Net cash provided by (used in) investing activities | $97,998 | $(252,864) | | Cash provided by financing activities | $163,400 | $163,983 | | Net increase (decrease) in cash and cash equivalents | $155,917 | $(163,445) | - Net cash used in operating activities increased to $105.5 million in 2023 from $74.6 million in 2022, primarily due to higher net loss and increased share-based compensation[177][178] - Investing activities shifted from a net use of $252.9 million in 2022 to a net provision of $98.0 million in 2023, mainly due to proceeds from maturity of short-term investments[179][180] - Financing activities provided $163.4 million in 2023, primarily attributable to the net proceeds from the issuance of common stock in connection with our follow-on offering of common stock of $161.4 million[181] Funding requirements - The company expects to incur significant operating losses and will require substantial additional financing to fund continuing operations and achieve its goals[183][185] - Future financing may involve equity offerings (leading to dilution), debt financings (with covenants), or collaborations (relinquishing rights to technologies/revenue streams)[186][187] - Global economic conditions, including inflation, interest rates, banking instability, and conflicts, may adversely impact the ability to raise additional funds[188] Critical accounting policies and use of estimates - Critical accounting policies are consistent with those disclosed in the audited consolidated financial statements for the year ended December 31, 2022[189] New Accounting Pronouncements - Refer to Note 2 of the Notes to our Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a summary of recently issued and adopted accounting pronouncements[190] Emerging Growth Company Status - The company is an "emerging growth company" and has elected to use the extended transition period for complying with new or revised accounting standards[191] - As of December 31, 2023, the company will no longer qualify as an emerging growth company or a "smaller reporting company" due to its market value exceeding $700 million, losing associated reporting exemptions[192][194][507] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide detailed market risk disclosures. However, it notes that it will no longer qualify as a smaller reporting company as of December 31, 2023, due to its market value exceeding $700 million, which will impact future disclosure requirements - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[193] - As of December 31, 2023, the company will no longer qualify as a smaller reporting company, which will change its disclosure requirements starting with the 2023 Annual Report on Form 10-K[194] Item 4. Controls and Procedures Management, including the Principal Executive Officer and Principal Financial and Accounting Officer, evaluated the effectiveness of the company's disclosure controls and procedures as of September 30, 2023, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting occurred during the nine months ended September 30, 2023 - As of September 30, 2023, disclosure controls and procedures were deemed effective at a reasonable assurance level[195] - No material changes in internal control over financial reporting occurred during the nine months ended September 30, 2023[196] Part II Item 1. Legal Proceedings The company is not currently a party to any legal proceedings that management believes would have a material adverse effect on its business. However, litigation, if it arises, could negatively impact the company due to costs, diversion of resources, and reputational harm - The company is not currently involved in any material legal proceedings[199] - Litigation, if it occurs, could have an adverse impact due to defense/settlement costs, diversion of management resources, and reputational harm[199] Item 1A. Risk Factors Investing in the company's common stock involves a high degree of risk due to its limited operating history, significant net losses, dependence on lead product candidate tovorafenib (DAY101), need for additional capital, and the inherent uncertainties of clinical trials and regulatory approvals. The company also faces intense competition, manufacturing complexities, and risks related to intellectual property, government regulation, and cybersecurity Summary of Risk Factors - The company has a limited operating history, no approved products, and has incurred significant net losses, making it difficult to evaluate its success and viability[201][203][207] - Substantial additional capital is required to finance operations and achieve goals, with potential delays or elimination of programs if funding is insufficient[201][221] - Clinical trials are expensive, time-consuming, and have uncertain outcomes, with no guarantee of favorable results or marketing authorization for product candidates[201][228] - The company is substantially dependent on the success of its lead product candidate, tovorafenib (DAY101), for which the FDA accepted its NDA and granted priority review[201][209] - The development and commercialization of pharmaceutical products are subject to extensive regulation, and marketing authorizations may not be obtained timely or at all[201][284] - The manufacture of pharmaceutical products is complex, and third-party manufacturers may face difficulties, delaying supply for clinical trials or commercial sale[201][370] - Future success depends on retaining executive officers and key employees, attracting qualified personnel, and managing organizational growth[201][383][386] - Inability to obtain and maintain patent protection or other necessary rights for products and technology could adversely affect commercialization[202][421] Risks Related to Our Financial Position and Need for Additional Capital - The company has a limited operating history since 2018, no products approved for commercial sale, and has not generated any revenue[203] - Incurred net losses of $134.4 million and $102.1 million for the nine months ended September 30, 2023 and 2022, respectively, with an accumulated deficit of $404.1 million as of September 30, 2023[207] - Substantial additional capital is required to finance operations, including advancing product candidates through clinical trials and potential commercialization, with current capital expected to fund operations into 2026[221][223] - Failure to raise capital on acceptable terms could force delays, reductions, or elimination of research and development programs or commercialization efforts, and may result in dilution of ownership or imposition of debt covenants[222][226][227] Risks Related to Development and Commercialization of Our Product Candidates - Future success is highly dependent on the timely completion of successful clinical trials, obtaining marketing authorization, and commercializing product candidates, especially tovorafenib (DAY101)[209] - Clinical trials are expensive, difficult to design and implement, and have uncertain outcomes, with a high risk of failure at any stage[228][235] - Preliminary or interim clinical data may change with more patient data and are subject to audit, potentially differing from final results or regulatory interpretations[247][248] - The company faces substantial competition from existing and developing therapies, including other BRAF and MEK inhibitors, and off-label uses, with many competitors having greater resources and market presence[250][252][253][254][257] - Safety risks or undesirable side effects from product candidates could delay or preclude approval, limit use, or lead to significant negative consequences post-marketing authorization[261][262][266] - Market opportunities may be limited to smaller patient subsets, and projections for target populations may be incorrect, impacting revenue and profitability[269][270] - Adequate market acceptance, third-party coverage, and reimbursement are essential for commercial success, but are uncertain, especially for pediatric products, and subject to governmental price controls and cost containment measures[272][275][276][280] Risks related to Government Regulation - Clinical development, manufacturing, labeling, and commercialization of product candidates are subject to extensive and expensive regulation, with no guarantee of timely marketing authorization[284][286] - The FDA accepted the NDA for tovorafenib (DAY101) and granted priority review, but this does not guarantee faster development or approval, nor does it change the standard for FDA approval[291][296] - The accelerated approval pathway, if pursued, may not lead to faster approval and requires confirmatory studies, which, if unsuccessful, could lead to withdrawal of approval[297][299][304] - Orphan drug designation (granted for tovorafenib (DAY101) in malignant glioma) provides market exclusivity but can be lost, and future applications may not be granted[307][308][311] - Compliance with pediatric development laws (PREA, BPCA) and the need for companion diagnostic tests (which require separate approval) add complexity and potential delays to product development and commercialization[313][322][325] - Post-marketing requirements, ongoing regulatory review, and compliance with anti-kickback, fraud and abuse, and health privacy laws (HIPAA, CCPA, GDPR) can lead to substantial penalties, reputational harm, and financial penalties[331][336][337][338][404][408] - Recent and future healthcare legislation, such as the ACA and the Inflation Reduction Act, may increase the difficulty and cost of obtaining marketing authorization and commercializing products, potentially decreasing prices and profitability[339][344][345] Risks Related to Our Reliance on Third Parties - The company is dependent on third parties (CROs, clinical investigators, CMOs) for conducting clinical trials and manufacturing, and their failures could delay development or prevent marketing authorization[365][366][369] - Reliance on a limited number of third-party manufacturers and suppliers, some in foreign jurisdictions (e.g., China), exposes the company to risks of supply chain disruptions, increased costs, and geopolitical uncertainties[370][372][379] - Third-party manufacturers must comply with cGMP regulations, and non-compliance could lead to sanctions, supply interruptions, and delays[373][374] - Collaborations with third parties for development and commercialization carry risks, including limited control over resource allocation, potential de-emphasis of product candidates, and disputes over intellectual property[381][382] Risks Related to Employee Matters and Our Operations - Future success depends on attracting, motivating, and retaining highly qualified managerial, scientific, medical, and commercial personnel in a competitive industry, particularly in the San Francisco Bay Area[383][384][385] - Significant growth in employees and operations is expected, requiring improved managerial, operational, and financial systems, and recruitment/training of additional personnel[386] - The company is exposed to risks of fraud or misconduct by employees and third parties (CROs, CMOs, consultants), which could lead to regulatory sanctions, reputational harm, and financial penalties[389][391][392] - Information technology systems are vulnerable to security breaches, cyber-attacks, and data loss, which could disrupt development programs, compromise sensitive information, and lead to liability and reputational damage[394][395][396][399] - Compliance with stringent and changing privacy, data protection, and data security laws (e.g., HIPAA, CCPA, GDPR) is required, and failures could lead to government enforcement, fines, litigation, and adverse publicity[404][407][408][410] - Operations are concentrated in the San Francisco Bay Area, making the company vulnerable to natural disasters (e.g., earthquakes) and other unplanned events that could disrupt business continuity[415] - Changes in tax laws or regulations, and limitations on the use of net operating loss carryforwards, could adversely affect financial performance[417][418] Risks Related to Our Intellectual Property - Commercial success depends on obtaining and maintaining proprietary or intellectual property protection (patents, trade secrets, know-how) for product candidates and core technologies[421][422] - The patent position in biopharmaceuticals is highly uncertain, involves complex legal and factual questions, and is subject to litigation, with no assurance that patent applications will issue or provide sufficient protection[423][429] - Exclusive licenses may be subject to field restrictions and retained rights, and licensed patents could be invalidated or interpreted narrowly in litigation[424] - Third parties may claim infringement of their patents, leading to costly litigation, development delays, or the need for expensive licensing agreements[436][438][439] - Reliance on licensed intellectual property from third parties (e.g., Viracta, Takeda, Merck KGaA) means that termination or breach of these agreements could result in loss of development and commercialization rights[442][446] - Disputes over contract interpretation with licensors could narrow the scope of rights or increase financial obligations[447][448] - Patent terms may be inadequate due to limited lifespans and the long development/regulatory review process, potentially leading to early competition[470] - Protecting intellectual property rights globally is expensive and challenging, as foreign laws may offer less protection, and enforcement proceedings can be costly and uncertain[472][473] - Failure to protect trade secrets or claims of wrongful use/disclosure of confidential information could harm competitive position and lead to litigation[477][479] - Intellectual property discovered through government-funded programs may be subject to "march-in" rights and U.S.-based manufacturing preferences, limiting exclusive rights[485] Risks Related to Our Common Stock - The market price of common stock is highly volatile and subject to wide fluctuations due to factors like clinical trial results, regulatory developments, competition, and economic conditions[491][492][494] - An active and liquid trading market for common stock may not be sustained, potentially impairing the ability to sell shares at a reasonable price or raise capital[488][489] - Sales of a substantial number of shares by existing stockholders or future equity offerings could cause the stock price to decline due to dilution[497][500] - The company does not intend to pay dividends, so investment return depends on stock price appreciation[496] - Principal stockholders and management own a significant percentage (42%) of voting stock, allowing them to exert significant control over corporate actions[501] - Anti-takeover provisions in charter documents and Delaware law could prevent or delay an acquisition, potentially preventing stockholders from receiving a premium[508][509] - The company will no longer qualify as an "emerging growth company" or "smaller reporting company" as of December 31, 2023, leading to increased compliance costs and potentially making its stock less attractive to some investors[507] General Risk Factors - Operating as a public company, especially after losing EGC status, incurs significant legal, accounting, and compliance costs, diverting management time[516] - Failure to maintain proper and effective internal controls over financial reporting could impair the ability to produce accurate and timely financial statements, leading to loss of investor confidence and potential sanctions[517][518] - Unfavorable global economic conditions, including increasing interest rates, inflation, and turmoil in the global banking system, could adversely affect the business, financial condition, and stock price[522] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities There were no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities reported for the period - No unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities were reported[523][524][525] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[526] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable[527] Item 5. Other Information No other information was reported under this item - No other information was reported[528] Item 6. Exhibits This section lists the exhibits filed or furnished as part of the Quarterly Report on Form 10-Q, including certifications, XBRL documents, and the cover page interactive data file - The report includes certifications from the Principal Executive Officer and Principal Financial Officer (Exhibits 31.1, 31.2, 32.1, 32.2) and various Inline XBRL documents (Exhibits 101.INS to 101.PRE, and 104)[530] Signatures The report is duly signed on November 6, 2023, by Jeremy Bender, Ph.D., M.B.A., Chief Executive Officer and President, and Charles N. York II, M.B.A., Chief Operating Officer and Chief Financial Officer - The report was signed on November 6, 2023, by Jeremy Bender, Ph.D., M.B.A. (CEO and President), and Charles N. York II, M.B.A. (COO and CFO)[534]