Forte Biosciences(FBRX) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Forte Biosciences, Inc.'s unaudited condensed consolidated financial statements as of June 30, 2023, detailing financial position, operational results, cash flows, and significant subsequent events Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2023, reflects a decrease in total assets driven by reduced cash and an increase in liabilities and accumulated deficit Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 (unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $20,438 | $41,100 | | Short-term investments | $9,987 | $0 | | Total current assets | $30,747 | $41,511 | | Total assets | $31,184 | $41,997 | | Liabilities & Equity | | | | Total current liabilities | $6,300 | $3,179 | | Accumulated deficit | $(102,693) | $(87,044) | | Total stockholders' equity | $24,884 | $38,818 | | Total liabilities and stockholders' equity | $31,184 | $41,997 | Condensed Consolidated Statements of Operations The statements of operations show no revenue and a significant increase in operating expenses, primarily R&D costs, leading to a higher net loss for both the quarter and six-month periods ended June 30, 2023 Statement of Operations Summary (in thousands) | Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $7,139 | $1,034 | $11,926 | $1,727 | | General and administrative | $1,895 | $1,986 | $3,963 | $3,807 | | Total operating expenses | $9,034 | $3,020 | $15,889 | $5,534 | | Net loss | $(8,896) | $(3,035) | $(15,649) | $(5,602) | | Net loss per share | $(0.42) | $(0.21) | $(0.74) | $(0.38) | Condensed Consolidated Statements of Cash Flows Cash flow statements indicate a substantial increase in net cash used in operating activities and significant cash outflow for investing activities, resulting in a notable decrease in cash and cash equivalents for the six months ended June 30, 2023 Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,679) | $(3,352) | | Net cash used in investing activities | $(9,965) | $0 | | Net cash used in financing activities | $(18) | $(144) | | Net decrease in cash and cash equivalents | $(20,662) | $(3,496) | | Cash and cash equivalents — end of period | $20,438 | $38,548 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail the company's business focus on the FB-102 program, liquidity position, ongoing legal proceedings, and a significant subsequent $25 million private placement - The company is focused on developing its FB-102 program for autoimmune diseases like GvHD and plans to advance it into the clinic in 2024[19] - Management believes its cash and cash equivalents of $20.4 million as of June 30, 2023, are sufficient to fund operations for at least 12 months from the filing date[22] - The company is involved in two legal proceedings with stockholder Camac Fund LP, one regarding access to company records and another alleging breach of fiduciary duties by the Board related to a July 2023 private placement[57][58] - On July 31, 2023, the company closed a private placement, raising gross proceeds of approximately $25 million through the sale of common stock and pre-funded warrants[83][84] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's strategic focus on advancing its FB-102 program, analyzes the significant increase in R&D expenses, and details the liquidity position, including the impact of a recent $25 million private placement Overview This overview details Forte Biosciences' focus on advancing its FB-102 product candidate for autoimmune diseases, its cash position as of June 30, 2023, and the impact of a subsequent $25 million private placement and restricted ATM facility - The company is advancing its product candidate, FB-102, a CD122 antagonist, for autoimmune indications including GvHD, vitiligo, and alopecia areata[91] - On July 31, 2023, the company raised gross proceeds of approximately $25 million through a private placement of common stock and pre-funded warrants[100] - The company's ATM facility is currently restricted, limiting its ability to access additional funding from the sale of securities under its Form S-3 registration statement[99] Results of Operations Results of operations indicate a significant increase in R&D expenses, primarily due to FB-102 program development, while general and administrative expenses remained stable and other income rose due to higher interest income Change in Operating Expenses (in thousands) | Expense Category | Q2 2023 vs Q2 2022 | Six Months 2023 vs 2022 | | :--- | :--- | :--- | | Research and development | +$6,105 | +$10,199 | | General and administrative | -$91 | +$156 | - The increase in R&D expenses for the six months ended June 30, 2023, was driven by a $5.4 million increase in manufacturing costs and a $4.1 million increase in preclinical expenses for the FB-102 program[114] Liquidity and Capital Resources This section details the company's history of operating losses and accumulated deficit, its cash and investment position as of June 30, 2023, and management's assessment of liquidity, including the impact of a subsequent $25 million private placement - The company had cash, cash equivalents, and short-term investments of approximately $30.4 million as of June 30, 2023[121] - Management believes existing cash will be sufficient to fund operations for at least 12 months from the filing date of the Form 10-Q, not including the proceeds from the July 2023 Private Placement[121] - The company raised gross proceeds of approximately $25 million in a private placement that closed on July 31, 2023[124] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Forte Biosciences is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, Forte Biosciences is not required to provide quantitative and qualitative disclosures about market risk[138] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of June 30, 2023, due to a material weakness in internal control over income tax provision review, for which remediation steps are underway - Management concluded that disclosure controls and procedures were not effective due to a material weakness in internal control over the review of the annual income tax provision[139] - The company is taking steps to remediate the material weakness, including augmenting third-party tax accounting review and strengthening its internal review process[141] PART II. OTHER INFORMATION Legal Proceedings The company is involved in two legal proceedings with stockholder Camac Fund LP concerning access to records and alleged breach of fiduciary duties related to a July 2023 private placement and annual meeting timing - In November 2022, stockholder Camac Fund LP filed a "Books and Records Action" in the Delaware Court of Chancery seeking access to certain company records[145] - On August 10, 2023, Camac Fund LP filed a new complaint against the Board of Directors, alleging breach of fiduciary duties related to the July 2023 private placement and the scheduling of the annual meeting[146] Risk Factors This section outlines significant risks, including the company's dependence on its single preclinical product candidate FB-102, substantial capital requirements, uncertainties of clinical development, reliance on third parties, intellectual property concerns, internal control weaknesses, and litigation risks - The company's business is almost entirely dependent on the success of developing its single product candidate, FB-102, which is in the early preclinical stage and may not be successful[149][152][154] - The company will require significant additional capital to fund operations and complete the development of FB-102; failure to obtain financing could force a halt to development[165] - The company relies on third parties for preclinical studies and manufacturing and plans to do so for future clinical trials; failure to perform satisfactorily could delay or prevent development and commercialization[325][330] - A material weakness has been identified in the company's internal control over financial reporting related to the review of its annual income tax provision, which could affect the ability to report financial results accurately and timely[359][361] - The company faces litigation risk, including from a stockholder related to a recent private placement, which could be costly and divert management's attention[343] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities beyond those disclosed in its August 1, 2023 Form 8-K, detailing the July 2023 private placement - There have been no unregistered sales of securities other than those previously disclosed on the Form 8-K filed August 1, 2023[368] Defaults Upon Senior Securities No defaults upon senior securities were reported - None[369] Mine Safety Disclosures No mine safety disclosures were reported - None[370] Other Information No other information was reported - None[371] Exhibits This section lists the exhibits filed with the Form 10-Q, including an amendment to the Preferred Stock Rights Agreement, officer certifications, and Inline XBRL data files