Equillium(US:EQ)2024-03-25 20:11PART I Business Equillium is a clinical-stage biotechnology company focused on developing therapeutics for severe immuno-inflammatory disorders, with a pipeline including EQ101, itolizumab (EQ001), and EQ302 - Equillium is a clinical-stage biotechnology company developing novel therapeutics for severe autoimmune and inflammatory disorders with high unmet medical need23 Clinical Pipeline and Anticipated Milestones (in thousands) | Drug | Indication | Development Stage | Partners | Anticipated Milestones | | :--- | :--- | :--- | :--- | :--- | | EQ101 (IL-2/9/15 inhibitor) | Alopecia Areata (IV) | Phase 2 | Worldwide rights | Q2 2024 topline data | | EQ302 (oral IL-15/21 inhibitor) | Gastrointestinal Indications | Pre-Clinical | Worldwide rights | - | | Itolizumab (EQ001) (anti-CD6) | Acute Graft-Versus-Host Disease (aGVHD) | Phase 3 | ONO PHARMA & Biocon | Q3 2024 interim review | | Itolizumab (EQ001) (anti-CD6) | Systemic Lupus Erythematosus (SLE) / Lupus Nephritis (LN) | Phase 1b (Complete) | ONO PHARMA & Biocon | Topline data in the coming weeks | Overview and Strategy The company's strategy is to become a leading, fully-integrated biotechnology firm focused on severe immuno-inflammatory disorders, advancing its clinical programs and expanding its pipeline - The company's primary strategic goals include: - Developing EQ101 for alopecia areata, with a Phase 2 proof-of-concept study underway - Advancing preclinical development of EQ302, an oral inhibitor for potential gastrointestinal diseases - Conducting a pivotal Phase 3 study (EQUATOR) of itolizumab (EQ001) for first-line aGVHD treatment - Advancing itolizumab (EQ001) for lupus nephritis and SLE following positive Phase 1b results - Opportunistically expanding the pipeline through discovery, acquisition, or in-licensing - Building a commercial infrastructure for potential product launches28 Partnerships Equillium has key partnerships with Ono Pharmaceutical for itolizumab, involving an option agreement and R&D funding, and with Biocon for exclusive manufacturing and licensing - Equillium granted Ono Pharmaceutical an exclusive option to acquire its rights to itolizumab (EQ001) in the U.S., Canada, Australia, and New Zealand, with Ono making a one-time, upfront payment of JPY 3.5 billion ($26.4 million)30 - If Ono exercises the option, Equillium will receive a payment of JPY 5.0 billion (approx. $33.1 million) and is eligible for up to $101.4 million in development and commercial milestones, with Ono funding all itolizumab R&D during the option period3132 - Equillium licensed itolizumab (EQ001) from Biocon, which serves as the exclusive manufacturer, obligating Equillium to pay Biocon up to $30 million in regulatory milestones and $565 million in sales milestones, plus tiered royalties, which would transfer to Ono if it exercises its option353637 Product Pipeline and Development Equillium's pipeline includes EQ101 in Phase 2 for alopecia areata, preclinical EQ302 for gastrointestinal diseases, and itolizumab (EQ001) in pivotal Phase 3 for aGVHD and Phase 1b for lupus nephritis - EQ101 is a first-in-class, tri-specific inhibitor of IL-2, IL-9, and IL-15, with a Phase 2 clinical study in alopecia areata ongoing and topline data expected in Q2 2024, alongside subcutaneous (SC) formulation development4270 - EQ302 is a first-in-class, orally delivered, selective inhibitor of IL-15 and IL-21, targeting gastrointestinal diseases like celiac disease, currently in preclinical development435076 - Itolizumab (EQ001) is in a pivotal Phase 3 study (EQUATOR) for first-line aGVHD, with an interim analysis planned for Q3 2024 after approximately 100 subjects complete Day 29 assessments8789 - The Phase 1b EQUALISE study of itolizumab in lupus nephritis (LN) showed clinically meaningful responses, with 73% of subjects achieving greater than 50% reduction in proteinuria by week 28, supporting advancement to later-stage clinical studies102105 Intellectual Property The company's intellectual property portfolio includes patents licensed from Biocon for itolizumab and wholly-owned patents for EQ101 and EQ302, with expiration dates ranging from 2028 to 2042 - The itolizumab patent portfolio is exclusively licensed from Biocon and includes issued patents in the U.S., Australia, Canada, and New Zealand, with key U.S. patents covering the antibody sequence expiring in 2028 and others extending to 2042107108 - The composite peptide portfolio, acquired from Bioniz, covers EQ101 and EQ302, with the EQ101 patent family including issued patents in the U.S., Europe, and Japan expiring in 2032, and the EQ302 patent family having pending applications with expected expiration in 2038111112115 - The company utilizes the Patent Cooperation Treaty (PCT) system to file international patent applications, allowing it to delay national filing expenses and evaluate patentability before incurring significant costs117 Competition Equillium faces significant competition from major pharmaceutical and biotechnology companies across its therapeutic areas, including approved therapies and development programs for alopecia areata, celiac disease, aGVHD, and lupus nephritis - For Alopecia Areata (AA), competitors include companies with FDA-approved JAK inhibitors like Eli Lilly (baricitinib) and Pfizer (ritlecitinib), as well as others in development127128 - For Celiac Disease, there are no FDA-approved therapies, but competitors with development programs include Amgen, Takeda, and Novartis129 - For aGVHD, corticosteroids are the standard first-line treatment, and Incyte's ruxolitinib is approved for steroid-refractory (second-line) aGVHD130 - For Lupus Nephritis (LN), two therapies are approved: GlaxoSmithKline's Benlysta and Aurinia Pharmaceuticals' Lupkynis, with other competitors including AstraZeneca and Novartis132133 Manufacturing, Sales and Marketing Equillium relies on Contract Manufacturing Organizations (CMOs) for EQ101 and EQ302, with Biocon as the exclusive manufacturer for itolizumab, and plans to build or partner for future commercialization - The company relies on CMOs for the production of EQ101 and EQ302135 - Biocon is the exclusive manufacturer for all clinical and commercial supply of itolizumab (EQ001), produced at its FDA-regulated facility in Bangalore, India135 - The company currently has no commercial organization but intends to build internal sales and marketing capabilities or use third-party relationships for any approved products134 Government Regulation The company's operations are subject to extensive FDA regulation, including IND, clinical trial phases, and BLA submission, with itolizumab benefiting from Fast Track and Orphan Drug designations but also subject to OFAC regulations - The FDA approval process for biologics requires submitting an Investigational New Drug (IND) application before human trials, followed by Phase 1, 2, and 3 clinical studies, and submission of a Biologics License Application (BLA)139140142 - The FDA has granted Fast Track designation for itolizumab (EQ001) for the treatment of aGVHD and LN, which may expedite development and review85102151 - The company has received Orphan Drug designations from the FDA for itolizumab for the prevention and treatment of aGVHD, and for EQ101 for CTCL, which may provide seven years of market exclusivity if approved for those indications4985157 - The development of itolizumab (EQ001) is subject to U.S. Treasury Department's OFAC regulations due to its Cuban-origin antibody sequence, with OFAC confirming authorization under a general license for Cuban-origin pharmaceuticals199200404 Risk Factors The company faces significant risks, including a history of substantial financial losses, the need for additional capital, dependence on product candidates and third parties, and challenges in intellectual property protection and regulatory compliance - The company has a history of significant losses ($13.3 million in 2023, $62.4 million in 2022) and expects to incur losses for the foreseeable future, with an accumulated deficit of $185.7 million as of December 31, 2023209210 - Substantial additional funding is required to complete the development of its product candidates, and failure to raise capital could force delays, reduction, or elimination of R&D programs213215 - The business is highly dependent on the success of EQ101, EQ302, and itolizumab (EQ001), which may not obtain regulatory approval or be successfully commercialized219 - The company is dependent on its partnership with Ono for funding the clinical development of itolizumab, and if Ono terminates the agreement or does not exercise its option, the company's business would be adversely impacted241 - Reliance on third-party CMOs, particularly Biocon for itolizumab, presents risks related to manufacturing complexity, supply disruptions, and regulatory compliance303 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None470 Cybersecurity The company manages cybersecurity risks through processes designed to identify, assess, and manage threats, overseen by an external IT consultant and reviewed by the Audit Committee - The company has implemented information security processes to identify, assess, and manage material cybersecurity risks471 - An external Head of Information Technology consultant assists management in overseeing cybersecurity threats and risks472 - The Audit Committee of the Board of Directors is responsible for reviewing cybersecurity risk assessment and management policies477 Properties The company leases approximately 1,750 square feet for its headquarters in La Jolla, California, under a lease expiring in February 2027, along with additional office and laboratory space - The company leases its headquarters, office, and laboratory facilities in La Jolla, California, with lease agreements expiring between 2025 and 2027482 Legal Proceedings The company reports no legal proceedings - None484 Mine Safety Disclosures This item is not applicable to the company - Not applicable485 PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the Nasdaq Capital Market under "EQ", with approximately 50 stockholders, no history of cash dividends, and an authorized stock repurchase program of up to $7.5 million - The company's common stock trades on The Nasdaq Capital Market under the symbol "EQ"488 - A stock repurchase program was authorized in July 2023 for up to $7.5 million, with $0.3 million worth of shares repurchased and $7.2 million remaining available as of December 31, 2023493 - The company has never declared or paid cash dividends and does not intend to in the foreseeable future490 Reserved This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations For fiscal year 2023, Equillium reported a net loss of $13.3 million, a significant decrease from 2022, driven by increased revenue from the Ono partnership and the absence of a one-time R&D charge Results of Operations (in thousands) | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $36,084 | $15,759 | $20,325 | | Research and development | $37,039 | $37,547 | ($508) | | Acquired in-process R&D | $0 | $23,049 | ($23,049) | | General and administrative | $13,567 | $17,239 | ($3,672) | | Net Loss | ($13,335) | ($62,428) | $49,093 | - The significant decrease in net loss for 2023 compared to 2022 was primarily driven by a $23.0 million acquired in-process R&D expense related to the Bioniz acquisition in 2022 that did not recur in 2023533 - Revenue increased to $36.1 million in 2023 from $15.8 million in 2022, consisting of development funding ($27.0 million) and amortization of the upfront payment ($9.1 million) from the Ono Asset Purchase Agreement532 - As of December 31, 2023, the company had $40.9 million in cash, cash equivalents, and short-term investments, which is expected to fund operations into the second half of 2025511538 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, this disclosure is not required - Not required for smaller reporting companies575 Financial Statements and Supplementary Data This section indicates that the company's financial statements and supplementary data are included at the end of the Annual Report on Form 10-K, beginning on page F-1 - The required financial statements and supplementary data are included starting on page F-1 of the report576 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None577 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of December 31, 2023, with no material changes to internal controls reported - Based on an evaluation as of December 31, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective579 - Management assessed the effectiveness of internal control over financial reporting and concluded that it was effective as of December 31, 2023581 Other Information During the fourth quarter of 2023, Christine Zedelmayer, the Chief Operating Officer, adopted a Rule 10b5-1 trading plan for the potential sale of 322,823 shares of common stock - On December 12, 2023, Chief Operating Officer Christine Zedelmayer adopted a Rule 10b5-1 trading plan for the sale of up to 322,823 shares of common stock, with an expiration date of December 12, 2024584 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable586 PART III Directors, Executive Officers and Corporate Governance The information required for this item is incorporated by reference from the company's definitive proxy statement for its 2024 annual meeting of stockholders - Information required by this item is incorporated by reference from the registrant's definitive Proxy Statement for its 2024 annual meeting of stockholders588 Executive Compensation The information required for this item regarding executive compensation is incorporated by reference from the company's definitive proxy statement for its 2024 annual meeting of stockholders - Information required by this item is incorporated by reference from the registrant's definitive Proxy Statement590 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required for this item, concerning security ownership and equity compensation plans, is incorporated by reference from the company's definitive proxy statement for its 2024 annual meeting of stockholders - Information required by this item is incorporated by reference from the registrant's definitive Proxy Statement591 Certain Relationships and Related Transactions, and Director Independence The information required for this item, covering related party transactions and director independence, is incorporated by reference from the company's definitive proxy statement for its 2024 annual meeting of stockholders - Information required by this item is incorporated by reference from the registrant's definitive Proxy Statement592 Principal Accountant Fees and Services The information required for this item regarding principal accountant fees and services is incorporated by reference from the company's definitive proxy statement for its 2024 annual meeting of stockholders - Information required by this item is incorporated by reference from the registrant's definitive Proxy Statement593 PART IV Exhibits and Financial Statement Schedules This section lists the exhibits filed with the Form 10-K, including material agreements and corporate governance documents, and indicates that consolidated financial statements are included beginning on page F-1 - The Consolidated Financial Statements of Equillium, Inc. are included after the Signatures page, beginning on page F-1595 - A comprehensive list of exhibits filed with the report is provided, including material agreements, corporate governance documents, and required certifications596 Form 10-K Summary The company reports that there is no Form 10-K summary - None603 Financial Statements Consolidated Balance Sheets As of December 31, 2023, Equillium reported total assets of $50.5 million, a decrease from 2022, primarily due to reduced cash and cash equivalents, with total liabilities and stockholders' equity also decreasing Consolidated Balance Sheet Data (in thousands) | | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $23,216 | $59,107 | | Short-term investments | $17,650 | $11,916 | | Total Current Assets | $49,349 | $76,735 | | Total Assets | $50,530 | $78,421 | | Liabilities & Stockholders' Equity | | | | Total current liabilities | $27,573 | $32,038 | | Total liabilities | $27,957 | $46,479 | | Total stockholders' equity | $22,573 | $31,942 | | Total Liabilities and Stockholders' Equity | $50,530 | $78,421 | Consolidated Statements of Operations and Comprehensive Loss For the year ended December 31, 2023, the company reported revenue of $36.1 million and a net loss of $13.3 million, a significant reduction from the $62.4 million net loss in 2022 Consolidated Statement of Operations (in thousands) | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Revenue | $36,084 | $15,759 | | Total operating expenses | $50,606 | $77,835 | | Loss from operations | ($14,522) | ($62,076) | | Net loss | ($13,335) | ($62,428) | | Net loss per share, basic and diluted | ($0.38) | ($1.85) | Consolidated Statements of Cash Flows For the year ended December 31, 2023, net cash used in operating activities was $21.8 million, resulting in a net decrease in cash and cash equivalents of $35.9 million, ending the year with $23.2 million Consolidated Statement of Cash Flows (in thousands) | | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($21,783) | ($8,733) | | Net cash (used in) provided by investing activities | ($4,762) | $18,684 | | Net cash used in financing activities | ($9,228) | ($1,215) | | Net (decrease) increase in cash and cash equivalents | ($35,891) | $8,741 | | Cash and cash equivalents at end of period | $23,216 | $59,107 |