Monte Rosa Therapeutics(GLUE) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents the unaudited condensed consolidated financial statements and related notes for the three months ended March 31, 2022 Item 1. Financial Statements (Unaudited) Presents the unaudited condensed consolidated financial statements and accompanying notes for the three months ended March 31, 2022 Condensed Consolidated Balance Sheets (Unaudited) Details the company's financial position, including assets, liabilities, and equity, as of March 31, 2022 Condensed Consolidated Balance Sheets (in thousands) | (in thousands) | March 31, 2022 | December 31, 2021 | Change (2022 vs 2021) | | :-------------------------------- | :------------- | :---------------- | :-------------------- | | Assets | | | | | Cash and cash equivalents | $138,305 | $346,071 | $(207,766) | | Marketable securities | $178,858 | — | $178,858 | | Total current assets | $320,366 | $348,666 | $(28,300) | | Total assets | $346,005 | $366,329 | $(20,324) | | Liabilities | | | | | Total current liabilities | $12,490 | $16,638 | $(4,148) | | Total liabilities | $20,130 | $18,814 | $1,316 | | Stockholders' Equity | | | | | Total stockholders' equity | $325,875 | $347,515 | $(21,640) | Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) Reports the company's revenues, expenses, and net loss for the three months ended March 31, 2022, and 2021 Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share) | (in thousands, except per share) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | Change (2022 vs 2021) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :-------------------- | | Research and development | $17,915 | $9,273 | $8,642 | | General and administrative | $6,387 | $2,231 | $4,156 | | Total operating expenses | $24,302 | $11,504 | $12,798 | | Loss from operations | $(24,302) | $(11,504) | $(12,798) | | Total other income (expense) | $370 | $(772) | $1,142 | | Net loss | $(23,932) | $(12,276) | $(11,656) | | Comprehensive loss | $(24,044) | $(12,140) | $(11,904) | | Net loss per share—basic and diluted | $(0.51) | $(7.18) | $6.67 | Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (deficit) (Unaudited) Outlines changes in convertible preferred stock and stockholders' equity (deficit) for the three months ended March 31, 2022 Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (deficit) (in thousands, except shares) | (in thousands, except shares) | Balance—January 1, 2022 | Restricted common stock vesting | Exercise of common stock options | Stock-based compensation expense | Unrealized loss on available-for-sale securities | Net Loss | Balance—March 31, 2022 | | :-------------------------------- | :---------------------- | :------------------------------ | :----------------------------- | :------------------------------ | :---------------------------------------------- | :--------- | :--------------------- | | Common stock (shares) | 46,535,966 | 34,505 | 60,240 | — | — | — | 46,630,711 | | Common stock (amount) | $5 | — | — | — | — | — | $5 | | Additional paid-in capital | $471,566 | — | $153 | $2,251 | $0 | — | $473,970 | | Accumulated other comprehensive loss | $(2,021) | — | — | — | $(146) | — | $(2,133) | | Accumulated deficit | $(122,035) | — | — | — | — | $(23,932) | $(145,967) | | Total stockholders' equity | $347,515 | — | $153 | $2,251 | $(146) | $(23,932) | $325,875 | Condensed Consolidated Statements of Cash Flows (Unaudited) Presents cash flows from operating, investing, and financing activities for the three months ended March 31, 2022, and 2021 Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(27,404) | $(13,815) | | Net cash used in investing activities | $(180,520) | $(2,217) | | Net cash provided by financing activities | $153 | $142,769 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(207,771) | $126,737 | | Cash, cash equivalents and restricted cash—end of period | $143,638 | $169,600 | Notes to the Condensed Consolidated Financial Statements (Unaudited) Provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements 1. Description of business, contribution and exchange, and liquidity Describes the company's biotechnology focus, IPO proceeds, and current liquidity position - Monte Rosa Therapeutics, Inc. is a biotechnology company focused on developing novel small molecule precision medicines that utilize the body's natural mechanisms to selectively degrade therapeutically-relevant proteins[21] - The Company completed its Initial Public Offering (IPO) in June 2021, issuing 11,700,000 shares of common stock at $19.00 per share, generating aggregate net proceeds of $203.6 million. An additional 1,755,000 shares were issued in July 2021 for $31.0 million net proceeds[23] - As of March 31, 2022, the Company had an accumulated deficit of $146.0 million and incurred net losses of $23.9 million for the three months ended March 31, 2022. Cash, cash equivalents, and marketable securities of $317.2 million are expected to fund operations for at least 12 months from the financial statement issuance date[27] 2. Summary of significant accounting policies Outlines key accounting principles and policies adopted by the company, including recent pronouncements - The Company adopted ASU No. 2016-02, Leases (Topic 842), on January 1, 2022, recognizing operating lease right-of-use assets of $7.3 million and corresponding operating lease liabilities of $7.4 million[33] - The Company elected the extended transition period for complying with new or revised accounting standards as available under the JOBS Act[30] 3. Fair value measurements Details the fair value hierarchy and measurements for the company's financial assets Fair Value Measurements (in thousands) | (in thousands) | Level 1 | Level 2 | Level 3 | Total | | :----------------------- | :------ | :------ | :------ | :------ | | Money market funds | $123,634 | — | — | $123,634 | | Pension plan assets | — | $3,818 | — | $3,818 | | Corporate debt securities | — | $111,076 | — | $111,076 | | U.S Treasury securities | — | $67,782 | — | $67,782 | | Total assets measured at fair value | $123,634 | $182,676 | — | $306,310 | - Money market funds are classified as Level 1, while marketable securities (corporate debt and U.S. Treasury securities) are classified as Level 2 due to observable pricing inputs other than quoted prices in active markets[37][38] 4. Marketable Securities Provides information on marketable securities, including cost, unrealized gains/losses, and fair value Marketable Securities (in thousands) | Description | Amortized Cost (in thousands) | Unrealized Gains (in thousands) | Unrealized Losses (in thousands) | Fair Value (in thousands) | | :------------------------ | :------------- | :--------------- | :---------------- | :--------- | | Corporate debt securities | $111,182 | — | $(106) | $111,076 | | U.S Treasury securities | $67,822 | $5 | $(45) | $67,782 | | Total | $179,004 | $5 | $(151) | $178,858 | - As of March 31, 2022, the Company held 13 marketable securities with an aggregate fair value of $80.3 million in an unrealized loss position, primarily due to economic and market conditions, but does not intend to sell them before recovery of carrying values[40] 5. Property and Equipment, net Presents the breakdown of property and equipment, net of depreciation, and related expenses Property and Equipment, net (in thousands) | (in thousands) | March 31, 2022 | December 31, 2021 | | :-------------------------- | :------------- | :---------------- | | Laboratory equipment | $14,664 | $12,315 | | Construction in process | $150 | $852 | | Total property and equipment, at cost | $16,675 | $15,028 | | Less: accumulated depreciation | $(3,279) | $(2,703) | | Property and equipment, net | $13,396 | $12,325 | - Depreciation expense for the three months ended March 31, 2022, was $0.8 million, an increase from $0.3 million in the prior year[41] 6. Leases Details lease expenses, weighted average lease terms, and significant new lease agreements Lease Expense (in thousands) | Lease Expense (in thousands) | Three Months Ended March 31, 2022 | | :------------------------- | :-------------------------------- | | Operating lease expense | $502 | | Variable lease expense | $118 | | Total lease expense | $620 | - The weighted average remaining lease term is 3.9 years with a weighted average discount rate of 7%[45] - On December 14, 2021, the Company entered into a new non-cancelable lease for 63,327 square feet of office and laboratory space, with an initial term of 128 months commencing April 1, 2022. Estimated future minimum lease payments for this new lease are substantial, totaling $44.4 million thereafter[47] 7. Common stock Provides information on common stock, including shares issued, outstanding, and historical stock splits - As of March 31, 2022, the Company had 46,854,535 shares of common stock issued and 46,630,711 shares outstanding[50] - A one-for-3.5305 reverse stock split was approved and became effective on June 17, 2021, retroactively adjusting all share and per share amounts[49] - The Company has not declared or paid any dividends to common stockholders[50] 8. Stock-based compensation Details stock option and restricted stock activity, along with stock-based compensation expense Stock Option Activity | Stock Option Activity | Outstanding—December 31, 2021 | Granted | Exercised | Forfeited | Outstanding—March 31, 2022 | | :-------------------- | :---------------------------- | :------ | :-------- | :-------- | :--------------------------- | | Number of options | 5,563,513 | 1,671,875 | (60,240) | (70,217) | 7,104,931 | | Weighted average exercise price ($) | $7.92 | $13.41 | $2.53 | $5.25 | $9.28 | | Weighted average remaining contractual term (years) | 8.6 | — | — | — | 9.2 | | Aggregate intrinsic value (in thousands) | $70,045 | — | — | — | $40,521 | Restricted Stock Activity | Restricted Stock Activity | Unvested as of December 31, 2021 | Vested | Unvested as of March 31, 2022 | | :------------------------ | :------------------------------- | :----- | :---------------------------- | | Number of shares | 258,329 | (34,505) | 223,824 | | Weighted average grant date fair value ($) | $0.90 | $0.78 | $0.92 | Stock-based Compensation Expense (in thousands) | Stock-based Compensation Expense (in thousands) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Research and development | $1,157 | $60 | | General and administrative | $1,094 | $192 | | Total stock-based compensation expense | $2,251 | $252 | 9. Income taxes Explains the company's income tax position, including valuation allowance against deferred tax assets - The Company did not record a provision or benefit for income taxes and maintains a full valuation allowance against all deferred tax assets due to a history of cumulative net losses and lack of commercial products[60][61] 10. Net loss per common share Presents the calculation of basic and diluted net loss per common share for the reporting periods Net Loss Per Common Share (in thousands, except per share) | (in thousands, except per share) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(23,932) | $(12,276) | | Net loss per share—basic and diluted | $(0.51) | $(7.18) | | Weighted-average common shares outstanding | 46,595,782 | 1,709,227 | - Potentially dilutive securities, including stock options and restricted common stock, were excluded from diluted net loss per common share calculation as their effect was anti-dilutive[62] 11. Related parties Discloses transactions and agreements with related parties, specifically payments to Ridgeline Discovery - The Company paid $0 to Ridgeline Discovery (a Versant Venture Management, LLC discovery engine) during the three months ended March 31, 2022, compared to $4.7 million in the prior year, as the consulting agreement expired December 31, 2021[63] 12. Employee retirement plans Details expenses related to the Swiss pension plan and U.S. 401(k) matching contributions - The Company recorded $0.2 million in defined benefit related expense for its Swiss pension plan and $0.2 million in 401(k) matching contribution related expense for its U.S. plan during the three months ended March 31, 2022[64][65] 13. Subsequent Events Reports significant events occurring after the balance sheet date, such as a lease termination agreement - On May 5, 2022, the Company entered into a Lease Termination Agreement, providing an option to terminate its existing lease for office space at 645 Summer Street, Boston, MA, between February 1, 2023, and June 1, 2023, subject to a new tenant[66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's analysis of financial condition, operating results, liquidity, and capital resources Overview Introduces Monte Rosa Therapeutics, a biotechnology company developing precision medicines via its protein degradation platform - Monte Rosa Therapeutics is a biotechnology company developing novel small molecule precision medicines using its proprietary protein degradation platform, QuEENTM, to target therapeutically-relevant proteins[69] - The company is headquartered in Boston, Massachusetts, with research operations in both Boston and Basel, Switzerland[70] Liquidity Discusses historical operating losses, accumulated deficit, and current cash and marketable securities position - Since inception, the company has incurred significant operating losses, with a net loss of $23.9 million for the three months ended March 31, 2022, and an accumulated deficit of $146.0 million[71] - The company has raised an aggregate of $479.1 million in gross proceeds from convertible promissory notes, preferred stock, and its initial public offering[71] - As of March 31, 2022, the company held $322.5 million in cash, cash equivalents, restricted cash, and marketable securities[71] Business effects of COVID-19 Assesses the impact of the COVID-19 pandemic on the company's financial condition and operations - The COVID-19 pandemic has not significantly impacted the company's financial conditions and operations to date, and vendors continue to provide services and supplies without anticipated disruption[72][73] - The company has adapted business practices, including routine employee testing, mask use, remote work, and controlled physical participation in meetings, to limit the spread of the virus[74] Components of operating results Explains primary drivers and expected trends for R&D, G&A expenses, and non-operating income - Research and development expenses primarily relate to the QuEENTM platform, GSPT1 program, and MRT-2359 advancement, including personnel, laboratory, and third-party service costs, and are expected to increase substantially[76][78][79] - General and administrative expenses consist mainly of personnel costs and professional services, expected to increase due to growth, public company requirements, and potential commercialization efforts[79] - Non-operating income and expense includes interest income from investments, foreign currency exchange gains/losses, gains on asset disposal, and changes in fair value of preferred stock tranche obligations[80] Results of operations for the three months ended March 31, 2022 and 2021 Compares and analyzes operating expenses and net loss for the current and prior year periods Results of Operations (in thousands) | (in thousands) | March 31, 2022 | March 31, 2021 | Dollar change | | :-------------------------- | :------------- | :------------- | :------------ | | Research and development | $17,915 | $9,273 | $8,642 | | General and administrative | $6,387 | $2,231 | $4,156 | | Total operating expenses | $24,302 | $11,504 | $12,798 | | Loss from operations | $(24,302) | $(11,504) | $(12,798) | | Other income (expense) | $370 | $(772) | $1,142 | | Net loss | $(23,932) | $(12,276) | $(11,656) | - Research and development expenses increased by $8.6 million, primarily due to expansion of activities, increased headcount (77 employees in 2022 vs. 45 in 2021), and higher laboratory and facility costs[82][83] - General and administrative expenses increased by $4.2 million, driven by higher personnel costs (18 employees in 2022 vs. 12 in 2021), professional services, and facility costs to support growth[84] - Other income (expense) improved by $1.1 million, mainly due to increased interest income on marketable securities and the absence of preferred stock tranche obligation fair value changes seen in 2021[85] Liquidity and capital resources Details cash flow activities from operations, investing, and financing, and discusses future funding requirements Cash Flow Activities (in thousands) | (in thousands) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(27,404) | $(13,815) | | Net cash used in investing activities | $(180,520) | $(2,217) | | Net cash provided by financing activities | $153 | $142,769 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $(207,771) | $126,737 | | Cash, cash equivalents and restricted cash—end of period | $143,638 | $169,600 | - Net cash used in operating activities increased to $27.4 million in Q1 2022 from $13.8 million in Q1 2021, primarily due to higher net loss and a decrease in working capital[89][90] - Net cash used in investing activities significantly increased to $180.5 million in Q1 2022, mainly due to $179 million in purchases of marketable securities[91] - The company believes its existing cash, cash equivalents, and marketable securities will fund operating expenses and capital requirements for at least the next twelve months, but additional financing will be required for future development and operations[95][96] Critical accounting policies and significant judgments and estimates Confirms no significant changes to critical accounting policies from the prior annual report - There have been no significant changes to the company's critical accounting policies from those described in its 2021 Annual Report[100] Recently issued and adopted accounting pronouncements Refers to Note 2 for a discussion of recent accounting pronouncements - Refer to Note 2, 'Summary of Significant Accounting Policies,' for a discussion of recent accounting pronouncements[101] Contractual obligations and commitments States no material changes to contractual obligations since the 2021 Annual Report - There have been no material changes to the company's contractual obligations and commitments during the three months ended March 31, 2022, from those described in its 2021 Annual Report[102] Off-balance sheet arrangements Confirms the absence of any off-balance sheet arrangements - The company did not have, nor does it currently have, any off-balance sheet arrangements as defined under SEC rules[103] Emerging growth company status Explains the company's status as an emerging growth company and smaller reporting company - The company is an 'emerging growth company' and has elected to use the extended transition period for complying with new or revised accounting standards[104] - The company is also a 'smaller reporting company,' which allows for reduced disclosure obligations regarding executive compensation and financial statements[106][107] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Monte Rosa Therapeutics, Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide information on quantitative and qualitative disclosures about market risk[108] Item 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures, identifying material weaknesses, outlining the remediation plan, and noting changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures Concludes on the effectiveness of disclosure controls and procedures, noting identified material weaknesses - Management concluded that disclosure controls and procedures were not effective as of March 31, 2022, due to material weaknesses identified in internal controls[109] - Identified material weaknesses include an ineffective control environment (insufficient accounting resources), ineffective risk assessment, lack of appropriate control activities for segregation of duties, and inadequate documentation of control processes[110] Remediation Plan Outlines the company's plan to address and remediate identified material weaknesses in internal controls - Remediation efforts include adding finance personnel, engaging accounting advisory consultants, implementing a new ERP system, establishing a disclosure committee, and engaging internal control consultants for risk assessment and control design[111] - Future remediation activities include defining user roles in the ERP system for proper segregation of duties, documenting remaining controls, and performing routine testing of control operating effectiveness[111] Changes in Internal Control over Financial Reporting Reports on any material changes in internal control over financial reporting during the quarter - Except for the remediation efforts of previously identified material weaknesses, there were no material changes in internal control over financial reporting during the three months ended March 31, 2022[112] Inherent Limitations on Effectiveness of Controls Acknowledges the inherent limitations of any control system in providing absolute assurance - Management acknowledges that any control system provides reasonable, not absolute, assurance of achieving desired control objectives due to inherent judgments and assumptions[113] PART II. OTHER INFORMATION Contains additional information not included in the financial statements, such as legal proceedings, risk factors, and exhibits Item 1. Legal proceedings This section states that the company is not currently party to any legal proceedings or claims that would individually or in aggregate have a material adverse effect on its business - As of March 31, 2022, the company does not believe it is party to any claim or litigation that would have a material adverse effect on its business[116] Item 1A. Risk Factors This section highlights the high degree of risk involved in investing in the company's common stock and refers to the comprehensive risk factors discussed in the 2021 Annual Report, with no material changes noted other than those specified - Investing in the company's common stock involves a high degree of risk, and investors should consider risks outlined in this report and the 2021 Annual Report[117] - There have been no material changes to the risk factors set forth in the 2021 Annual Report, other than as specifically detailed in this Quarterly Report[118] Risks related to our financial position and capital needs Discusses the company's history of operating losses, expected increase in expenses, and future funding requirements - The company has incurred significant operating losses since inception, with an accumulated deficit of $146.0 million as of March 31, 2022, and expects continued losses for the foreseeable future[119] - Expenses are expected to significantly increase due to planned IND application submission, initiation of clinical trials, preclinical activities for multiple programs (GSPT1, NEK7, CDK2, VAV1, BCL11A), platform expansion, manufacturing, and regulatory approvals[120][122] - The company is unable to predict the extent of future losses or when it will become profitable, if at all, due to the numerous risks and uncertainties associated with pharmaceutical drug development[121] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no recent unregistered sales of equity securities and details the use of proceeds from the initial public offering, noting no material change in the planned use of funds Recent sales of unregistered equity securities Confirms that there have been no recent unregistered sales of equity securities - There have been no recent sales of unregistered equity securities[123] Use of proceeds from initial public offering of common stock Details the use of proceeds from the initial public offering and confirms no material change in planned use - The company received aggregate net proceeds of $234.6 million from its IPO in June and July 2021, after deducting underwriting discounts and commissions and other offering costs[125] - There has been no material change in the planned use of the net proceeds from the IPO as described in the final prospectus dated June 25, 2021[126] Item 3. Defaults Upon Senior Securities This section states that there have been no defaults upon senior securities - There have been no defaults upon senior securities[127] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[128] Item 5. Other Information This section discloses a subsequent event regarding a lease termination agreement entered into on May 5, 2022, for the company's Boston office space - On May 5, 2022, the company entered into an Agreement for Termination of Lease, providing an option to terminate its existing lease for office space at 645 Summer Street, Boston, MA, between February 1, 2023, and June 1, 2023[129] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including employment agreements, lease termination agreements, and certifications - Key exhibits include the Amended and Restated Employment Agreement for Philip Nickson, the Agreement for Termination of Lease, and certifications from the Principal Executive Officer and Principal Financial Officer[132]