Monte Rosa Therapeutics(GLUE) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) The company reported a net loss of $50.5 million for the nine months ended September 30, 2021, significantly higher than $16.2 million in 2020, with its financial position strengthened by the IPO to $367.0 million in cash and cash equivalents Condensed Consolidated Balance Sheets As of September 30, 2021, the company's balance sheet reflects a strong liquidity position with $367.0 million in cash and cash equivalents, a significant increase from $41.7 million at year-end 2020, primarily due to IPO proceeds and preferred stock financings Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $367,034 | $41,699 | | Total current assets | $370,519 | $43,591 | | Total assets | $384,049 | $49,378 | | Liabilities & Equity | | | | Total liabilities | $14,744 | $30,342 | | Total stockholders' equity (deficit) | $369,305 | $(48,728) | Condensed Combined and Consolidated Statements of Operations and Comprehensive Loss The company, a pre-revenue entity, experienced a significant widening of its net loss to $50.5 million for the nine months ended September 30, 2021, from $16.2 million in 2020, driven by increased research and development and general and administrative expenses Statement of Operations Highlights (in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Research and development | $39,025 | $14,142 | | General and administrative | $10,470 | $1,932 | | Loss from operations | $(49,495) | $(16,074) | | Net loss | $(50,518) | $(16,223) | | Net loss per share | $(2.85) | $(11.01) | Condensed Combined and Consolidated Statements of Cash Flows For the nine months ended September 30, 2021, net cash used in operating activities was $45.2 million, while financing activities provided a significant inflow of $377.7 million, primarily from the IPO and preferred stock issuances, leading to a net increase in cash of $325.9 million Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(45,191) | $(14,479) | | Net cash used in investing activities | $(6,606) | $(2,203) | | Net cash provided by financing activities | $377,697 | $60,070 | Notes to the Condensed Combined and Consolidated Financial Statements Key notes detail the company's pre-revenue biotech business, the $203.9 million net proceeds from its June 2021 IPO, the conversion of all preferred stock to common stock, and the termination of a significant related-party service agreement - The company completed its IPO in June 2021, receiving net proceeds of $203.9 million, and an additional $31.0 million in July 2021 from the full exercise of the underwriters' option[26] - The company expects its cash and cash equivalents of $367.0 million as of September 30, 2021, will be sufficient to fund operating expenses and capital requirements for at least 12 months from the report's issuance date[30] - Immediately prior to the IPO, all outstanding Series A, A-2, B, and C convertible preferred stock was converted into 31,068,102 shares of common stock[27][51] - The company terminated its service agreement with related party Ridgeline Therapeutics GmbH on August 9, 2021, with payments to Ridgeline for R&D services totaling $7.8 million in the first nine months of 2021[68] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's pre-revenue status, the significant increase in net loss to $50.5 million for the first nine months of 2021 due to expanded R&D and G&A, and enhanced liquidity of $367.0 million from the IPO Results of Operations For the nine months ended September 30, 2021, R&D expenses increased by $24.9 million to $39.0 million, and G&A expenses rose by $8.5 million to $10.5 million, primarily due to increased headcount and external service costs Comparison of Operating Expenses (in thousands) | Expense Category | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | Dollar Change | | :--- | :--- | :--- | :--- | | Research and development | $39,025 | $14,142 | $24,883 | | General and administrative | $10,470 | $1,932 | $8,538 | | Total operating expenses | $49,495 | $16,074 | $33,421 | - The increase in R&D expenses was primarily due to the expansion of activities in the U.S. and Switzerland, including increased headcount from 18 to 73 R&D employees, and corresponding increases in laboratory and facility expenses[98][99] - The increase in G&A expenses was driven by increased headcount from 4 to 19 employees and higher professional service costs to support overall growth[100] Liquidity and Capital Resources The company's operations are financed by convertible notes, preferred stock, and its IPO, resulting in $367.0 million in cash and cash equivalents as of September 30, 2021, which is expected to fund operations for at least the next twelve months - As of September 30, 2021, the company had $367.0 million in cash and cash equivalents and an accumulated deficit of $98.6 million[104] - Net cash provided by financing activities for the nine months ended September 30, 2021, was $377.7 million, primarily from the IPO and Series B and C convertible preferred stock issuances[110] - The company believes its existing cash and cash equivalents will be sufficient to fund operating expenses and capital expenditure requirements for at least the next twelve months[113] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, primarily interest rate sensitivities and foreign currency exchange risk, with interest rate risk considered low due to short-term, low-risk cash equivalents, while foreign currency risk arises from Swiss operations - Primary market risks are interest rate sensitivity and foreign currency exchange risk[124] - Interest rate risk is minimal due to holding $367.0 million in cash and cash equivalents in short-term, low-risk U.S. government-backed money market funds[124] - Foreign currency exchange risk exists due to operations in Switzerland, with exposure primarily to the Swiss franc and the Euro[125] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of September 30, 2021, due to unremediated material weaknesses in internal control over financial reporting, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of the end of the period covered by the report[126] - Four material weaknesses were identified: (i) insufficient accounting personnel, (ii) ineffective risk assessment, (iii) lack of segregation of duties, and (iv) inadequate documentation and monitoring of controls[127] - Remediation efforts include hiring a VP of finance, engaging accounting consultants, implementing a new ERP system, and establishing a disclosure committee[128][131] PART II. OTHER INFORMATION Legal Proceedings As of September 30, 2021, the company is not a party to any legal proceedings expected to have a material adverse effect on its business - The company is not currently party to any claim or litigation expected to have a material adverse effect on the business[133] Risk Factors The company faces substantial risks including its limited operating history, lack of revenue, significant losses, dependence on its novel QuEEN platform, preclinical stage programs, absence of issued patents, and identified material weaknesses in internal financial controls - The company is a pre-revenue biotechnology firm with a limited operating history and significant operating losses ($50.5 million for the nine months ended Sep 30, 2021), and it anticipates continued losses[135][137] - The company's QuEEN platform is a novel approach, making it difficult to predict the time, cost, and likelihood of successfully developing any products, with all programs still in preclinical stages[147] - The company currently does not own any issued patents; its portfolio consists of pending patent applications for its QuEEN platform and various programs (GSPT1, CDK2, NEK7)[268] - Material weaknesses in internal control over financial reporting have been identified and are in the process of remediation[359] Unregistered Sales of Equity Securities and Use of Proceeds During the nine months ended September 30, 2021, the company issued unregistered securities primarily through the conversion of 109,686,035 preferred shares into 31,068,102 common shares upon IPO, and the granting of options, generating $234.8 million in net proceeds - Upon the IPO closing, all 109,686,035 shares of redeemable convertible preferred stock automatically converted into 31,068,102 shares of common stock[387] - The company granted options to purchase an aggregate of 3,812,300 shares of common stock to employees, advisors, and directors[388] - The IPO generated aggregate net proceeds of $234.8 million after deducting underwriting discounts and other costs[391] Defaults Upon Senior Securities No defaults upon senior securities were reported Mine Safety Disclosures This section is not applicable to the company's operations Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, stock agreements, employment agreements, and officer certifications