Disc Medicine(IRON) - 2023 Q1 - Quarterly Report

RISK FACTOR SUMMARY The company faces significant risks including limited operating history, continuous losses, unapproved products, and substantial future funding needs - The company has a limited operating history, has incurred continuous losses since inception, has no products approved for commercial sale, and requires substantial additional funding for operations and product development[8][11] - Product development faces challenges including low clinical trial success rates, potential data changes, patient recruitment difficulties, and non-predictive early study results[8] - The company relies on third parties for clinical trials and manufacturing, faces intense competition, and its profitability will be limited if products do not achieve broad market acceptance[8][9] - Significant risks include intellectual property protection, retention of key personnel, adverse developments in the financial services industry and global economic conditions, and increased compliance costs as a public company[11] FORWARD LOOKING STATEMENTS This report contains forward-looking statements regarding future expectations, beliefs, intentions, strategies, and predictions of events or circumstances - This quarterly report contains forward-looking statements regarding the company's future expectations, hopes, beliefs, intentions, or strategies, and predictions of future events or circumstances[13] - Forward-looking statements cover various aspects including R&D programs, clinical trials, product manufacturing, financing capabilities, regulatory approvals, commercialization, intellectual property, future expenses and revenues, market acceptance, regulatory developments, third-party collaborations, talent attraction and retention, and global economic impacts[14] - Actual results may differ materially from forward-looking statements due to known and unknown risks, uncertainties, and other factors, and the company undertakes no obligation to update these statements[15][16] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of preferred stock and stockholders' equity (deficit), and cash flow statements, along with detailed notes explaining organizational structure, accounting policies, reverse merger, fair value measurements, cash flows, asset and liability composition, license agreements, equity changes, stock-based compensation, income taxes, net loss per share, commitments and contingencies, leases, related party transactions, and subsequent events Condensed Consolidated Balance Sheets - Condensed Consolidated Balance Sheets (As of March 31, 2023 and December 31, 2022) | Indicator (thousand USD) | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :------------- | | Assets | | | | Cash and cash equivalents | 236,422 | 194,611 | | Prepaid expenses and other current assets | 5,716 | 3,880 | | Total current assets | 242,138 | 198,491 | | Property and equipment, net | 180 | 168 | | Right-of-use assets, operating leases | 1,346 | 1,430 | | Other assets | 116 | 116 | | Total Assets | 243,780 | 200,205 | | Liabilities and Stockholders' Equity | | | | Accounts payable | 5,642 | 16,162 | | Accrued expenses | 4,025 | 6,109 | | Operating lease liabilities, current | 313 | 307 | | Total current liabilities | 9,980 | 22,578 | | Operating lease liabilities, non-current | 945 | 1,027 | | Total Liabilities | 10,925 | 23,605 | | Additional paid-in capital | 367,850 | 288,814 | | Accumulated deficit | (134,997) | (112,216) | | Total Stockholders' Equity | 232,855 | 176,600 | | Total Liabilities and Stockholders' Equity | 243,780 | 200,205 | - As of March 31, 2023, the company's cash and cash equivalents increased to $236.4 million, and total assets increased to $243.8 million, primarily due to financing activities[19] - Total liabilities decreased from $23.6 million as of December 31, 2022, to $10.9 million as of March 31, 2023, mainly due to a reduction in accounts payable and accrued expenses[19] Condensed Consolidated Statements of Operations and Comprehensive Loss - Condensed Consolidated Statements of Operations and Comprehensive Loss (For the three months ended March 31, 2023 and March 31, 2022) | Indicator (thousand USD) | March 31, 2023 | March 31, 2022 | Change | | :-------------------- | :------------- | :------------- | :----- | | Research and development expenses | 20,180 | 7,821 | 12,359 | | General and administrative expenses | 4,945 | 2,139 | 2,806 | | Total operating expenses | 25,125 | 9,960 | 15,165 | | Operating loss | (25,125) | (9,960) | (15,165) | | Interest income | 2,367 | 7 | 2,360 | | Change in fair value of derivative liability | — | 100 | (100) | | Net loss | (22,781) | (9,853) | (12,928) | | Net loss per share (basic and diluted) | (1.20) | (10.67) | 9.47 | - Net loss for Q1 2023 was $22.8 million, a significant increase from $9.9 million in the same period of 2022, primarily driven by a substantial rise in research and development expenses[21] - Research and development expenses increased from $7.8 million in Q1 2022 to $20.2 million in Q1 2023, mainly due to a $10.0 million upfront payment for the Mabwell license agreement[21] - Interest income significantly increased from $7 thousand in Q1 2022 to $2.4 million in Q1 2023, reflecting higher cash and cash equivalents balances and rising interest rates[21] Condensed Consolidated Statements of Preferred Stock and Stockholders' Equity (Deficit) - Condensed Consolidated Statements of Preferred Stock and Stockholders' Equity (Deficit) (As of March 31, 2023 and December 31, 2022) | Indicator (thousand USD) | December 31, 2022 | March 31, 2023 | | :-------------------- | :------------- | :------------- | | Common stock (shares) | 17,403,315 | 19,575,242 | | Additional paid-in capital | 288,814 | 367,850 | | Accumulated deficit | (112,216) | (134,997) | | Total Stockholders' Equity | 176,600 | 232,855 | - As of March 31, 2023, total stockholders' equity increased to $232.9 million, primarily due to an increase in additional paid-in capital from registered direct offerings and at-the-market offerings of common stock[23] - The number of common shares outstanding increased from 17,403,315 as of December 31, 2022, to 19,575,242 as of March 31, 2023, reflecting stock option exercises, restricted stock unit vesting, and registered direct and at-the-market offerings[23] Condensed Consolidated Statements of Cash Flows - Condensed Consolidated Statements of Cash Flows (For the three months ended March 31, 2023 and March 31, 2022) | Cash Flow Activities (thousand USD) | March 31, 2023 | March 31, 2022 | | :-------------------- | :------------- | :------------- | | Net cash used in operating activities | (35,466) | (13,701) | | Net cash used in investing activities | (29) | (100) | | Net cash provided by financing activities | 77,306 | 55 | | Net increase in cash and cash equivalents | 41,811 | (13,746) | | Cash and cash equivalents at end of period | 236,599 | 74,467 | - Net cash used in operating activities was $35.5 million in Q1 2023, primarily due to net loss and changes in operating assets and liabilities[26][137] - Net cash provided by financing activities was $77.3 million in Q1 2023, mainly from registered direct offerings and at-the-market offerings of common stock and pre-funded warrants[26][140] - As of March 31, 2023, total cash, cash equivalents, and restricted cash amounted to $236.6 million, a significant increase from the beginning of the period[26] Notes to Unaudited Condensed Consolidated Financial Statements 1. Organization and Nature of the Business Disc Medicine, Inc. is a clinical-stage biopharmaceutical company focused on developing novel therapies for serious hematologic diseases by modulating heme biosynthesis and iron homeostasis - Disc Medicine, Inc. is a clinical-stage biopharmaceutical company focused on discovering, developing, and commercializing novel therapies for serious hematologic diseases, primarily by modulating heme biosynthesis and iron homeostasis[28] - The company's main product pipeline includes bitopertin (for erythropoietic porphyrias and Diamond-Blackfan anemia), DISC-0974 (for myelofibrosis anemia and chronic kidney disease anemia), and MWTX-003 (for polycythemia vera)[28] - The company completed a reverse merger with Gemini Therapeutics, Inc. on December 29, 2022, with Gemini renamed Disc Medicine Inc., and the original Disc Medicine becoming its wholly-owned subsidiary[30] - As of March 31, 2023, the company had an accumulated deficit of $135.0 million and expects its existing cash and cash equivalents of $236.4 million to fund operations through 2025[39] 2. Summary of Significant Accounting Policies The company's condensed consolidated financial statements are prepared in accordance with U.S. GAAP and include all normal recurring adjustments for fair presentation - The company's condensed consolidated financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) and include all normal recurring adjustments to ensure fair presentation[42][45] - Management makes estimates and assumptions in preparing financial statements, including for R&D expenses, stock-based compensation, fair value measurements, and income taxes, and actual results may differ materially from these estimates[47] - The company adopted ASU 2016-13 (Financial Instruments—Credit Losses) on January 1, 2023, with no material impact on its financial position, operating results, or disclosures[51] 3. Reverse Merger with Gemini On December 29, 2022, the company completed a reverse merger with Gemini, with original Disc Medicine treated as the accounting acquirer and Gemini's assets and liabilities recorded at fair value - On December 29, 2022, the company completed a reverse merger with Gemini, with the original Disc Medicine treated as the accounting acquirer, and Gemini's assets and liabilities recorded at fair value[53] - In the merger, the company acquired $97.4 million in cash and cash equivalents and recognized $0.6 million in stock-based compensation expense and $7.9 million in transaction costs[54][55] 4. Fair Value Measurements - Financial Assets and Liabilities Measured at Fair Value (As of March 31, 2023 and December 31, 2022) | Indicator (thousand USD) | March 31, 2023 (Level 1) | December 31, 2022 (Level 1) | | :-------------------- | :---------------------- | :----------------------- | | Money market funds | 142,534 | 40,783 | - The fair value of the company's cash equivalents (money market funds) is based on quoted prices in active markets, with no valuation adjustments, and no impairment occurred during the reporting period[57] - The derivative liability related to the Roche agreement was settled in Q4 2022 through the issuance of common stock, with its fair value changes reported in the statements of operations and comprehensive loss[58][59] 5. Cash, Cash Equivalents and Restricted Cash - Cash, Cash Equivalents and Restricted Cash (As of March 31, 2023 and December 31, 2022) | Indicator (thousand USD) | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :------------- | | Cash and cash equivalents | 236,422 | 194,611 | | Restricted cash | 177 | 177 | | Total | 236,599 | 194,788 | - As of March 31, 2023, the company's total cash, cash equivalents, and restricted cash amounted to $236.6 million, an increase of $41.8 million from December 31, 2022[61][26] - Restricted cash is primarily held as collateral for a letter of credit related to office space leases[50] 6. Property and Equipment, Net - Property and Equipment, Net (As of March 31, 2023 and December 31, 2022) | Indicator (thousand USD) | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :------------- | | Computer equipment | 206 | 169 | | Furniture and fixtures | 144 | 144 | | Less: Accumulated depreciation | (170) | (145) | | Property and equipment, net | 180 | 168 | - As of March 31, 2023, the company's property and equipment, net, was $180 thousand, a slight increase from $168 thousand as of December 31, 2022, primarily due to an increase in computer equipment[62] 7. Accrued Expenses - Accrued Expenses (As of March 31, 2023 and December 31, 2022) | Indicator (thousand USD) | March 31, 2023 | December 31, 2022 | | :-------------------- | :------------- | :------------- | | Accrued research and development expenses | 2,457 | 1,817 | | Accrued employee-related expenses | 876 | 3,623 | | Accrued professional service fees | 347 | 463 | | Other accrued expenses | 345 | 206 | | Total Accrued Expenses | 4,025 | 6,109 | - As of March 31, 2023, total accrued expenses were $4.0 million, a decrease from $6.1 million as of December 31, 2022, primarily due to a reduction in accrued employee-related expenses[63] - Accrued research and development expenses increased from $1.8 million as of December 31, 2022, to $2.5 million as of March 31, 2023[63] 8. Development and License Agreements The company has entered into license agreements with Aurigene, AbbVie, Roche, and Mabwell for product development and commercialization - The company has entered into license agreements with Aurigene, AbbVie, Roche, and Mabwell for product development and commercialization[64][68][71][75] - The agreement with Aurigene involves up to $7.1 million in milestone payments, with $0.3 million in R&D expenses recorded in both Q1 2023 and Q1 2022[66][67] - The agreement with AbbVie involves up to $150.5 million in development, commercialization, and sales milestone payments, plus royalties based on net sales[69] - The agreement with Roche involves up to $205.0 million in milestone payments and high single-digit to high double-digit percentage royalties, with the related derivative liability settled upon merger completion through the issuance of 482,313 shares of common stock[72][73][74] - The agreement with Mabwell involves an upfront payment of $10.0 million, up to $127.5 million in development and regulatory milestone payments, up to $275.0 million in commercial milestone payments, and low single-digit to high single-digit percentage royalties[76][77] 9. Convertible Preferred Stock As of March 31, 2023, the company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.0001, but has no issued or outstanding shares - As of March 31, 2023, the company is authorized to issue 10,000,000 shares of preferred stock with a par value of $0.0001, but has no issued or outstanding shares[78] - Prior to the merger's effective date, each share of original Disc Medicine's preferred stock was converted into common stock, which was then exchanged for common stock of the combined company at the exchange ratio upon merger completion[78] 10. Common Stock As of March 31, 2023, the company's authorized capital includes 100,000,000 shares of common stock with a par value of $0.0001, with shares reserved for stock option exercises and pre-funded warrant exercises - As of March 31, 2023, the company's authorized capital includes 100,000,000 shares of common stock with a par value of $0.0001, with 2,527,513 shares reserved for stock option exercises and 1,229,224 shares reserved for pre-funded warrant exercises[80][81] - In January 2023, the company filed an S-3 resale registration statement and an S-8 registration statement covering the resale of common stock by certain post-merger shareholders and the issuance of shares under equity incentive plans[82] - Through its at-the-market (ATM) program, the company sold 608,050 shares of common stock, generating $14.6 million in net proceeds as of March 31, 2023[84] - In February 2023, the company sold 1,488,166 shares of common stock and 1,229,224 pre-funded warrants through a registered direct offering, generating $62.4 million in net proceeds[85] 11. Stock-Based Compensation - Stock-Based Compensation Expense (For the three months ended March 31, 2023 and March 31, 2022) | Expense Category (thousand USD) | March 31, 2023 | March 31, 2022 | | :-------------------- | :------------- | :------------- | | Research and development expenses | 345 | 133 | | General and administrative expenses | 679 | 199 | | Total Stock-Based Compensation Expense | 1,024 | 332 | - Total stock-based compensation expense for Q1 2023 was $1.0 million, a significant increase from $0.3 million in the same period of 2022, primarily allocated to R&D and general and administrative expenses[94] - As of March 31, 2023, total unrecognized stock-based compensation expense was $9.3 million, expected to be recognized over an average period of 3.12 years[94] 12. Income Taxes In Q1 2023, the company recorded less than $0.1 million in state income tax expense, compared to no income tax expense in Q1 2022, primarily due to increased interest income - In Q1 2023, the company recorded less than $0.1 million in state income tax expense, while there was no income tax expense in the same period of 2022, primarily due to increased interest income[95] - The company has incurred cumulative net losses since inception and maintains a full valuation allowance against all deferred tax assets[96] 13. Net Loss Per Share - Net Loss Per Share (For the three months ended March 31, 2023 and March 31, 2022) | Indicator | March 31, 2023 | March 31, 2022 | | :-------------------- | :------------- | :------------- | | Net loss per share (basic and diluted) | (1.20) | (10.67) | | Weighted-average common shares outstanding | 18,954,914 | 923,750 | - Basic and diluted net loss per share are the same because the company incurred a net loss in all periods presented, and the inclusion of potentially dilutive securities would be anti-dilutive[99] - As of March 31, 2023, unexercised pre-funded warrants (1,229,224 shares) have been included in the weighted-average common shares outstanding[98] 14. Commitments and Contingencies The company provides indemnification agreements in the normal course of business but has not incurred significant costs or identified material claims to date - The company provides indemnification agreements in the normal course of business but has not incurred significant costs or identified material indemnification claims to date[100] - The company was not involved in any material legal proceedings during Q1 2023 and Q1 2022[101] - Contracts with CROs, CDMOs, and other third parties generally do not contain minimum purchase commitments and are cancellable, with payment due for services rendered or expenses incurred upon cancellation[102] 15. Leases The company leases office space in Watertown, Massachusetts, with a lease term from November 2021 to November 2026, and no significant changes in lease arrangements occurred in Q1 2023 - The company leases office space in Watertown, Massachusetts, with a lease term from November 2021 to November 2026, and no significant changes in lease arrangements occurred in Q1 2023[103] 16. Related Party Transactions The landlord of the company's leased office space is a related party due to its equity ownership - The landlord of the company's leased office space is a related party due to its equity ownership[104] - In February 2023, existing investors participated in the company's registered direct offering; in March 2023, the company received a $0.5 million principal promissory note from an existing investor, which was repaid four days later[104][105] 17. Subsequent Events As of the financial statement issuance date, the company sold an additional 217,300 shares of common stock through its at-the-market (ATM) program, generating $5.0 million in gross proceeds - As of the financial statement issuance date, the company sold an additional 217,300 shares of common stock through its at-the-market (ATM) program, generating $5.0 million in gross proceeds[107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the company's financial condition and results of operations for the three months ended March 31, 2023, highlighting its business overview, product pipeline progress, reverse merger impact, financial operations (including R&D and administrative expenses, other income), and liquidity and capital resources, analyzing changes in financial metrics and outlining future funding needs and accounting policies Overview The company is a clinical-stage biopharmaceutical company focused on developing innovative therapies for hematologic diseases, with a pipeline including bitopertin, DISC-0974, MWTX-003, and preclinical program DISC-0998 - The company is a clinical-stage biopharmaceutical company focused on developing innovative therapies for hematologic diseases, with a product pipeline including bitopertin, DISC-0974, and MWTX-003, as well as the preclinical program DISC-0998[110] - Phase 2 BEACON and AURORA clinical trials for bitopertin are ongoing, with topline data expected by late 2023; the Phase 1b/2 clinical trial for DISC-0974 has also commenced, with interim data expected by late 2023; and the Phase 1 clinical trial for MWTX-003 is planned to start in H2 2023[111][112][113] - The company completed a reverse merger with Gemini on December 29, 2022, and began trading on the Nasdaq Capital Market under the ticker "IRON" on December 30[114][115] Financial Operations Overview The company has not generated product sales revenue since inception and does not expect to in the near term, with future revenue dependent on product commercialization or collaboration/license agreements - The company has not generated product sales revenue since inception and does not expect to in the near term, with future revenue dependent on product commercialization or collaboration/license agreements[116] - Research and development expenses are expected to increase significantly to advance the clinical development of product candidates, including personnel compensation, third-party contract services, manufacturing costs, and license agreement payments[119][120] - General and administrative expenses are also expected to increase significantly to support R&D and potential commercialization, and to cover additional costs as a public company[123] - Other income primarily consists of interest income from money market funds, expected to grow with increasing cash balances and interest rates[124] Results of Operations - Results of Operations Comparison (For the three months ended March 31, 2023 and March 31, 2022) | Indicator (thousand USD) | March 31, 2023 | March 31, 2022 | Change | | :-------------------- | :------------- | :------------- | :----- | | Research and development expenses | 20,180 | 7,821 | 12,359 | | General and administrative expenses | 4,945 | 2,139 | 2,806 | | Total operating expenses | 25,125 | 9,960 | 15,165 | | Operating loss | (25,125) | (9,960) | (15,165) | | Interest income | 2,367 | 7 | 2,360 | | Net loss | (22,781) | (9,853) | (12,928) | | Net loss per share | (1.20) | (10.67) | 9.47 | - Research and development expenses increased by $12.4 million year-over-year to $20.2 million in Q1 2023, primarily due to a $10.0 million upfront payment for the Mabwell license agreement and a $0.9 million increase in personnel-related costs[127] - General and administrative expenses increased by $2.8 million year-over-year to $4.9 million in Q1 2023, mainly due to a $1.1 million increase in legal, consulting, and professional service fees and a $0.9 million increase in personnel-related costs[128] - Net other income was $2.4 million in Q1 2023, a significant increase from $0.1 million in the same period of 2022, primarily driven by higher interest income due to increased cash and cash equivalents balances and rising interest rates[129] Liquidity and Capital Resources The company has consistently incurred operating losses since inception and anticipates significant increases in future R&D and administrative costs, necessitating additional capital to fund operations - The company has consistently incurred operating losses since inception and anticipates significant increases in future R&D and administrative costs, necessitating additional capital to fund operations[131] - As of March 31, 2023, the company had $236.4 million in cash and cash equivalents, which is expected to fund operations through 2025[133][134] - Cash Flow Comparison (For the three months ended March 31, 2023 and March 31, 2022) | Cash Flow Activities (thousand USD) | March 31, 2023 | March 31, 2022 | | :-------------------- | :------------- | :------------- | | Net cash used in operating activities | (35,466) | (13,701) | | Net cash used in investing activities | (29) | (100) | | Net cash provided by financing activities | 77,306 | 55 | | Net increase in cash and cash equivalents | 41,811 | (13,746) | - Net cash used in operating activities was $35.5 million in Q1 2023, primarily impacted by a $22.8 million net loss and $13.8 million in changes in operating assets and liabilities[137] - Net cash provided by financing activities was $77.3 million in Q1 2023, mainly from net proceeds of $62.4 million from a registered direct offering and $14.6 million from an at-the-market offering[140] - Contractual Obligations (As of March 31, 2023) | Contractual Obligations (thousand USD) | Total | Within 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | | :-------------------- | :--- | :---- | :---- | :---- | :------ | | Operating lease commitments | 1,392 | 375 | 782 | 235 | — | Critical Accounting Policies and Estimates The company's management discussion and analysis of financial condition and results of operations are based on condensed consolidated financial statements prepared in accordance with U.S. GAAP, involving estimates and judgments regarding assets, liabilities, costs, expenses, and contingent assets and liabilities - The company's management discussion and analysis of financial condition and results of operations are based on condensed consolidated financial statements prepared in accordance with U.S. GAAP, involving estimates and judgments regarding assets, liabilities, costs, expenses, and contingent assets and liabilities[148] - No significant changes occurred in the critical accounting estimates disclosed in the company's annual report on Form 10-K as of December 31, 2022[149] Recently Issued and Adopted Accounting Pronouncements The company has adopted ASU 2016-13 (Financial Instruments—Credit Losses), which had no material impact on its financial position, operating results, or disclosures - The company has adopted ASU 2016-13 (Financial Instruments—Credit Losses), which had no material impact on its financial position, operating results, or disclosures[51][150] - Other accounting pronouncements issued or proposed but not yet adopted are not expected to have a material impact on the company's condensed consolidated financial statements upon adoption[52][150] Emerging Growth Company and Smaller Reporting Company Status The company qualifies as an "emerging growth company" under the JOBS Act, allowing it to utilize certain exemptions, including an extended transition period for new accounting standards - The company qualifies as an "emerging growth company" under the JOBS Act, allowing it to utilize certain exemptions, including an extended transition period for new accounting standards[151] - The company also qualifies as a "smaller reporting company," which provides for simplified disclosure obligations, including presenting only two years of audited financial statements[152] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discloses the company's market risks, primarily interest rate and foreign currency risks; cash and cash equivalents are sensitive to interest rate changes but are not expected to have a material short-term impact, and the company has minimal foreign currency exposure and believes inflation has no significant effect on its business, financial condition, or results of operations - As of March 31, 2023, the company's cash and cash equivalents amounted to $236.4 million, primarily consisting of cash and money market accounts, making interest income sensitive to interest rate changes[153] - The company has minimal foreign currency risk exposure because the time interval between the initiation and settlement or receipt of transactions is typically short[154] - The company believes that inflation had no material impact on its business, financial condition, or results of operations for Q1 2023 and Q1 2022[155] Item 4. Controls and Procedures This section outlines management's assessment of disclosure controls and procedures and reports on changes in internal control over financial reporting; as of March 31, 2023, management deemed disclosure controls and procedures effective at a reasonable assurance level, with no material changes in internal control over financial reporting - As of March 31, 2023, the company's management assessed and determined that its disclosure controls and procedures were effective at a reasonable assurance level[156][157] - No material changes occurred in the company's internal control over financial reporting during Q1 2023[158] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company may be involved in legal proceedings and claims in the normal course of business, but currently has no litigation or claims that could materially adversely affect its business, financial condition, or results of operations - The company currently has no legal proceedings or claims that could materially adversely affect its business, financial condition, or results of operations[160] Item 1A. Risk Factors This section details significant risks faced by the company, covering limited operating history, financial condition and capital requirements, product discovery and development, commercialization, reliance on third parties, intellectual property, government regulation, employee matters and growth management, and general risks, emphasizing their potential material adverse impact on the company's business, prospects, financial condition, and results of operations Risks Related to Our Limited Operating History, Financial Position, and Capital Requirements The company has a limited operating history, has incurred continuous losses since its 2017 inception, with an accumulated deficit of $135.0 million as of March 31, 2023, and expects to continue incurring losses - The company has a limited operating history, has incurred continuous losses since its 2017 inception, with an accumulated deficit of $135.0 million as of March 31, 2023, and expects to continue incurring losses[162][164] - The company has no products approved for commercial sale, and its profitability depends on the future success of product development and commercialization, which faces high uncertainty[167] - The company requires substantial additional funding to support R&D and commercialization, and failure to raise capital timely or on acceptable terms may force it to delay or terminate certain programs[171] - Raising additional capital may dilute existing shareholders' equity or involve debt agreements with terms that restrict the company's operations[175] - Holders of contingent value rights (CVRs) may not receive any payments, and CVRs may expire worthless[177][178] Risks Related to the Discovery and Development of Our Product Candidates The COVID-19 pandemic or other infectious disease outbreaks could adversely affect the company's business and financial performance, potentially disrupting product candidate development - The COVID-19 pandemic or other infectious disease outbreaks could adversely affect the company's business and financial performance, potentially disrupting product candidate development[179] - The company has only successfully completed one Phase 1 clinical trial, and future clinical trials may not be successfully completed, with some preclinical programs potentially never entering clinical development[182] - The company focuses on treating hematologic diseases, a rapidly evolving field, and its novel development approach may not lead to approved or marketable products[185] - Interim, topline, and preliminary clinical trial data may change with more patient data and could undergo significant changes in final data[192] - Delays or difficulties in patient enrollment, particularly for rare hematologic disease populations, could lead to delayed or hindered regulatory approvals[201] - Early preclinical study and clinical trial results are not necessarily predictive of later outcomes, and failure to replicate them could prevent successful product development and commercialization[205] - Clinical trials may reveal previously unseen serious adverse events, leading to an unfavorable safety profile that hinders regulatory approval or market acceptance[207] - Some product candidates target pathways with no currently approved or effective therapies, potentially leading to higher R&D expenses, regulatory issues, or the discovery of unknown adverse reactions[210] - Phase 2 clinical trial data conducted in Australia may not be accepted by the FDA or other foreign regulatory agencies, leading to additional trials and costs[212] - Failure to identify viable additional product candidates could materially harm the company's business[213] Risks Related to Commercialization Failure to obtain or delays in obtaining necessary regulatory approvals for product candidates will prevent or delay commercialization, severely harming revenue generation capabilities - Failure to obtain or delays in obtaining necessary regulatory approvals for product candidates will prevent or delay commercialization, severely harming revenue generation capabilities[215][218] - The company faces intense competition, and competitors may discover, develop, or commercialize products earlier or more successfully than the company[219][222] - If the market opportunity for product candidates is smaller than anticipated, or regulatory approval is based on a narrower patient population definition, the company's revenue and profitability could be adversely affected[223][224] - If product candidates fail to achieve broad market acceptance, sales revenue may be limited, and the company may not achieve profitability[226] - Even with regulatory approval, the company will face ongoing regulatory obligations and scrutiny, potentially leading to additional expenses and product recalls or withdrawals due to safety concerns[232][233] Risks Related to Our Reliance on Third Parties The company relies on third parties for clinical trials, and if these third parties fail to successfully perform contractual duties, comply with regulatory requirements, or meet expected timelines, the company may not obtain regulatory approval or commercialize products - The company relies on third parties for clinical trials, and if these third parties fail to successfully perform contractual duties, comply with regulatory requirements, or meet expected timelines, the company may not obtain regulatory approval or commercialize products[234][237][239][240] - The company may not realize the anticipated benefits of existing collaborations with Mabwell or NIH, or any future collaborations[241][243] - The company contracts with third parties to manufacture product candidates for preclinical development and clinical testing, and expects to rely on third parties for future commercialization, increasing the risk of not obtaining sufficient quantities or acceptably priced products[250] - The active pharmaceutical ingredients (APIs) used in the company's product candidates are supplied by single-source vendors, and losing any supplier could severely harm the business[257][259] - Biologic manufacturing is complex, and third-party manufacturers may encounter difficulties in production, leading to delays or prevention of clinical trials or product supply[260][261] Risks Related to Our Intellectual Property Failure to obtain and maintain patent and other intellectual property protection for technology and product candidates, or insufficient scope of protection, could allow competitors to develop similar products, harming the company's commercialization ability - Failure to obtain and maintain patent and other intellectual property protection for technology and product candidates, or insufficient scope of protection, could allow competitors to develop similar products, harming the company's commercialization ability[262][264][265] - The company has licensed intellectual property from Roche, AbbVie, and Mabwell, and failure to comply with license agreement obligations could result in loss of important rights or liability for damages[263][299][300] - Patent protection relies on compliance with various procedural, document submission, deadline, and fee payment requirements of government patent agencies, and failure to comply could weaken or cancel patent protection[274] - If trademarks and trade names for products or the company name are not adequately protected in target markets, it could delay product brand launch or lead to other adverse consequences[275] - Failure to adequately protect and enforce trade secrets will harm the company's business and competitive position[276][277][278][279] - The company may initiate, be sued, or become involved in litigation to protect or enforce intellectual property, which could be costly, time-consuming, and unsuccessful[281][286] - Intellectual property litigation and patent validity challenges at administrative patent offices could require the company to commit significant resources and divert management's attention[286] - Third parties may claim the company or its employees infringe their intellectual property or breach agreements, leading to damages or settlement costs[287][289] - The company may not be able to obtain patent or other intellectual property protection for product candidates in all global jurisdictions, and even if obtained, it may not be adequately enforceable[295][296] - The company may not be able to obtain or grant licenses or sublicenses for third-party intellectual property on equally or sufficiently favorable terms[298] - Granted patents may be narrowed in scope, found invalid, or unenforceable when challenged in court or administrative bodies[303][304] - Changes in patent law could diminish the value of patents, thereby harming the company's ability to protect its product candidates[305][306] - The company may fail to identify relevant third-party patents or misinterpret their relevance, scope, or expiration dates, leading to infringement claims[307][308] - Intellectual property does not guarantee commercial success of product candidates or other business activities, as various factors may limit the potential competitive advantage provided by intellectual property[309][310] Risks Related to Government Regulation Obtaining regulatory approval in one jurisdiction does not guarantee successful approval in other jurisdictions, and vice versa - Obtaining regulatory approval in one jurisdiction does not guarantee successful approval in other jurisdictions, and vice versa[311][312] - Even with priority review or breakthrough therapy designation, the development, review, or approval process may not be expedited, nor does it increase the likelihood of obtaining regulatory approval[313][321][322] - The company may seek orphan drug designation for certain product candidates but may be unsuccessful or unable to maintain associated benefits, including market exclusivity[314][317][318] - Even with accelerated approval, the development or review process may not be expedited, and it does not guarantee eventual full FDA approval[323][325] - If drug product candidates receive regulatory approval, competitors may launch generic versions, leading to a significant decline in the company's product sales[326][328] - Biologic products may face competition from biosimilar or interchangeable products approved through abbreviated regulatory pathways[330][331] - The FDA, EMA, and other regulatory agencies may implement additional regulations or restrictions, and these changes are difficult to predict[332] - Regulatory agencies actively enforce laws and regulations prohibiting off-label promotion, and if the company is found to have improperly promoted products, it could face significant liability[333] - Underfunding or operational disruptions at the FDA, SEC, and other government agencies could hinder new product development or commercialization[334][335][336] - Healthcare legislative reform measures could materially adversely affect the company's business and operating results, including the Affordable Care Act (ACA) and its subsequent amendments and proposals[337][338][340][341][342][343][344][345][346] - Relationships with customers, healthcare providers, physicians, and third-party payors will be subject to healthcare laws and regulations such as anti-kickback, fraud, and abuse laws, potentially leading to criminal sanctions, civil penalties, and reputational harm[348][349][350][351][352][353][354][355] - Failure to comply with environmental, health, and safety laws and regulations could result in fines or costs, materially adversely affecting business success[356][357] - Compliance with U.S. and global privacy and data security requirements may lead to additional costs and liabilities or restrict the company's ability to collect and process data globally[358][359][360][361][362][363] - Future international business laws and regulations may prevent the company from developing, manufacturing, and selling certain products outside the U.S. and require costly compliance programs[364][365][367][368] Risks Relating to Employee Matters and Managing Growth The company's future success depends on retaining key executives and experienced scientists, and its ability to attract, retain, and motivate qualified personnel - The company's future success depends on retaining key executives and experienced scientists, and its ability to attract, retain, and motivate qualified personnel[369][370][371] - The company may not adequately protect its information systems from cyberattacks, potentially leading to the disclosure of confidential or proprietary information, reputational harm, and significant financial and legal risks[372][373][374] - The company expects to expand its development and regulatory capabilities and may implement sales, marketing, and distribution capabilities, thus potentially encountering difficulties in managing growth, which could disrupt operations[375][376] General Risks Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, default, or non-performance of financial institutions or counterparties, could adversely affect the company's current and projected business operations, financial condition, and results of operations - Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, default, or non-performance of financial institutions or counterparties, could adversely affect the company's current and projected business operations, financial condition, and results of operations[377][378][379] - Changes in tax laws could adversely affect the company or its investors[380] - The company's future taxable income may be subject to certain limitations, such as the utilization of net operating loss carryforwards potentially being limited due to ownership changes[381] - The company is subject to U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations, and violations could lead to severe consequences[382][383] - Adverse global economic conditions could adversely affect the company's business, financial condition, or results of operations[384] - Employees, principal investigators, CROs, and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards or insider trading[385] - The market price of the company's common stock is expected to fluctuate[386][387] - Compliance with public company laws and regulations will result in additional costs and increased management demands[388] - Once no longer an emerging growth company or smaller reporting company, the company will be subject to additional laws and regulations applicable to public companies, increasing costs and management demands[389][390] - Provisions in the company's charter documents and Delaware law may make company acquisitions more difficult and could deter acquisition attempts that shareholders might consider favorable[391][392] - The company's certificate of incorporation and bylaws designate the Delaware Court of Chancery as the exclusive forum for certain disputes, which may limit shareholders' ability to bring actions in a favorable judicial forum[393][394] - The company does not intend to pay any cash dividends in the foreseeable future[395] - An active trading market for the company's common stock may not develop, and shareholders may be unable to resell shares at a profitable price[396] - Future sales of shares by existing shareholders could cause the stock price to decline[397] - The company's executive officers, directors, and principal shareholders have the ability to control or significantly influence all matters submitted to shareholders for approval[398] - If equity research analysts do not publish research reports or publish unfavorable reports, the company's stock price and trading volume may decline[399] - The company will have broad discretion over the use of its cash and cash equivalents, which may be invested or spent in ways that shareholders disagree with and may not increase investment value[400][401] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During this reporting period, the company did not conduct any unregistered sales of equity securities, and the use of proceeds from its initial public offering is not applicable - During this reporting period, the company did not conduct any unregistered sales of equity securities[402] - The use of proceeds from the initial public offering is not applicable[403] Item 3. Defaults Upon Senior Securities During this reporting period, the company did not experience any defaults upon senior securities - During this reporting period, the company did not experience any defaults upon senior securities[405] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company's business - Mine safety disclosures are not applicable to the company's business[406] Item 5. Other Information During this reporting period, the company did not disclose any other information - During this reporting period, the company did not disclose any other information[407] Item 6. Exhibits This section lists the exhibits filed as part of this quarterly report, including the merger agreement, certificate of incorporation, form of pre-funded warrant, license agreements, securities purchase agreement, and executive certifications - The exhibit list includes the merger agreement, certificate of incorporation, form of pre-funded warrant, exclusive license agreement with Mabwell Therapeutics, securities purchase agreement, and executive certifications[411] SIGNATURES This report was formally signed by John Quisel, President and Chief Executive Officer, and Joanne Bryce, Chief Financial Officer, on May 15, 2023 - This report was formally signed by John Quisel, President and Chief Executive Officer, and Joanne Bryce, Chief Financial Officer, on May 15, 2023[416][418]