Lyra Therapeutics(LYRA) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis for the quarter Condensed Consolidated Financial Statements (unaudited) This section presents the company's unaudited condensed consolidated financial statements for the quarter ended March 31, 2021 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $66,105 | $74,593 | | Total current assets | $67,351 | $75,917 | | Total assets | $72,917 | $80,830 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $4,170 | $4,884 | | Total liabilities | $5,366 | $6,338 | | Total stockholders' equity | $67,551 | $74,492 | Condensed Consolidated Statements of Operations (in thousands, except per share data) | Account | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Research and development | $4,770 | $2,964 | | General and administrative | $3,061 | $1,284 | | Loss from operations | ($7,831) | ($4,248) | | Net loss | ($7,802) | ($4,232) | | Net loss per share—basic and diluted | ($0.60) | ($18.70) | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Account | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($7,590) | ($4,017) | | Net cash used in investing activities | ($1,160) | ($8) | | Net cash provided by financing activities | $262 | $29,464 | | Net (decrease) increase in cash | ($8,488) | $25,439 | Notes to Unaudited Condensed Consolidated Financial Statements These notes detail the company's business, accounting policies, liquidity, and the impact of COVID-19 - The company is a clinical-stage therapeutics company focused on developing and commercializing novel drug and delivery solutions for ear, nose, and throat (ENT) diseases using its proprietary XTreo platform, with initial product candidates LYR-210 and LYR-220 for chronic rhinosinusitis (CRS)[29] - The company has a history of recurring net losses, with a net loss of $7.8 million for Q1 2021 and an accumulated deficit of $157.7 million as of March 31, 2021, but cash and cash equivalents of $66.1 million are expected to fund operations for at least one year[31][33] - Due to the COVID-19 pandemic, the company discontinued enrollment in its Phase 2 LANTERN clinical trial at 67 patients and did not enroll patients in the United States[36] Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Research and development | $142 | $40 | | General and administrative | $457 | $94 | | Total | $599 | $134 | Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition, operational results, and liquidity for the quarter Overview This overview details the company's ENT focus, LANTERN trial results, IPO, and expected expense growth - The company's lead product candidate, LYR-210, did not achieve its primary endpoint in the Phase 2 LANTERN trial at week 4, which management believes was primarily due to discontinuing enrollment at 67 patients (planned for 99) because of the COVID-19 pandemic[86] - A separate characterization study was initiated in the U.S. to collect pharmacokinetic data for LYR-210 that could not be obtained in the LANTERN trial due to the inability to enroll U.S. patients during the pandemic, and this study is fully enrolled[87] - The company completed its IPO on May 5, 2020, raising approximately $57.3 million in net proceeds[91] - Net losses were $7.8 million for Q1 2021, and the accumulated deficit reached $157.7 million as of March 31, 2021, with expenses expected to increase significantly as clinical trials for LYR-210 and LYR-220 advance[93] Results of Operations This section compares Q1 2021 and Q1 2020 financial results, noting increased expenses and net loss Comparison of Results of Operations (in thousands) | | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Dollar Change | | :--- | :--- | :--- | :--- | | Research and development | $4,770 | $2,964 | $1,806 | | General and administrative | $3,061 | $1,284 | $1,777 | | Total operating expenses | $7,831 | $4,248 | $3,583 | | Net loss | ($7,802) | ($4,232) | ($3,570) | - Research and development expenses increased by $1.8 million, primarily due to a $0.7 million increase in employee-related costs from higher headcount and a $0.7 million increase in product development and manufacturing expenses[115][116] - General and administrative expenses increased by $1.8 million, mainly driven by a $1.0 million increase in costs associated with being a public company (including $0.7 million for D&O insurance) and a $0.5 million increase in employee-related costs[117][118] Liquidity and Capital Resources This section details the company's cash position, cash flow activities, and future funding requirements - As of March 31, 2021, the company had $66.1 million in cash and cash equivalents, a decrease from $74.6 million at the end of 2020[120] - Net cash used in operating activities increased to $7.6 million in Q1 2021 from $4.0 million in Q1 2020, primarily due to a higher net loss[121][122] - The company expects its existing cash and cash equivalents will be sufficient to fund operating expenses and capital expenditure requirements into 2023, but substantial additional funding will be required for later-stage clinical trials and potential commercialization[124][125] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide market risk disclosures - As a smaller reporting company, Lyra Therapeutics is not required to provide quantitative and qualitative disclosures about market risk[133] Controls and Procedures This section confirms effective disclosure controls and procedures, with no material internal control changes - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021[135] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[136] PART II. OTHER INFORMATION This section provides additional information on legal proceedings, risk factors, and equity sales Legal Proceedings The company reports no current legal proceedings expected to materially affect its financial condition - Management believes there are currently no pending claims or actions against the company that would have a material adverse effect on its business[139] Risk Factors This section outlines various risks affecting the company's business, financial condition, and operations Risks Related to Financial Position and Need for Additional Capital This section details financial risks, including operating losses and the critical need for additional capital - The company has a history of significant operating losses, including $7.8 million for Q1 2021, and expects to incur significant additional losses for the foreseeable future[144] - The business is highly dependent on the success of its most advanced product candidate, LYR-210, which requires significant additional clinical testing and regulatory approval[158] - Significant additional funding is required to complete the development of product candidates, and while current cash is expected to fund operations into 2023, this estimate is based on assumptions that may prove wrong[149][151] Risks Related to Discovery, Development, Clinical Testing, Manufacturing, and Regulatory Approval This section outlines drug development risks, including clinical trial failures and regulatory hurdles - The Phase 2 LANTERN clinical trial for LYR-210 failed to meet its primary endpoint, which the company believes was due to reduced enrollment caused by the COVID-19 pandemic, and this failure could delay or prevent regulatory approval[160][175] - The company intends to use the Section 505(b)(2) regulatory pathway, but if the FDA does not agree, the approval process could take significantly longer and cost more[184] - LYR-210 and LYR-220 are regulated as drug-device combination products, which can increase the complexity and timeline of the FDA review process[190] Risks Related to Commercialization This section details commercialization risks, including competition, market acceptance, and reimbursement - The company faces significant competition from major pharmaceutical and biotechnology companies like GlaxoSmithKline, Regeneron, and Intersect ENT, which have substantially greater resources[256][257] - Commercial success is highly dependent on obtaining adequate coverage and reimbursement from payors like Medicare, Medicaid, and private insurers, which is uncertain[258] - The company currently has no sales, marketing, or distribution infrastructure and will need to build these capabilities or collaborate with third parties to commercialize its products[275] Risks Related to Dependence on Third Parties This section details risks from reliance on third-party manufacturers and CROs - The company relies on third-party manufacturers for its product candidates and does not have long-term contracts, increasing the risk of supply disruptions, which could delay clinical trials and commercialization[292] - The company is dependent on CROs and clinical investigators to conduct its clinical trials, and any failure by these parties to perform adequately could lead to delays or termination of trials[296] - The company does not have multiple sources of supply for some components used in its product candidates, and the loss of a critical supplier could have a material adverse effect on development[307] Risks Related to Intellectual Property This section discusses intellectual property risks, including patent enforcement and infringement claims - The company's ability to compete effectively depends on its ability to obtain, maintain, and protect its intellectual property rights through patents and trade secrets, which is uncertain[314] - The company may face third-party claims of intellectual property infringement, which could lead to substantial litigation expenses, divert management resources, and potentially block the commercialization of its products[322] - Recent patent reform legislation (the Leahy-Smith Act) has increased the uncertainties and costs surrounding patent prosecution and enforcement[328] Risks Related to Employee Matters and Managing Growth This section addresses operational and personnel risks, including growth and key personnel dependence - The company is highly dependent on its key management and scientific personnel, and the loss of their services could significantly harm the business[344] - The COVID-19 pandemic has already adversely impacted the business by forcing the discontinuation of enrollment in the Phase 2 LANTERN trial and could cause further disruptions to clinical trials, supply chains, and regulatory operations[350][351][353] - The company expects significant growth in employees and operations, which will require effective management to avoid disruptions and operational mistakes[342] Risks Related to Our Common Stock This section outlines risks for common stock investors, including price volatility and insider control - The market price of the company's common stock may be highly volatile and subject to substantial fluctuations[357] - As of March 31, 2021, executive officers, directors, and principal stockholders collectively held approximately 72.3% of the outstanding voting stock, giving them significant influence over company matters[360] - The company qualifies as an "emerging growth company" and a "smaller reporting company," permitting it to rely on exemptions from certain disclosure requirements, which may make its stock less attractive to some investors[362][367] Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered equity sales and no material change in IPO proceeds use - There were no unregistered sales of equity securities during the quarter[382] - There has been no material change in the planned use of proceeds from the company's IPO as described in the final prospectus[385] Defaults Upon Senior Securities The company reports no defaults upon senior securities during the period - None[386] Mine Safety Disclosures This item is not applicable to the company - Not applicable[387] Other Information The company reports no other information to disclose for this period - None[388] Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q