ACELYRIN(SLRN) - 2023 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION This section details the company's unaudited financial statements, management's analysis, market risks, and internal control effectiveness Item 1. Financial Statements (unaudited) This section presents ACELYRIN, INC.'s unaudited condensed consolidated financial statements, showing increased assets and a wider net loss Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $381,738 | $267,110 | | Short-term marketable securities | $406,693 | $47,510 | | Total Assets | $800,489 | $319,923 | | Liabilities & Equity | | | | Total Liabilities | $68,113 | $26,192 | | Total stockholders' equity (deficit) | $732,376 | $(102,862) | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $74,562 | $12,509 | $272,512 | $38,222 | | General and administrative | $19,861 | $2,887 | $44,440 | $8,145 | | Loss from operations | $(94,423) | $(15,396) | $(316,952) | $(46,367) | | Net loss | $(83,940) | $(14,406) | $(286,429) | $(44,965) | | Net loss per share | $(0.87) | $(8.17) | $(4.68) | $(31.66) | - The company completed its Initial Public Offering (IPO) on May 9, 2023, issuing 34.5 million shares of common stock and receiving net proceeds of approximately $573.6 million[30] - On January 4, 2023, the company acquired ValenzaBio, Inc., adding lonigutamab and SLRN-517 to its portfolio, with the transaction accounted for as an asset acquisition[28] Notes to Condensed Consolidated Financial Statements This section provides detailed notes to the financial statements, covering significant accounting policies, acquisitions, and commitments - The acquisition of ValenzaBio was accounted for as an asset acquisition with a total purchase consideration of $130.0 million, expensing in-process research and development (IPR&D) assets valued at $123.1 million immediately[50][54][56] - The company has significant licensing agreements with potential future milestone payments, including up to $280.0 million to Affibody for izokibep, up to $489.5 million to Pierre Fabre for lonigutamab, and up to $726.3 million to Novelty Nobility for SLRN-517[80][87][91] - Stock-based compensation expense increased significantly to $31.0 million for the nine months ended September 30, 2023, up from $2.5 million in the same period of 2022, driven by new option grants, RSU vesting, and acquisition-related expenses[138] - As of September 30, 2023, the company had cash, cash equivalents, and short-term marketable securities totaling $788.4 million, expected to fund the operating plan for at least the next 12 months[33] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses business strategy, financial performance, and liquidity, highlighting increased expenses and a strong post-IPO cash position Results of Operations This section analyzes the company's operating expenses, detailing significant increases in R&D and G&A costs Comparison of Operating Expenses (in thousands) | Expense Category | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and Development | $272,512 | $38,222 | $234,290 | 613% | | General and Administrative | $44,440 | $8,145 | $36,295 | 446% | | Total Operating Expenses | $316,952 | $46,367 | $270,585 | 584% | - The $234.3 million increase in R&D expenses for the nine months ended Sep 30, 2023, was primarily driven by a one-time charge of $133.1 million for acquired IPR&D and license fees related to the ValenzaBio acquisition, and a $77.2 million increase in CRO and CMO expenses for advancing clinical trials[189][190][191] - General and administrative expenses for the nine months ended Sep 30, 2023, increased by $36.3 million, mainly due to a $17.9 million increase in stock-based compensation (including $5.5 million for RSUs vested at IPO), higher personnel costs, and increased professional services costs associated with being a public company[196][197] - In September 2023, the company announced that the primary endpoint in Part B of the Phase 2b/3 trial of izokibep in Hidradenitis Suppurativa (HS) did not meet statistical significance, potentially extending development timelines and increasing costs for the HS indication[171] Liquidity and Capital Resources This section assesses the company's cash position and cash flow activities, emphasizing post-IPO capital strength - As of September 30, 2023, the company had $788.4 million in cash, cash equivalents, and short-term marketable securities, deemed sufficient to fund operations and capital expenditures for at least the next 12 months[203] Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(96,074) | $(43,428) | | Net cash used in investing activities | $(355,138) | $(109,487) | | Net cash provided by financing activities | $565,840 | $274,613 | - Net cash from financing activities of $565.8 million in the first nine months of 2023 was primarily due to $574.1 million in net proceeds from the IPO[216] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risks include interest rate changes and foreign currency fluctuations, neither deemed materially impactful - The company is exposed to interest rate risk on its cash equivalents and short-term investments, but a hypothetical 10% change in rates is not expected to have a material effect[226] - Operations are subject to foreign currency exchange risk as some R&D services are sourced from vendors outside the U.S., though these gains and losses have not been material to date[227] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to material weaknesses in internal financial reporting controls - The CEO and CFO concluded that disclosure controls and procedures were not effective as of September 30, 2023, due to material weaknesses in internal control over financial reporting[230] - Identified material weaknesses include a lack of sufficient professionals, an ineffective risk assessment process, and inadequate segregation of duties related to journal entries and account reconciliations[232] - The company is actively remediating these weaknesses by hiring additional accounting personnel, including a VP Controller and Director of Technical Accounting, and engaging a third-party firm for support[235][236] PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and other material information for the company Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect - As of the reporting date, there are no pending legal proceedings that are expected to materially impact the company[240] Item 1A. Risk Factors This section details significant risks including clinical trial success, capital needs, competition, third-party reliance, and internal control weaknesses - The company's business is entirely dependent on the success of its clinical-stage product candidates, which face a lengthy, expensive, and uncertain development process, as highlighted by the failure of izokibep to meet its primary endpoint in the Part B HS trial[243][251][294] - The company has identified material weaknesses in its internal control over financial reporting, which could result in a material misstatement of financial statements and adversely affect investor confidence[247][339] - The company will require substantial additional financing and faces risks that future clinical trial outcomes, such as the negative HS trial results, could hinder its ability to raise capital on acceptable terms[259][260] - The company relies heavily on third-party licenses (e.g., from Affibody and Pierre Fabre) and third-party organizations for manufacturing (CMOs) and clinical trials (CROs), where failure to perform could significantly delay development programs[360][457][465] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities No material change in the planned use of IPO proceeds has occurred since the Final Prospectus disclosure - The planned use of proceeds from the company's IPO has not materially changed from what was disclosed in the Final Prospectus[509] Item 5. Other Information Several directors and officers adopted Rule 10b5-1 trading plans for future sales of company securities - During the quarter, several executives, including the CEO, COO, and CLO, adopted Rule 10b5-1 trading plans for the sale of company stock[512][513]