Summit Therapeutics (SMMT) - 2022 Q4 - Annual Report

PART I Business Summit Therapeutics pivoted to oncology with ivonescimab, discontinuing anti-infective programs and relying on third-party manufacturing and regulatory compliance Overview and Strategic Shift - The company has shifted its strategic focus to oncology following the in-licensing of ivonescimab from Akeso, Inc. in December 2022[26][27] - Development and marketing activities for the previous lead anti-infective candidate, ridinilazole, are being terminated, and the asset is being reviewed for partnership or divestiture[27][28] - Future operations will be centered on the development of ivonescimab[27] Akeso Collaboration and License Agreement - Summit obtained the rights to develop and commercialize ivonescimab (SMT112) in the United States, Canada, Europe, and Japan[26][30] - An upfront payment was made in Q1 2023, consisting of $474.9 million in cash and 10 million shares of common stock (in lieu of $25.1 million cash)[30] - Akeso retains development and commercialization rights for all other regions, including China[30] Ivonescimab (SMT112) - Ivonescimab is a novel, potential first-in-class PD-1/VEGF bispecific antibody that combines immunotherapy (PD-1 blockade) with anti-angiogenesis (VEGF blockade) in a single molecule[32] - The drug has received Breakthrough Therapy Designation status in China for three separate indications in non-small cell lung cancer (NSCLC)[33][35] - In a Phase II study in China for NSCLC patients who failed EGFR-TKI treatment, ivonescimab combined with chemotherapy showed an overall response rate (ORR) of 68.4% and a median Progression-Free Survival (mPFS) of 8.2 months[33] - Summit is initiating its own development activities for ivonescimab, starting with NSCLC indications in its licensed territories[35] Status of Anti-Infectives Pipeline - The company is seeking partners or divestiture for ridinilazole, its former lead candidate for C. difficile infection, and has discontinued its pediatric clinical trial[28] - The Discuva Platform, a technology for discovering new antibiotics, will no longer receive further investment. An impairment charge of $8.5 million was recognized for the intangible asset in 2022[42] - The company will continue to pursue partnerships for the further development of SMT-738, a preclinical candidate for combating carbapenem-resistant Enterobacteriaceae (CRE) infections[29][44] Competition - Ivonescimab is the most advanced PD-1/VEGF bispecific antibody in clinical development, with no known approved competitors in its class in the licensed territories[64][65] - The NSCLC market is highly competitive, with established treatments including immuno-oncology drugs like pembrolizumab, atezolizumab, nivolumab, and durvalumab, often used in combination with chemotherapy[66] - The company faces competition from major pharmaceutical and biotechnology companies with significantly greater financial resources and expertise[61] Manufacturing - The company does not own or operate manufacturing facilities and relies on third parties for the production of its product candidates[67] - Akeso will be the initial sole supplier of the drug substance for ivonescimab for both clinical and commercial use in the licensed territory, as per a forthcoming Supply Agreement[68] Intellectual Property Patent Portfolio Summary (as of Dec 31, 2022) | Program/Technology | Granted Patents (U.S. & Foreign) | Pending Applications (Worldwide) | Expected Expiration | | :--- | :--- | :--- | :--- | | Discuva Platform | 14 | N/A | 2032 | | Ridinilazole Program | 23 | 22 | 2043 | | SMT-738 Program | 4 | 23 | 2042 | - The company has in-licensed rights to various Akeso patent applications for ivonescimab in the licensed territory and has rights to control their prosecution in collaboration with Akeso[75] Government Regulation - The company is subject to extensive regulation by the FDA in the United States and comparable authorities in other countries, covering all stages from research and development to post-approval marketing[82] - The U.S. drug approval process involves preclinical studies, submitting an Investigational New Drug (IND) application, conducting Phase I, II, and III clinical trials, and submitting a New Drug Application (NDA) or Biologic Licensing Application (BLA) to the FDA[84] - In the European Union, marketing authorization requires submitting an MAA through a centralized, decentralized, or national procedure, with the centralized procedure being mandatory for certain innovative products like those the company is developing[144][145] - Pricing and reimbursement are subject to significant government control and third-party payor negotiations in both the U.S. and E.U., which can impact commercial success[159][166] Human Capital - As of December 31, 2022, the company had 77 total employees, with 62% in research and development[174] - The workforce is split geographically, with approximately 62% in the U.S. and 38% in the U.K.[174] - The company emphasizes diversity, with approximately 63% of its employees and 62% of its executive team being female[177] Risk Factors The company faces substantial financial, operational, and market risks, including heavy dependence on ivonescimab, need for capital, reliance on third parties, clinical trial uncertainties, intense competition, and complex regulatory and intellectual property challenges Risks Related to Financial Position and Need for Additional Capital - The company's success is heavily dependent on a single product candidate, ivonescimab. Failure to successfully commercialize it would materially harm the business[188] - The company is a development-stage entity with a history of significant losses ($78.8 million net loss in 2022) and an accumulated deficit of $378.3 million as of year-end 2022[191] - Substantial additional capital is required to fund operations, make payments under the License Agreement (up to $5.0 billion in contingent payments), and service its $100 million in outstanding debt as of March 7, 2023[197][201][204] Risks Related to Financial and Intellectual Property Dependencies on Third Parties - The company depends on the intellectual property licensed from Akeso for ivonescimab. Termination of the License Agreement, for reasons such as a material breach or failure to make payments, would result in the loss of its primary product candidate[207][209][211] - Reliance on Akeso for the initial manufacturing and supply of ivonescimab presents risks. Any delays, quality issues, or failure to transfer manufacturing knowledge could materially and adversely affect the business[214][215] - The company relies on third-party contract research organizations (CROs) to conduct clinical trials, which reduces direct control over these activities and introduces risks related to performance, compliance, and deadlines[229][230] Risks Related to Industry and Market - The company faces substantial competition in the NSCLC market from established immuno-oncology drugs and chemotherapies, as well as from other therapeutics in development[236][237] - Many competitors have significantly greater financial resources and expertise in R&D, manufacturing, and marketing[240] Risks Related to Development and Commercialization - Clinical trials are expensive, lengthy, and uncertain. Failure to demonstrate safety and efficacy for ivonescimab could prevent or delay commercialization[245] - Even if approved, ivonescimab may not achieve market acceptance from physicians, patients, and payors, which is necessary for commercial success[254] - As a biologic, ivonescimab carries unique manufacturing risks, as production is often complex, costly, and requires specialized facilities and quality control[261] Legal, Tax, Regulatory and Compliance Risks - The business is subject to unfavorable pricing regulations, third-party reimbursement practices, and healthcare reform initiatives (like the Inflation Reduction Act of 2022) that could harm profitability[264][308] - Reliance on Akeso exposes the company to risks associated with doing business in China, including political, economic, legal, and trade policy uncertainties[270][271] - The marketing approval process is expensive and uncertain. Failure to obtain, or delays in obtaining, regulatory approvals from the FDA and other authorities would prevent commercialization[287] Risks Related to Intellectual Property, Cybersecurity and Data Privacy - The company's ability to obtain and maintain patent protection for its technology is uncertain and critical to its success. Patent rights may be challenged, invalidated, or circumvented by competitors[317][319] - The company may become involved in expensive and time-consuming lawsuits to protect its patents or defend against infringement claims from third parties[327][328] - Information technology systems are vulnerable to cybersecurity threats like ransomware, which could disrupt operations, compromise sensitive data (including clinical trial data), and result in significant costs and reputational harm[335][337] - The company is subject to stringent and evolving data privacy laws, such as GDPR in Europe and CCPA in California, and failure to comply could lead to significant fines and penalties[341][343][345] Risks Related to Corporate Governance and Employee Relations - The company is highly dependent on its key executives, including Executive Chairman and CEO Robert W. Duggan and co-CEO Dr. Mahkam Zanganeh[348] - As of December 31, 2022, Mr. Duggan beneficially owned approximately 81.8% of the company's outstanding capital stock, giving him control over all matters submitted to stockholders for approval[350] - Due to Mr. Duggan's majority ownership, the company qualifies as a "controlled company" under Nasdaq rules, exempting it from certain corporate governance requirements, such as having a majority of independent directors[351] Risks Related to Owning Our Common Stock - The stock price may be volatile and is subject to fluctuation based on clinical trial results, competition, and broader market conditions[353][354] - Substantial future sales of common stock by the principal stockholder, who holds a large number of registered shares, could cause the stock price to decline[356][357] - The company is a "smaller reporting company," which allows for reduced disclosure requirements that may make the stock less attractive to some investors[358] Risks Related to the COVID-19 Pandemic - The COVID-19 pandemic could continue to adversely affect business operations, including potential delays in clinical trial enrollment and disruptions to the supply chain for clinical materials[375][377] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[380] Properties The company leases three principal facilities for executive office and laboratory use in the United Kingdom and the United States Principal Leased Facilities (as of Dec 31, 2022) | Use | Location | Size (sq. ft.) | Lease Expiration | | :--- | :--- | :--- | :--- | | Executive office | Oxfordshire, UK | 6,781 | Feb 2027 | | Executive office | Menlo Park, CA, US | 5,777 | Dec 2025 | | Laboratory and office | Sawston, UK | 7,644 | Oct 2026 | Legal Proceedings The company is not currently subject to any material legal proceedings - The company is not currently a party to any material legal proceedings[382] Mine Safety Disclosures This item is not applicable to the company - Not applicable[383] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the Nasdaq Global Market under the symbol "SMMT" and has never paid cash dividends, with recent sales of unregistered securities funding operations and the Akeso license agreement - The company's common stock has traded on the Nasdaq Global Market under the symbol "SMMT" since September 21, 2020[386] - The company has never paid cash dividends and intends to retain future earnings to fund business development[388] - In December 2022, the company entered into a Note Purchase Agreement with its CEO and co-CEO for an aggregate of $520 million in unsecured promissory notes to help fund the Akeso license agreement[397] Selected Financial Data This item is reserved and no data is provided - Reserved[401] Management's Discussion and Analysis of Financial Condition and Results of Operations The company's strategic shift to oncology impacted 2022 financials, resulting in a net loss of $78.8 million driven by reduced R&D and an impairment charge, with recent financing expected to fund operations into late 2024 Results of Operations Comparison of Operations (in millions) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | $ Change | | :--- | :--- | :--- | :--- | | Revenue | $0.7 | $1.8 | $(1.1) | | Research and development | $52.0 | $85.4 | $(33.4) | | General and administrative | $26.7 | $23.6 | $3.1 | | Impairment of intangible assets | $8.5 | $— | $8.5 | | Other operating income | $14.4 | $21.0 | $(6.6) | | Operating loss | $(72.1) | $(86.2) | $14.1 | | Net loss | $(78.8) | $(88.6) | $9.8 | - Research and development expenses decreased by $33.4 million, primarily due to reduced clinical and manufacturing activity for the ridinilazole program following the decision to seek a partner or divestiture[439] - An impairment charge of $8.5 million was recognized for the Discuva Platform intangible asset due to the company's strategic shift to oncology[443] - Other operating income decreased by $6.6 million, mainly due to a $10.7 million decrease in U.K. R&D tax credits resulting from lower eligible spending on the ridinilazole program[444][445] Liquidity and Capital Resources - As of December 31, 2022, the company had cash and cash equivalents of $348.6 million and restricted cash of $300.0 million[452] - The company believes its financial resources, including proceeds from a March 2023 Rights Offering, are sufficient to fund operations and planned clinical trials for ivonescimab into the second half of 2024[452] Cash Flow Summary (in millions) | | Year Ended Dec 31, 2022 | Year Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(41.6) | $(72.6) | | Net cash used in investing activities | $(0.6) | $(0.3) | | Net cash provided by financing activities | $620.2 | $77.9 | - Net cash from financing activities in 2022 was primarily driven by $545.0 million in proceeds from related-party promissory notes and $99.9 million from a rights offering[463] Critical Accounting Policies and Significant Judgments and Estimates - Key accounting policies requiring significant judgment include revenue recognition for licensing agreements, impairment of intangible assets, accrual of research and development expenses, valuation of stock-based compensation, and accounting for income taxes[477][478] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposures are liquidity, foreign currency exchange rate fluctuations due to U.K. operations, and interest rate risk from variable-rate promissory notes - The company's primary market risks are liquidity, foreign currency, and interest rate risk[497] - Foreign currency risk stems from significant operations in the United Kingdom, with transactions in pounds sterling and euros, while financial statements are presented in U.S. dollars[499] - Interest rate risk exists due to variable interest rates on its outstanding promissory notes payable to related parties[501] Financial Statements and Supplementary Data This section contains the company's consolidated financial statements for the years ended December 31, 2022 and 2021, including the Report of Independent Registered Public Accounting Firm, Consolidated Balance Sheets, Statements of Operations and Comprehensive Loss, Statements of Stockholders' Equity, Statements of Cash Flows, and the accompanying notes - The financial statements required by this item are included in the Annual Report on Form 10-K, starting on page 88 of the original document[503][520] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[504] Controls and Procedures Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no attestation report required as a non-accelerated filer - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[505] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[508] Other Information The Compensation Committee approved 2022 bonuses for executives, with co-CEO Dr. Zanganeh receiving $452,500 and CFO Ankur Dhingra receiving $381,918 on January 10, 2023 - On January 10, 2023, the company paid a discretionary cash bonus of $202,500 and an extraordinary bonus of $250,000 to co-CEO Dr. Zanganeh[511] - On January 10, 2023, the company paid a discretionary cash bonus of $131,918 and an extraordinary bonus of $250,000 to CFO Ankur Dhingra[511] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[512] PART III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the upcoming 2023 proxy statement[514] Executive Compensation Information for this item is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the upcoming 2023 proxy statement[515] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the upcoming 2023 proxy statement[516] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the upcoming 2023 proxy statement[517] Principal Accounting Fees and Services Information for this item is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the upcoming 2023 proxy statement[518] PART IV Exhibits, Financial Statement Schedules This section lists the exhibits filed as part of the Form 10-K, including corporate governance documents, material contracts, and certifications, with consolidated financial statements included and all schedules omitted as not applicable - The consolidated financial statements are included with the report[520] - All financial statement schedules have been omitted because they are not applicable or required[521] Form 10-K Summary The company reports no summary for this item - None[529]