Summit Therapeutics (SMMT) - 2020 Q4 - Annual Report

PART I Business Summit Therapeutics is a biopharmaceutical company focused on developing novel antibiotics, with its lead candidate ridinilazole in Phase 3 trials for Clostridioides difficile infection (CDI) Overview and Pipeline - Summit Therapeutics is a biopharmaceutical company focused on discovering, developing, and commercializing novel antibiotics for serious infectious diseases, with a lead program in Phase 3 for Clostridioides difficile infection (CDI)[20] Product Development Pipeline | Program | Discovery/Preclinical | Phase 1 | Phase 2 | Phase 3 | Remarks | | :--- | :--- | :--- | :--- | :--- | :--- | | Ridinilazole (CDI) | QIDP & Fast Track Designation | - | - | - | Ongoing | Patient enrollment and dosing in Phase 3 clinical trials ongoing | | DDS-04 (Enterobacteriaceae) | Late Lead Optimization | - | - | - | - | Advancing program targeting infections caused by Enterobacteriaceae | - The company's Neisseria gonorrhoeae program (SMT-571) has been discontinued due to unsuitable qualities for further development found in preclinical toxicology studies[29] Our Strategy - The company's primary strategic focus is the rapid advancement and development of its lead product candidate, ridinilazole, for the treatment of CDI[32] - Upon potential regulatory approval, Summit intends to commercialize ridinilazole in the United States with its own specialized sales force, while evaluating options for other key territories[33] - A key strategy is to expand the product portfolio by identifying new mechanism antibiotics using the proprietary Discuva Platform, targeting pathogens that pose serious healthcare threats[34] - The company actively seeks and has obtained development funding from governmental and other third-party organizations, such as BARDA and the Wellcome Trust, to support its programs[36] Ridinilazole for the Treatment of CDI - Ridinilazole is an orally administered small molecule antibiotic designed to selectively target C. difficile bacteria while preserving the gut microbiome, aiming to reduce CDI recurrence rates[47] - The pivotal Phase 3 program (Ri-CoDIFy 1 & 2) is designed to assess the superiority of ridinilazole compared to vancomycin in sustained clinical response (SCR). As of December 31, 2020, 494 of the required 1,360 patients were enrolled[21][48][53] Phase 2 Proof of Concept Trial (CoDIFy) Results vs. Vancomycin | Metric | Ridinilazole | Vancomycin | | :--- | :--- | :--- | | Sustained Clinical Response (SCR) | 66.7% | 42.4% | | Clinical Cure Rate (End of Treatment) | 77.8% | 69.7% | | Recurrence Rate (30-day post-treatment) | 14.3% | 34.8% | - Clinical and preclinical data indicate ridinilazole has minimal impact on gut microbiome diversity compared to vancomycin and fidaxomicin, preserving beneficial bacteria and bile acid composition[62][64][69] - The FDA has granted ridinilazole Qualified Infectious Disease Product (QIDP) designation, which provides for priority review and a five-year extension of statutory exclusivity upon approval, and Fast Track designation[52] Infectious Diseases Pipeline and Discuva Platform - The Discuva Platform is a genetics-based technology used to identify new bacterial targets, elucidate antibiotic mechanisms of action, and understand resistance mechanisms[78][80][81] - The company is advancing its DDS-04 series of new mechanism antibiotics targeting Enterobacteriaceae, which act on a novel target (LolCDE) and have shown preclinical in vivo efficacy in models of sepsis, urinary tract infection, and pneumonia[83][84] - The gonorrhea program, targeting Neisseria gonorrhoeae with the SMT-571 chemotype, was ceased after preclinical toxicology studies indicated it was unsuitable for further development[86] Collaborations and Funding Arrangements - Summit has a contract with BARDA worth up to $72.5 million to partially fund the clinical and regulatory development of ridinilazole. As of December 31, 2020, $62.4 million was committed and $53.3 million had been received[89][90] - The company has an exclusive license and commercialization agreement with Eurofarma for ridinilazole in Latin America, receiving a $2.5 million upfront payment and a $1.0 million milestone, with potential for up to $21.4 million in additional milestones and sales-based payments[111][112] - Under a revenue sharing agreement with the Wellcome Trust, which provided early-stage funding, Summit will pay low-to-mid-single digit percentages of net revenues from ridinilazole commercialization[100][101] - The collaboration with Sarepta Therapeutics for Duchenne muscular dystrophy was terminated in August 2019 after the Phase 2 trial of ezutromid failed to meet its endpoints[119] Competition, Manufacturing, and IP - Ridinilazole faces competition from existing CDI treatments like generic vancomycin and metronidazole, branded fidaxomicin (Dificid™), and Merck's monoclonal antibody bezlotoxumab (Zinplava™). Other approaches in development include fecal biotherapy and vaccines[125][127] - The company does not own manufacturing facilities and relies on third-party manufacturers for the clinical and future commercial supply of its product candidates, including the API and final drug product for ridinilazole[129][130] - The company's CDI patent portfolio includes granted U.S. and European patents covering the use of ridinilazole for CDI and its hydrate forms, with expiration dates scheduled for 2029[134][138] Commercialization and Government Regulation - Summit plans to commercialize ridinilazole in the United States with its own focused, specialty sales force targeting hospital and community prescribers[142] - The company is subject to extensive regulation by the FDA in the United States and comparable authorities in other jurisdictions, covering all stages from research and development to post-approval marketing[145] - Ridinilazole has been designated as a Qualified Infectious Disease Product (QIDP) under the GAIN Act, which grants an additional five years of marketing exclusivity upon FDA approval[199] - The company is subject to various healthcare laws, including the federal Anti-Kickback Statute and the False Claims Act, which regulate arrangements with providers and payors[230][231] Risk Factors The company faces significant risks including substantial operating losses, dependence on ridinilazole's clinical success, and operational challenges exacerbated by the COVID-19 pandemic - The company has a history of significant operating losses ($52.7 million in FY 2020) and expects to incur losses for the foreseeable future, requiring substantial additional capital to complete development and commercialization[257][263] - The business is heavily dependent on the success of its lead product candidate, ridinilazole. Failure to commercialize it or significant delays would materially harm the business[269] - The COVID-19 pandemic has caused slower patient enrollment in Phase 3 trials, delaying expected results and potentially increasing costs[278][279] - The company relies on government funding from BARDA, which can be terminated at the government's convenience and imposes complex compliance requirements[328][332] - The CEO, Robert W. Duggan, beneficially owned approximately 69.6% of outstanding capital stock as of December 31, 2020, giving him control over stockholder matters and qualifying the company as a "controlled company" under Nasdaq rules, exempting it from certain governance requirements[425][426] Properties The company leases four properties for its operations, including executive offices and a laboratory, with varying lease expiry dates Leased Properties | Location | Type/Use | Size (sq ft) | Lease Expiry | | :--- | :--- | :--- | :--- | | Oxfordshire, UK | Executive office | 6,781 | Feb 2027 | | Cambridge, MA | Executive office | 996 | Rolling | | Cambridge, UK | Laboratory and office | 8,834 | Dec 2021 | | Menlo Park, CA | Executive office | 4,500 | Sep 2022 | Legal Proceedings The company is not currently subject to any material legal proceedings - As of the report date, the company is not a party to any material legal proceedings[445] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq, has not paid dividends, and recently completed significant private placements and debt financing - The company's common stock has traded on the Nasdaq Global Market under the symbol "SMMT" since September 21, 2020, following the redomiciliation from the UK[449] - The company has never declared or paid cash dividends and intends to retain future earnings to fund business development[451] - On November 6, 2020, the company issued 14,970,060 shares of common stock in a private placement for aggregate proceeds of $50 million[454] - On March 24, 2021, the company issued a $55.0 million unsecured promissory note to its CEO, Robert W. Duggan[455] Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial performance, highlighting a significant net loss in 2020 driven by increased R&D and G&A expenses, and discusses liquidity and capital resources Results of Operations Comparison of Financial Results (in thousands) | Metric | Year Ended Dec 31, 2020 | Eleven Months Ended Dec 31, 2019 | | :--- | :--- | :--- | | Revenue | $860 | $743 | | Research and Development Expenses | $53,274 | $39,809 | | General and Administrative Expenses | $19,232 | $11,279 | | Other Operating Income | $19,312 | $22,872 | | Net Loss | ($52,697) | ($29,127) | - Research and development expenses increased by $13.5 million in 2020, primarily due to increased clinical and manufacturing activities for the Phase 3 trials of ridinilazole[494][495] - General and administrative expenses rose by $7.9 million in 2020, driven by legal and professional fees related to the Redomiciliation Transaction and increased commercial preparatory activities[499] - Other operating income in 2020 was $19.3 million, primarily consisting of $9.5 million from the BARDA contract and $9.4 million from UK R&D tax credits[490][492] Liquidity and Capital Resources - As of December 31, 2020, the company had cash and cash equivalents of $66.4 million[522] - The company believes its existing cash, combined with a $55 million promissory note received in March 2021, will be sufficient to fund operations until the second quarter of 2022[522] Cash Flow Summary (in thousands) | Cash Flow Activity | Year Ended Dec 31, 2020 | Eleven Months Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($48,111) | ($20,757) | | Net cash used in investing activities | ($421) | ($341) | | Net cash provided by financing activities | $50,551 | $49,505 | - Net cash from financing activities in 2020 was $50.6 million, primarily from a $50.0 million private placement of common stock in November 2020[533] Critical Accounting Policies - Funding from government contracts, like BARDA, is classified as 'other operating income' and recognized as qualifying expenses are incurred, as it is central to ongoing operations[542][543] - Research and development costs are expensed as incurred. The company records accruals for ongoing R&D costs by analyzing the progress and estimated costs to complete each study[545][546] - The company has recorded a full valuation allowance against its deferred tax assets, as it is not considered more likely than not that a tax benefit will be realized in the foreseeable future[547] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include foreign currency fluctuations due to UK operations and liquidity risk from reliance on external financing - The company's primary market risk is foreign currency risk, as its financial results are reported in U.S. dollars but a significant portion of its operations are conducted in the United Kingdom (pounds sterling)[552] - The company faces liquidity risk and expects to finance its operations through equity/debt financings and collaborations until it can generate substantial product revenue[555] - Credit risk is considered low, with receivables primarily due from BARDA. The company does not hold derivative financial instruments, resulting in minimal interest rate risk[553][554] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020[558] - Based on the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2020[561] - No material changes to the company's internal control over financial reporting occurred during the fiscal year ended December 31, 2020[563] PART III Directors, Executive Officers, Corporate Governance, Compensation, Security Ownership, and Accountant Fees Information for Items 10 through 14, covering governance, compensation, and ownership, is incorporated by reference from the company's definitive proxy statement - The information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the registrant's definitive Proxy Statement to be filed within 120 days of the fiscal year-end[566][567][568] PART IV Exhibits, Financial Statement Schedules This section details the financial statements and exhibits filed with the report, including key corporate documents and material contracts - This item lists all exhibits filed with the report, including the company's Restated Certificate of Incorporation, Amended and Restated Bylaws, and material contracts[574][575] - The consolidated financial statements are included as part of the report, as listed in the index on page F-1[572] Financial Statements Consolidated Financial Statements The consolidated financial statements for 2020 report a significant net loss, with current resources expected to fund operations into Q2 2022, contingent on additional capital Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $66,417 | $63,842 | | Total current assets | $87,674 | $79,628 | | Total assets | $102,498 | $96,248 | | Liabilities & Equity | | | | Total current liabilities | $19,890 | $13,767 | | Total liabilities | $23,045 | $17,385 | | Total stockholders' equity | $79,453 | $78,863 | Consolidated Statement of Operations Highlights (in thousands) | Account | Year Ended Dec 31, 2020 | Eleven Months Ended Dec 31, 2019 | | :--- | :--- | :--- | | Revenue | $860 | $743 | | R&D Expenses | $53,274 | $39,809 | | G&A Expenses | $19,232 | $11,279 | | Net Loss | ($52,697) | ($29,127) | | Net Loss Per Share (Basic) | ($0.76) | ($0.89) | - The company's ability to continue as a going concern is dependent on its ability to raise additional capital to fund operations, with current resources expected to last until the second quarter of 2022[613][614] - A critical audit matter identified by the independent auditor was the estimation of accrued and prepaid research and development costs, which involves significant management judgment regarding the stage of completion of studies[593][594]