Scholar Rock(SRRK) - 2022 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and related disclosures for the reporting period Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, with detailed notes on business, accounting policies, and financial instruments Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheets (in thousands) | Item | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------ | | Cash and cash equivalents | $100,175 | $212,835 | | Marketable securities | $110,036 | $40,159 | | Total current assets | $228,586 | $265,319 | | Total assets | $265,977 | $304,445 | | Deferred revenue | $— | $33,193 | | Total liabilities | $94,661 | $132,371 | | Total stockholders' equity | $171,316 | $172,074 | | Common stock outstanding | 35,300,823 | 35,209,099 | Consolidated Statements of Operations and Comprehensive Loss This statement outlines the company's financial performance over a period, showing revenue, expenses, net loss, and comprehensive loss Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Item | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Revenue | $33,193 | $4,708 | | Research and development expenses | $29,366 | $22,549 | | General and administrative expenses | $10,760 | $9,366 | | Total operating expenses | $40,126 | $31,915 | | Loss from operations | $(6,933) | $(27,207) | | Other income (expense), net | $(1,017) | $(464) | | Net loss | $(7,950) | $(27,671) | | Net loss per share, basic and diluted | $(0.21) | $(0.76) | | Weighted average common shares outstanding | 37,456,574 | 36,380,438 | | Comprehensive loss | $(8,067) | $(27,646) | Consolidated Statements of Stockholders' Equity This statement details changes in stockholders' equity, including common stock, additional paid-in capital, and accumulated deficit Consolidated Statements of Stockholders' Equity (in thousands) | Item | Balance at December 31, 2021 (in thousands) | Balance at March 31, 2022 (in thousands) | | :-------------------------------- | :---------------------------------------- | :--------------------------------------- | | Common Stock (Shares) | 35,209,099 | 35,300,823 | | Common Stock (Amount) | $35 | $35 | | Additional Paid-in Capital | $548,204 | $555,513 | | Accumulated Other Comprehensive Loss | $(35) | $(152) | | Accumulated Deficit | $(376,130) | $(384,080) | | Total Stockholders' Equity | $172,074 | $171,316 | Key Changes (Three Months Ended March 31, 2022, in thousands): * Unrealized loss on marketable securities: $(117) * Exercise of stock options: $481 * Equity-based compensation expense: $6,828 * Net loss: $(7,950) Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities over a period Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :------------------------------------------ | :--------------------------------------------- | :--------------------------------------------- | | Net cash used in operating activities | $(42,565) | $(26,544) | | Net cash (used in) provided by investing activities | $(70,576) | $22,557 | | Net cash provided by financing activities | $481 | $2,737 | | Net decrease in cash, cash equivalents and restricted cash | $(112,660) | $(1,250) | | Cash, cash equivalents and restricted cash, end of period | $102,673 | $161,606 | Notes to Consolidated Financial Statements This section provides detailed explanations and additional information supporting the consolidated financial statements 1. Nature of the Business This note describes the company's core business, product candidates, and financing strategies - Scholar Rock Holding Corporation is a biopharmaceutical company focused on the discovery and development of innovative medicines for serious diseases by targeting protein growth factors[22] - Key product candidates include apitegromab for Spinal Muscular Atrophy (SMA), currently in pivotal Phase 3 clinical trial, and SRK-181 for cancers resistant to checkpoint inhibitor therapies, in Phase 1 clinical trial[22] - The company has primarily financed operations through equity financings, research and development collaboration agreements (Janssen, Gilead), and debt, and anticipates continued significant operating losses[23][25] 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and estimates used in preparing the financial statements - The unaudited consolidated financial statements are prepared in accordance with SEC rules and GAAP, with no material changes to significant accounting policies since December 31, 2021[26][28][30] - Management uses estimates and judgments in financial reporting, and the adoption of ASU 2016-13 (Credit Losses) is not expected to have a material impact[31][32] Cash, Cash Equivalents and Restricted Cash Reconciliation (in thousands) | Item | As of March 31, 2022 | As of March 31, 2021 | | :-------------------------- | :------------------- | :------------------- | | Cash and cash equivalents | $100,175 | $159,108 | | Restricted cash | $2,498 | $2,498 | | Total | $102,673 | $161,606 | 3. Fair Value of Financial Assets and Liabilities This note details the fair value measurements of financial assets and liabilities, categorized by valuation input levels Fair Value Measurements at March 31, 2022 (in thousands) | Asset Type | Total | Level 1 | Level 2 | Level 3 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | Money market funds | $93,444 | $93,444 | $— | $— | | U.S. Treasury obligations | $110,036 | $110,036 | $— | $— | | Total assets | $203,480 | $203,480 | $— | $— | Fair Value Measurements at December 31, 2021 (in thousands) | Asset Type | Total | Level 1 | Level 2 | Level 3 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | Money market funds | $188,493 | $188,493 | $— | $— | | U.S. Treasury obligations | $40,159 | $40,159 | $— | $— | | Total assets | $228,652 | $228,652 | $— | $— | - Cash, cash equivalents, and marketable securities are classified as Level 1 assets, valued using quoted market prices. The carrying value of debt approximates its fair value based on Level 3[33][34] 4. Marketable Securities This note provides details on the company's marketable securities, including amortized cost, unrealized gains/losses, and fair value Marketable Securities at March 31, 2022 (in thousands) | Type | Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | | :----------------------------- | :------------- | :--------------- | :---------------- | :------------------- | | U.S. Treasury obligations | $110,188 | $— | $(152) | $110,036 | | Total available-for-sale | $110,188 | $— | $(152) | $110,036 | Marketable Securities at December 31, 2021 (in thousands) | Type | Amortized Cost | Unrealized Gains | Unrealized Losses | Estimated Fair Value | | :----------------------------- | :------------- | :--------------- | :---------------- | :------------------- | | U.S. Treasury obligations | $40,194 | $— | $(35) | $40,159 | | Total available-for-sale | $40,194 | $— | $(35) | $40,159 | - The aggregate fair value of marketable securities with unrealized losses increased from $30.2 million at December 31, 2021, to $105.2 million at March 31, 2022. These losses are considered temporary, and the company intends to hold these investments until recovery or maturity[36] 5. Accrued Expenses This note breaks down the components of accrued expenses, including R&D, payroll, and professional services Accrued Expenses (in thousands) | Category | As of March 31, 2022 | As of December 31, 2021 | | :---------------------------------- | :------------------- | :---------------------- | | Accrued external R&D expense | $9,181 | $8,428 | | Accrued payroll and related expenses | $4,467 | $7,147 | | Accrued professional and consulting | $1,444 | $1,421 | | Accrued other | $846 | $460 | | Total | $15,938 | $17,456 | 6. Equity-Based Compensation This note details equity-based compensation expenses and unrecognized compensation for restricted stock units and stock options Equity-Based Compensation Expense (in thousands) | Category | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Research and development | $3,407 | $2,110 | | General and administrative | $3,421 | $2,563 | | Total | $6,828 | $4,673 | Unrecognized Equity-Based Compensation Expense (as of March 31, 2022, in thousands) | Award Type | Unrecognized Expense | Weighted Average Remaining Period of Recognition (years) | | :-------------------- | :------------------- | :---------------------------------------------------- | | Restricted Stock Units | $24,661 | 3.5 | | Stock Options | $51,298 | 2.6 | | Total | $75,959 | | - During Q1 2022, 787,038 restricted stock units were granted (weighted average fair value $18.15), and 49,595 units vested (total fair value $1.0 million). Also, 902,092 stock options were granted (weighted average fair value $13.20), and 42,129 options were exercised[39][40] 7. Commitments and Contingencies This note outlines the company's operating lease commitments, sublease agreements, and legal proceedings - The company has operating leases for office and laboratory space in Cambridge, Massachusetts, including a sublease agreement for one facility. The 620 Memorial Drive lease expires in September 2023, with a sublease to Orna Therapeutics, Inc. until August 2023[42][43] - The 301 Binney Street lease, for the new corporate headquarters, expires in August 2025, with an annual base rent of $6.9 million (subject to annual increases) and included $14.1 million in tenant improvement incentives[44] Lease Costs (Three Months Ended March 31, 2022, in thousands) | Cost Type | Amount | | :------------------------ | :----- | | Operating lease cost | $2,161 | | Variable lease cost | $376 | | Total lease cost | $2,537 | | Sublease income | $0.7 million | | Operating cash flows used for operating leases | $2,263 | - No material legal proceedings were reported during the three months ended March 31, 2022, and 2021[47] 8. Debt This note details the company's loan and security agreement, funding tranches, maturity, and interest rate terms - The company entered into a $50.0 million Loan and Security Agreement with Oxford Finance LLC and Silicon Valley Bank in October 2020[48] - Tranche 1 ($25.0 million) was funded in October 2020, and Tranche 2 ($25.0 million) was funded in December 2021 after meeting revised milestones (public announcement of Phase 3 SAPPHIRE clinical trial design and initiation of Phase 1 DRAGON Part B)[48] - The loan matures on May 1, 2025, with interest-only payments through November 2022, and principal payments commencing in December 2022. The interest rate is the greater of Wall Street Journal prime rate plus 4.60% or 7.85% per annum[48] 9. Agreements This note discusses the termination of the Gilead collaboration agreement and the recognition of associated revenue - The three-year Master Collaboration Agreement with Gilead Sciences, Inc., focused on TGFβ inhibitors for fibrotic diseases, was terminated by Gilead on January 6, 2022[49][53] - Upon termination, the company recognized $33.2 million in revenue attributable to the material rights from the Gilead options in Q1 2022. All revenue related to this agreement has now been recognized[53] - A $25.0 million preclinical milestone was achieved in December 2019 for successful demonstration of efficacy in preclinical in vivo proof-of-concept studies[51] 10. Net Loss per Share This note explains the calculation of basic and diluted net loss per share, considering anti-dilutive securities - Basic and diluted net loss per share are the same due to the company incurring a net loss, making potentially dilutive securities anti-dilutive[54] - As of March 31, 2022, 2,179,487 pre-funded warrants were outstanding but unexercised, and 5,612,593 common stock equivalents (restricted stock units and stock options) were excluded from the diluted net loss per share calculation[54][55] 11. Subsequent Events This note discloses significant events occurring after the balance sheet date, including a business restructuring and executive resignation - On May 16, 2022, the company announced a business restructuring, including a 25% workforce reduction (39 positions), to prioritize clinical stage assets. This is expected to incur $1.7 million to $2.3 million in cash-based severance costs and non-cash equity modification expenses[56] - The Chief Medical Officer, Yung Chyung, resigned effective June 30, 2022, to explore new career opportunities[409] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, condition, and liquidity, highlighting revenue from Gilead collaboration termination, rising R&D expenses, and the impact of workforce reduction Overview This section provides a high-level introduction to the company's biopharmaceutical focus, key product candidates, and financial position - Scholar Rock is a biopharmaceutical company focused on discovering and developing innovative medicines by targeting protein growth factors for serious diseases, including neuromuscular disorders, cancer, and fibrosis[61][68] - Key product candidates are apitegromab for SMA (pivotal Phase 3 SAPPHIRE trial) and SRK-181 for CPI-resistant cancers (Phase 1 DRAGON trial). Apitegromab has received FDA Fast Track, Rare Pediatric Disease, and Orphan Drug designations, and EMA PRIME and Orphan Medicinal Product designations[62][63][65][67] - The company incurred a net loss of $8.0 million for Q1 2022, with an accumulated deficit of $384.1 million as of March 31, 2022, and expects to continue incurring significant operating losses due to ongoing R&D and development activities[69] Recent Developments This section highlights recent strategic changes, including a workforce reduction and its anticipated financial impact - On May 16, 2022, the company announced a business restructuring, including a 25% workforce reduction (39 positions), to prioritize clinical stage assets[72] - This restructuring is expected to incur cash-based costs of $1.7 million to $2.3 million for severance benefits and additional non-cash expenses related to equity modifications[72] COVID-19 Pandemic This section discusses the adverse impacts of the COVID-19 pandemic on the company's operations, supply chain, and clinical trials - The COVID-19 pandemic has adversely impacted the company's workforce, global supply chain, business, preclinical studies, and clinical trials, including disruptions to site access, patient enrollment, and supply procurement[73] - Clinical trial participants have missed or experienced delays in receiving study drug doses and completing assessments; for example, four TOPAZ patients missed three apitegromab doses due to COVID-19-related site access restrictions[73] - The ultimate extent of the pandemic's impact on business, financial condition, and results of operations remains highly uncertain[73] Financial Operations Overview This section provides an overview of the company's revenue sources, operating expenses, and other income/expense components Revenue This section details the company's revenue sources, primarily from collaboration agreements, and the impact of the Gilead termination - The company has not generated revenue from product sales; revenue activities have been limited to collaborations, specifically the Gilead Collaboration Agreement[75] - Gilead terminated its option exercise period for all programs under the collaboration on January 6, 2022, leading to the recognition of $33.2 million in deferred revenue during Q1 2022[76][77] - All revenue related to the Gilead Collaboration Agreement has been recognized as of March 31, 2022[77] Operating Expenses This section discusses research and development and general and administrative expenses, including expected trends and impacts of workforce reduction - Research and development (R&D) expenses are expensed as incurred and include employee-related costs, third-party preclinical/clinical activities, manufacturing, consulting, and facility costs[78][80] - R&D costs are expected to increase for later-stage clinical development (apitegromab Phase 3, SRK-181 Phase 1) but will be offset by lower costs for early-stage research due to portfolio updates and workforce reduction[81][82][93] - General and administrative (G&A) expenses, primarily employee-related, are expected to decline in the second half of the year due to the recent workforce reduction[85][86][95] Other Income (Expense), Net This section explains the components of other income and expense, primarily interest expense from the credit facility - Other income (expense), net, primarily consists of interest expense from the credit facility (including amortization of debt discount and issuance costs), partially offset by interest income earned on cash, cash equivalents, and marketable securities[87] Results of Operations This section provides a detailed comparison of financial results for the current and prior periods, including revenue, expenses, and net loss Summary of Results of Operations (in thousands, except percentages) | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change ($) | Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Revenue | $33,193 | $4,708 | $28,485 | 605.0% | | Total operating expenses | $40,126 | $31,915 | $8,211 | 25.7% | | Loss from operations | $(6,933) | $(27,207) | $20,274 | (74.5)% | | Other income (expense), net | $(1,017) | $(464) | $(553) | 119.2% | | Net loss | $(7,950) | $(27,671) | $19,721 | (71.3)% | Revenue Revenue significantly increased due to the recognition of deferred revenue from the Gilead Collaboration Agreement's termination - Revenue increased by $28.5 million (605.0%) to $33.2 million for Q1 2022, primarily due to the recognition of $33.2 million in deferred revenue from the Gilead Collaboration Agreement's material rights after its termination in January 2022[89] Operating Expenses Operating expenses increased, driven by higher research and development costs, particularly for apitegromab, and general and administrative expenses Research and Development Expense (in thousands, except percentages) | Category | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change ($) | Change (%) | | :---------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | External costs by program: | | | | | | Apitegromab | $9,466 | $6,994 | $2,472 | 35.3% | | SRK-181 | $2,240 | $2,442 | $(202) | (8.3)% | | Other early development & unallocated | $1,941 | $973 | $968 | 99.5% | | Total external costs | $13,647 | $10,409 | $3,238 | 31.1% | | Internal costs: | | | | | | Employee compensation & benefits | $11,336 | $7,809 | $3,527 | 45.2% | | Facility and other | $4,383 | $4,331 | $52 | 1.2% | | Total internal costs | $15,719 | $12,140 | $3,579 | 29.5% | | Total R&D expense | $29,366 | $22,549 | $6,817 | 30.2% | - General and administrative expense increased by $1.4 million (14.9%) to $10.8 million for Q1 2022, primarily due to an increase in non-cash equity-based compensation expense[94] Other Income (Expense), Net Other income (expense), net, shifted to a net expense due to increased interest expense from the debt facility - Other income (expense), net, changed to a net expense of $(1.017) million for Q1 2022, primarily due to increased interest expense related to the Loan and Security Agreement after receiving Tranche 2 funding in December 2021[96] Liquidity and Capital Resources This section analyzes the company's ability to meet short-term and long-term obligations, including sources of funds, cash flow trends, and future funding requirements Sources of Liquidity This section identifies the primary means by which the company has funded its operations, including equity, collaborations, and debt - The company has funded operations primarily through equity financings (private placements, IPO, public offerings, ATM sales), research collaborations (Janssen, Gilead), and a debt facility[97] Cash, Cash Equivalents and Marketable Securities (in thousands) | Date | Amount | | :------------------------------------------ | :----- | | March 31, 2022 | $210,211 | | December 31, 2021 | $252,994 | - During Q1 2022, cash, cash equivalents, and marketable securities decreased by approximately $42.8 million, mainly due to cash used in operating activities, capital purchases, and debt interest payments[99] Cash Flows This section provides a detailed breakdown of cash flows from operating, investing, and financing activities Cash Flow Summary (in thousands) | Category | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(42,565) | $(26,544) | | Net cash (used in) provided by investing activities | $(70,576) | $22,557 | | Net cash provided by financing activities | $481 | $2,737 | | Net decrease in cash, cash equivalents and restricted cash | $(112,660) | $(1,250) | - Net cash used in operating activities increased to $42.6 million in Q1 2022, primarily due to a $33.2 million change in deferred revenue related to the Gilead collaboration[106] - Net cash used in investing activities was $70.6 million in Q1 2022 (compared to $22.6 million provided in Q1 2021), mainly due to transactions involving marketable securities[110] Funding Requirements This section outlines future capital needs, expected funding timeline, and potential financing methods and their implications - Existing cash, cash equivalents, and marketable securities are expected to fund operating expenses and capital expenditure requirements into Q4 2023, but additional capital will be required to complete clinical development for current programs[113] - Future capital requirements are highly uncertain and depend on factors such as clinical trial costs, regulatory approvals, manufacturing, and intellectual property defense[113][122] - The company expects to finance future cash needs through equity offerings (potentially dilutive), debt financings (potentially restrictive covenants), or collaborations (potentially relinquishing valuable rights)[117][118] Critical Accounting Estimates This section discusses key accounting estimates and judgments made by management in preparing the financial statements - The preparation of financial statements requires management to make judgments and estimates in accordance with GAAP, based on historical experience and reasonable assumptions[119] - There have been no material changes to the critical accounting estimates from those described in the company's Annual Report on Form 10-K for the year ended December 31, 2021[120] Off-Balance Sheet Arrangements This section confirms the absence of any off-balance sheet arrangements as defined by SEC rules - The company did not have any off-balance sheet arrangements during the periods presented and does not currently have any, as defined under applicable SEC rules[123] Recent Accounting Pronouncements This section states that recently issued accounting standards are not expected to materially impact the company's financial statements - The company has reviewed all recently issued accounting standards and determined that they will not have a material impact on its financial statements or operations[124] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Scholar Rock Holding Corporation is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934[125] - As such, it is not required to provide quantitative and qualitative disclosures about market risk[125] Item 4. Controls and Procedures Management, including the interim CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of March 31, 2022, and concluded they were effective at a reasonable assurance level. There were no material changes in internal control over financial reporting during the quarter - Management, with the participation of the interim CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2022[127] - The disclosure controls and procedures were concluded to be effective at the reasonable assurance level[127] - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2022[128] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and recent corporate events Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings or claims that would reasonably be expected to have a material adverse effect on its business - The company is not subject to any material legal proceedings or claims that would individually or in the aggregate have a material adverse effect on its business[130] - Litigation, regardless of outcome, can adversely impact the business due to defense and settlement costs and diversion of management resources[130] Item 1A. Risk Factors This section details significant risks across product development, regulatory approval, manufacturing, business operations, intellectual property, and financial condition Summary of the Material Risks Associated with Our Business This section provides a high-level overview of the most significant risks impacting the company's business operations and financial stability - Product development and regulatory approval involve a lengthy, expensive, and uncertain process, with potential for delays, increased costs, and failure to commercialize product candidates[133] - The ongoing COVID-19 pandemic has materially and adversely affected business operations, preclinical studies, and clinical trials, including data and activities[133] - Reliance on third parties for manufacturing and supply, as well as for conducting clinical trials, poses risks of limitations, interruptions, and non-compliance[133][136] - Business operations face risks from restructuring, challenges in organizational growth, difficulty retaining key personnel, and compliance failures with laws and regulations[140] - Intellectual property protection is difficult and costly, with risks related to maintaining proprietary rights, dependence on licensed IP, and potential infringement claims[138][140] - The company has incurred net losses since inception, anticipates future losses, and will require additional capital to fund operations and complete product development[141][144] Risks Related to Product Development and Regulatory Approval This section details risks associated with the lengthy, uncertain, and costly process of developing and obtaining regulatory approval for product candidates - Product development is a lengthy, expensive, and uncertain process, with preclinical and early-stage clinical trial results not always predictive of later-stage success[142][161][163] - Clinical trials face risks of delays, unforeseen events, difficulty in patient enrollment (especially for rare diseases like SMA), and potential for significant adverse events or undesirable side effects that could hinder regulatory approval or market acceptance[144][165][170][171] - The COVID-19 pandemic has caused disruptions to clinical trials, including site access restrictions, enrollment delays, and supply chain issues, potentially impacting data readouts and development timelines[151][153][154][158] - Regulatory authorities (FDA, EMA) may disagree with development plans, and special designations like Orphan Drug, Rare Pediatric Disease, Fast Track, or PRIME do not guarantee faster approval, market exclusivity, or priority review vouchers[188][193][199][205] - Even if regulatory approval is received, products will be subject to ongoing regulatory obligations and review, and may fail to achieve market acceptance by physicians, patients, and payors, particularly if alternative treatments are deemed sufficient or reimbursement is inadequate[215][221] Risks Related to Manufacturing and Supply This section outlines risks stemming from reliance on third-party manufacturers for all product supplies, including potential limitations, interruptions, and quality issues - The company relies entirely on third-party contract manufacturers for all preclinical, clinical, and future commercial product supplies, including drug substance, vialing, labeling, and packaging[229] - This reliance creates risks of supply limitations, interruptions (exacerbated by COVID-19 and potential diversion to vaccine production), and quality issues, especially given the use of a single source supplier for drug substance[229] - Any need to change manufacturers would be costly, time-consuming, and could delay development and commercialization due to the need for facility and process validation and potential difficulties in transferring unique technical skills[230] - Manufacturing scale-up for later-stage clinical trials and commercial production presents challenges in terms of timeliness, cost-effectiveness, and quality control[235] - Reliance on antibody discovery vendors may lead to substantial milestone payments and royalties under license agreements, and failure to meet obligations could result in the loss of rights to discovered antibodies[236] Risks Related to Our Business and Operations This section covers operational risks such as workforce reduction impacts, growth management, personnel retention, compliance, cybersecurity, and external disruptions - The May 2022 workforce reduction may not achieve anticipated savings, could incur higher-than-expected costs, and disrupt business operations, potentially affecting employee morale and retention[238][240][241] - Challenges exist in managing organizational growth, attracting and retaining qualified managerial and scientific personnel, and the loss of key executives could impair product development[242][245][249] - The company faces risks from cybersecurity breaches, employee misconduct (including non-compliance with regulatory standards), and evolving healthcare legislative and regulatory reforms (e.g., anti-kickback, fraud and abuse, data protection laws like GDPR), which could lead to penalties, litigation, and reputational harm[250][251][254][255][260][262][263] - Operational disruptions from natural disasters, disease outbreaks (like COVID-19), or geopolitical events (e.g., Russia-Ukraine conflict) could severely impact facilities, clinical trials, and supply chains[282][283][284] - The commercial success of approved products depends on adequate coverage and reimbursement from third-party payors, which is uncertain and subject to governmental controls and cost-containment initiatives, particularly in the EU[285][287][289][294] - Future collaborations carry risks, including collaborators' discretion over efforts, potential competition, and termination of agreements, which could lead to loss of funding or rights[299][300][303][305] Risks Related to Our Intellectual Property This section addresses challenges in protecting intellectual property, reliance on licensed IP, impacts of patent law changes, and risks of infringement claims - Protecting intellectual property (patents, trademarks, trade secrets) is difficult and costly, with risks that patents may not be broad enough, challenged, invalidated, or circumvented by competitors[307][310][312][316] - The company depends on intellectual property licensed from third parties; failure to comply with license obligations or termination of licenses could result in the loss of significant rights[319][321] - Changes in patent law (e.g., America Invents Act, Supreme Court rulings) in the U.S. and other jurisdictions could diminish patent value and weaken the ability to obtain or enforce patents[328][329][331][332] - Third-party claims of intellectual property infringement may prevent or delay product development and commercialization, leading to substantial litigation costs, damages, or the need for licenses on unfavorable terms[333][334][339] - Inability to protect trade secrets or prevent their misappropriation could harm the business and competitive position, as enforcement is difficult and costly[355][356] - Limited foreign intellectual property rights mean the company may not be able to protect its inventions globally, and foreign legal systems may not offer the same level of protection as the U.S[350][351] Risks Related to Our Financial Condition and Capital Requirements This section highlights the company's history of net losses, ongoing capital needs, potential financing impacts, and risks from tax law changes - The company has incurred net losses in every year since its inception, with an accumulated deficit of $384.1 million as of March 31, 2022, and anticipates continued significant losses[361][362] - Additional capital will be required to fund operations and complete clinical development for current programs, with existing cash, cash equivalents, and marketable securities projected to fund operations only into Q4 2023[366] - Future financing through equity offerings may dilute stockholder ownership, debt financings may involve restrictive covenants, and collaborations may require relinquishing valuable rights[369] - Changes in tax law and limitations on the use of net operating loss (NOL) carryforwards and tax credit carryforwards (e.g., due to Section 382 ownership changes) could adversely affect financial condition[370][371][373] Risks Related to Our Common Stock This section discusses factors affecting common stock, including price volatility, significant insider ownership, reduced reporting requirements, and anti-takeover provisions - The company's stock price is volatile and subject to wide fluctuations, often unrelated to operating performance, and the company does not intend to pay dividends, limiting stockholder returns to stock appreciation[376][377][378] - Significant ownership by board members, management, and affiliates (approximately 17.6%) allows them to exert substantial control over matters requiring stockholder approval[379] - As an 'emerging growth company' and 'smaller reporting company,' the company benefits from reduced reporting requirements, which may make its common stock less attractive to some investors and increase stock price volatility[382][383][385] - Operating as a public company incurs significant legal, accounting, and compliance costs, and management has broad discretion in the use of existing cash, cash equivalents, and marketable securities[386][392] - Anti-takeover provisions in charter documents and Delaware law could delay or prevent a change of control, limiting the market price of common stock and potentially frustrating stockholder attempts to replace management[393][396] - Exclusive forum provisions in the bylaws require certain disputes to be resolved in specific judicial forums, potentially limiting stockholders' ability to choose a favorable forum and increasing litigation costs[399][401][402] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities and no issuer purchases of equity securities during the period - No unregistered sales of equity securities were reported[403] - No issuer purchases of equity securities were reported[404] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - No defaults upon senior securities were reported[405] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures - No mine safety disclosures were reported[405] Item 5. Other Information This section details the company's recent restructuring plan, announced May 16, 2022, which includes a 25% workforce reduction (39 positions) to prioritize clinical stage assets. This will incur estimated cash-based severance costs of $1.7 million to $2.3 million and non-cash equity modification expenses. Additionally, the Chief Medical Officer resigned, effective June 30, 2022 - On May 16, 2022, the company announced a business restructuring involving a 25% reduction in workforce (39 positions) to prioritize clinical stage assets[406] - Estimated cash-based costs for severance benefits are $1.7 million to $2.3 million, with additional non-cash expenses related to equity modifications[406][408] - The Chief Medical Officer, Yung Chyung, resigned effective June 30, 2022[409] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents, specimen stock certificates, debt agreements, and certifications, with specific reference to the Letter Agreement with Gilead Sciences, Inc. and certifications of the Principal Executive and Financial Officers - Exhibits include corporate governance documents (Certificate of Incorporation, By-laws), investor agreements (Investors' Rights Agreement, Warrant to Purchase Stock), and key operational agreements (Letter Agreement with Gilead Sciences, Inc. dated January 6, 2022)[411] - Certifications from the Principal Executive Officer and Principal Financial Officer are filed/furnished as exhibits, along with XBRL instance and taxonomy documents[411]