| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2021
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Number: Number
☐ Symbol ☐☒ (§Large accelerated filer ☐ Accelerated filer ☐ ☒ Smaller reporting company ☒ Emerging growth company ☒
MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
-i-
Suchstatements, although not all forward-looking statements reflect,contain these identifying words.
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| Item 1. | 5 | |||||
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| Item 2. | 16 | |||||
| Item 3. | 24 | |||||
| Item 4. | 25 | |||||
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| Item 1. | 25 | |||||
| Item 1A. | 25 | |||||
| Item 2. | 74 | |||||
| Item 3. | 75 | |||||
| Item 4. | 75 | |||||
| Item 5. | 75 | |||||
| Item 6. | 76 | |||||
| 77 | ||||||
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | $ | 80,289 | $ | 4,185 | ||||
Restricted cash | 20 | 20 | ||||||
Prepaid expenses and other current assets | 3,147 | 921 | ||||||
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Total current assets | 83,456 | 5,126 | ||||||
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Total assets | $ | 83,456 | $ | 5,126 | ||||
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Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Deficit | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 3,249 | $ | 2,234 | ||||
Accrued expenses | 3,736 | 3,100 | ||||||
Series B preferred stock tranche right liability | — | 300 | ||||||
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Total current liabilities | 6,985 | 5,634 | ||||||
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Total liabilities | 6,985 | 5,634 | ||||||
Commitments and Contingencies (Note 10) | ||||||||
Series A redeemable convertible preferred stock, $0.0001 par value, 25,000,000 shares authorized, issued and outstanding as of June 30, 2020 and December 31, 2019; (liquidation preference of $33,479 as of June 30, 2020) | 33,479 | 32,482 | ||||||
Series B redeemable convertible preferred stock, $0.0001 par value, 29,972,284 shares authorized as of June 30, 2020 and December 31, 2019; 29,972,284 and 26,283,386 issued and outstanding as of June 30, 2020 and December 31, 2019, respectively; (liquidation preference of $75,014 as of June 30, 2020) | 75,314 | 64,446 | ||||||
Series C redeemable convertible preferred stock, $0.0001 par value, 62,489,557 shares authorized as of June 30, 2020; 53,123,923 issued and outstanding as of June 30, 2020; (liquidation preference of $85,475 as of June 30, 2020) | 85,475 | — | ||||||
Stockholders’ Deficit: | ||||||||
Common stock, $0.0001 par value; 146,000,000 and 76,000,000 shares authorized as of June 30, 2020 and December 31, 2019, respectively; 1,488,489 shares issued and outstanding as of June 30, 2020 and December 31, 2019; | 1 | 1 | ||||||
Additional paid-in capital | — | — | ||||||
Accumulated deficit | (117,798 | ) | (97,437 | ) | ||||
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Total stockholders’ deficit | (117,797 | ) | (97,436 | ) | ||||
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Total liabilities, redeemable convertible preferred stock and stockholders’ deficit | $ | 83,456 | $ | 5,126 | ||||
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June 30, 2021 | December 31, 2020 | |||||||
Assets | ||||||||
Current Assets: | ||||||||
| Cash and cash equivalents | $ | 63,110 | $ | 43,055 | ||||
| Restricted cash | 20 | 20 | ||||||
| Short-term investments | 22,240 | 51,831 | ||||||
| Prepaid expenses and other current assets | 5,704 | 7,195 | ||||||
| Total current assets | 91,074 | 102,101 | ||||||
Investments, non-current | 10,240 | 30,973 | ||||||
Machinery and equipment, net | 367 | — | ||||||
Total assets | $ | 101,681 | $ | 133,074 | ||||
Liabilities and Stockholders’ Equity | ||||||||
Current Liabilities: | ||||||||
| Accounts payable | $ | 2,198 | $ | 2,297 | ||||
| Accrued expenses | 4,504 | 5,578 | ||||||
| Total current liabilities | 6,702 | 7,875 | ||||||
| Total liabilities | 6,702 | 7,875 | ||||||
Commitments and Contingencies (Note 9) | 0 | 0 | ||||||
Stockholders’ Equity: | ||||||||
Preferred stock, $0.0001 par value, 10,000,000 shares authorized as of June 30, 2021 and December 31, 2020; 0 shares outstanding as of June 30, 2021 and December 31, 2020 | 0— | 0— | ||||||
Common stock, $0.0001 par value; 300,000,000 authorized as of June 30, 2021 and December 31, 2020; 21,625,891 and 21,560,398 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively | 2 | 2 | ||||||
Additional paid-in capital | 268,179 | 265,342 | ||||||
Accumulated other comprehensive gain (loss) | (33 | ) | (74 | ) | ||||
Accumulated deficit | (173,169 | ) | (140,071 | ) | ||||
Total stockholders’ equity | 94,979 | 125,199 | ||||||
Total liabilities and stockholders’ equity | $ | 101,681 | $ | 133,074 | ||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | $ | 6,476 | $ | 5,849 | $ | 12,789 | $ | 12,049 | ||||||||
General and administrative | 1,795 | 1,107 | 3,305 | 2,157 | ||||||||||||
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Total operating expenses | 8,271 | 6,956 | 16,094 | 14,206 | ||||||||||||
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Loss from operations | (8,271 | ) | (6,956 | ) | (16,094 | ) | (14,206 | ) | ||||||||
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Other income (expense), net: | ||||||||||||||||
Interest income | 6 | 59 | 28 | 116 | ||||||||||||
Change in fair value of convertible loan notes | (83 | ) | — | (83 | ) | — | ||||||||||
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Total other income (expense), net | (77 | ) | 59 | (55 | ) | 116 | ||||||||||
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Net loss and comprehensive loss | $ | (8,348 | ) | $ | (6,897 | ) | $ | (16,149 | ) | $ | (14,090 | ) | ||||
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Reconciliation of net loss attributable to common stockholders: | ||||||||||||||||
Net loss | $ | (8,348 | ) | $ | (6,897 | ) | $ | (16,149 | ) | $ | (14,090 | ) | ||||
Accretion of issuance costs on redeemable convertible preferred stock | (429 | ) | (33 | ) | (456 | ) | (51 | ) | ||||||||
Accrued dividends on redeemable convertible preferred stock | (2,187 | ) | (1,476 | ) | (3,957 | ) | (2,728 | ) | ||||||||
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Net loss attributable to common stockholders | $ | (10,964 | ) | $ | (8,406 | ) | $ | (20,562 | ) | $ | (16,869 | ) | ||||
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Weighted-average common shares outstanding—basic and diluted | 1,488,489 | 1,429,484 | 1,488,489 | 1,413,935 | ||||||||||||
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Net loss per share attributable to common stockholders—basic and diluted | $ | (7.37 | ) | $ | (5.88 | ) | $ | (13.81 | ) | $ | (11.93 | ) | ||||
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Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | $ | 14,865 | $ | 6,476 | $ | 25,243 | $ | 12,789 | ||||||||
General and administrative | 4,090 | 1,795 | 7,893 | 3,305 | ||||||||||||
Total operating expenses | 18,955 | 8,271 | 33,136 | 16,094 | ||||||||||||
Loss from operations | (18,955 | ) | (8,271 | ) | (33,136 | ) | (16,094 | ) | ||||||||
Other income (expense), net: | ||||||||||||||||
Interest income | 20 | 6 | 73 | 28 | ||||||||||||
Loss on sale of available-for-sale | (35 | ) | — | (35 | ) | — | ||||||||||
Change in fair value of convertible loan notes | — | (83 | ) | — | (83 | ) | ||||||||||
Total other income (expense), net | (15 | ) | (77 | ) | 38 | (55 | ) | |||||||||
Net loss | $ | (18,970 | ) | $ | (8,348 | ) | $ | (33,098 | ) | $ | (16,149 | ) | ||||
Reconciliation of net loss attributable to common stockholders: | ||||||||||||||||
Net loss | $ | (18,970 | ) | $ | (8,348 | ) | $ | (33,098 | ) | $ | (16,149 | ) | ||||
Accretion of issuance costs on redeemable convertible preferred stock | — | (429 | ) | — | (456 | ) | ||||||||||
Accrued dividends on redeemable convertible preferred stock | — | (2,187 | ) | — | (3,957 | ) | ||||||||||
Net loss attributable to common stockholders | $ | (18,970 | ) | $ | (10,964 | ) | $ | (33,098 | ) | $ | (20,562 | ) | ||||
Weighted-average common shares outstanding—basic and diluted | 21,624,568 | 1,488,489 | 21,603,563 | 1,488,489 | ||||||||||||
Net loss per share attributable to common stockholders—basic and diluted | $ | ( 0.88 | ) | $ | (7.37 | ) | $ | (1.53 | ) | $ | (13.81 | ) | ||||
Comprehensive loss: | ||||||||||||||||
Net los s | $ | (18,970 | ) | $ | (8,348 | ) | $ | (33,098 | ) | $ | (16,149 | ) | ||||
Unrealized gain on available-for-sale investments | 50 | — | 41 | — | ||||||||||||
Comprehensive loss | $ | (18,920 | ) | $ | (8,348 | ) | $ | (33,057 | ) | $ | (16,149 | ) | ||||
EQUITY (DEFICIT)
| Series A Redeemable Convertible Preferred Stock | Series B Redeemable Convertible Preferred Stock | Series C Redeemable Convertible Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Deficit | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2020 | 25,000,000 | $ | 32,980 | 29,972,284 | $ | 74,018 | — | $ | — | 1,488,489 | $ | 1 | $ | — | $ | (106,934 | ) | $ | (106,933 | ) | ||||||||||||||||||||||||||||
Issuance of series C redeemable convertible preferred stock at $1.6016 per share, net of issuance costs of $429 | — | — | — | — | 46,828,167 | 74,571 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Conversion of convertible loan notes into series C redeemable convertible preferred stock | — | — | — | — | 6,295,756 | 10,083 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Accretion of issuance costs related to redeemable convertible preferred stock | — | — | — | — | — | 429 | — | — | — | (429 | ) | (429 | ) | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | 100 | — | 100 | |||||||||||||||||||||||||||||||||||||
Accrued dividends on redeemable convertible preferred stock | — | 499 | — | 1,296 | — | 392 | — | — | (100 | ) | (2,087 | ) | (2,187 | ) | ||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (8,348 | ) | (8,348 | ) | |||||||||||||||||||||||||||||||||||
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Balances at June 30, 2020 | 25,000,000 | $ | 33,479 | 29,972,284 | $ | 75,314 | 53,123,923 | $ | 85,475 | 1,488,489 | $ | 1 | $ | — | $ | (117,798 | ) | $ | (117,797 | ) | ||||||||||||||||||||||||||||
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Balances at March 31, 2019 | 25,000,000 | $ | 30,975 | 22,594,491 | $ | 53,250 | — | $ | — | 1,400,099 | $ | 1 | $ | — | $ | (71,186 | ) | $ | (71,185 | ) | ||||||||||||||||||||||||||||
Series B redeemable convertible preferred stock issuance costs | — | — | — | (33 | ) | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Accretion of issuance costs related to redeemable convertible preferred stock | — | — | — | 33 | — | — | — | — | — | (33 | ) | (33 | ) | |||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | — | — | 77,876 | — | 74 | — | 74 | |||||||||||||||||||||||||||||||||||||
Vesting of restricted stock awards | — | — | — | — | — | — | 5,138 | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | 78 | — | 78 | |||||||||||||||||||||||||||||||||||||
Accrued dividends on redeemable convertible preferred stock | — | 499 | — | 977 | — | — | — | — | (152 | ) | (1,324 | ) | (1,476 | ) | ||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (6,897 | ) | (6,897 | ) | |||||||||||||||||||||||||||||||||||
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Balances at June 30, 2019 | 25,000,000 | $ | 31,474 | 22,594,491 | $ | 54,227 | — | $ | — | 1,483,113 | $ | 1 | $ | — | $ | (79,440 | ) | $ | (79,439 | ) | ||||||||||||||||||||||||||||
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Series A Redeemable Convertible Preferred Stock | Series B Redeemable Convertible Preferred Stock | Series C Redeemable Convertible Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Accumulated Other Comprehensive Gain/(Loss) | Total Stockholders’ Equity (Deficit) | |||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2020 | — | $ | — | — | $ | — | — | $ | — | 21,560,398 | $ | 2 | $ | 265,342 | $ | (140,071 | ) | $ | (74 | ) | $ | 125,199 | ||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | — | — | 59,225 | — | 118 | — | — | 118 | ||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | 1,216 | — | 1,216 | |||||||||||||||||||||||||||||||||||||
Unrealized losses on available-for-sale investments | — | — | — | — | — | — | — | — | — | — | (9 | ) | (9 | ) | ||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (14,128 | ) | — | (14,128 | ) | ||||||||||||||||||||||||||||||||||
Balances at March 31, 2021 | — | — | — | — | — | — | 21,619,623 | 2 | 266,676 | (154,199 | ) | (83 | ) | 112,396 | ||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | — | — | 6,268 | — | 16 | — | — | 16 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | — | — | — | — | 1,487 | — | — | 1,487 | ||||||||||||||||||||||||||||||||||||
Unrealized gains on available-for- sale investments | — | — | — | — | — | — | — | — | — | — | 50 | 50 | ||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | — | — | — | (18,970 | ) | — | (18,970 | ) | ||||||||||||||||||||||||||||||||||
Balances at June 30, 2021 | — | $ | — | — | $ | — | — | $ | — | 21,625,891 | $ | 2 | $ | 268,179 | $ | (173,169 | ) | $ | (33 | ) | $ | 94,979 | ||||||||||||||||||||||||||
Series A Redeemable Convertible Preferred Stock | Series B Redeemable Convertible Preferred Stock | Series C Redeemable Convertible Preferred Stock | Common Stock | Additional Paid - In | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | |||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Gain/(Loss) | Equity (Deficit) | |||||||||||||||||||||||||||||||||||||
Balances 31, 2019 | 25,000,000 | $ | 32,482 | 26,283,386 | $ | 64,446 | — | $ | — | 1,488,489 | $ | 1 | $ | — | $ | (97,437 | ) | $ | — | $ | (97,436 | ) | ||||||||||||||||||||||||||
Issuance of series B redeemable convertible preferred $2.1687 per $27net of issuance costs of | — | — | 3,688,898 | 7,973 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Exercise of series B preferred stock tranche right | — | — | — | 300 | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Accretion of issuance costs related to redeemable convertible preferred stock | — | — | — | 27 | — | — | — | — | — | ( 27 | ) | — | ( 27 | ) | ||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | 101 | — | — | 101 | ||||||||||||||||||||||||||||||||||||
| Accrued dividends on redeemable convertible preferred stock | — | 498 | — | 1,272 | — | — | — | — | (101 | ) | (1,669 | ) | — | (1,770 | ) | |||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (7,801 | ) | — | (7,801 | ) | ||||||||||||||||||||||||||||||||||
Balances at March 31, 2020 | 25,000,000 | 32,980 | 29,972,284 | 74,018 | — | — | 1,488,489 | 1 | — | (106,934 | ) | — | (106,933 | ) | ||||||||||||||||||||||||||||||||||
I ssuance of series C redeemable convertible preferred stock at$1.6016 per $429net of issuance costs of | — | — | — | — | 46,828,167 | 74,571 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Conversion of convertible notes into series C convertible redeemable preferred stock | — | — | — | — | 6,295,756 | 10,083 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Accretion of issuance costs related to redeemable convertible preferred stock | — | — | — | — | — | 429 | — | — | — | (429 | ) | — | (429 | ) | ||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | 100 | — | — | 100 | ||||||||||||||||||||||||||||||||||||
| Accrued dividends on redeemable convertible preferred stock | — | 499 | — | 1,296 | — | 392 | — | — | (100 | ) | (2,087 | ) | — | (2,187 | ) | |||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (8,348 | ) | — | (8,348 | ) | ||||||||||||||||||||||||||||||||||
Balances at June 30, 2020 | 25,000,000 | $ | 33,479 | 29,972,284 | $ | 75,314 | 53,123,923 | $ | 85,475 | 1,488,489 | $ | 1 | $ | — | $ | (117,798 | ) | $ | — | $ | (117,797 | ) | ||||||||||||||||||||||||||
CASH FLOWS
thousands)
| Series A Redeemable Convertible Preferred Stock | Series B Redeemable Convertible Preferred Stock | Series C Redeemable Convertible Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders' Deficit | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2019 | 25,000,000 | $ | 32,482 | 26,283,386 | $ | 64,446 | — | $ | — | 1,488,489 | $ | 1 | $ | — | $ | (97,437 | ) | $ | (97,436 | ) | ||||||||||||||||||||||||||||
Issuance of series B redeemable convertible preferred stock at $2.1687 per share, net of issuance costs of $27 | — | — | 3,688,898 | 7,973 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Exercise of series B preferred stock tranche right | — | — | — | 300 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Issuance of series C redeemable convertible preferred stock at $1.6016 per share, net of issuance costs of $429 | — | — | — | — | 46,828,167 | 74,571 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Conversion of convertible loan notes into series C convertible preferred stock | — | — | — | — | 6,295,756 | 10,083 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Accretion of issuance costs related to redeemable convertible preferred stock | — | — | — | 27 | — | 429 | — | — | — | (456 | ) | (456 | ) | |||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | 201 | — | 201 | |||||||||||||||||||||||||||||||||||||
Accrued dividends on redeemable convertible preferred stock | — | 997 | — | 2,568 | — | 392 | — | — | (201 | ) | (3,756 | ) | (3,957 | ) | ||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (16,149 | ) | (16,149 | ) | |||||||||||||||||||||||||||||||||||
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Balances at June 30, 2020 | 25,000,000 | $ | 33,479 | 29,972,284 | $ | 75,314 | 53,123,923 | $ | 85,475 | 1,488,489 | $ | 1 | $ | — | $ | (117,798 | ) | $ | (117,797 | ) | ||||||||||||||||||||||||||||
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Balances at December 31, 2018 | 25,000,000 | $ | 30,482 | 17,522,259 | $ | 41,491 | — | $ | — | 1,394,961 | $ | 1 | $ | — | $ | (62,802 | ) | $ | (62,801 | ) | ||||||||||||||||||||||||||||
Issuance of series B redeemable convertible preferred stock at $2.1687 per share and series B initial tranche right, net of issuance costs of $51 | — | — | 5,072,232 | 10,949 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Accretion of issuance costs related to redeemable convertible preferred stock | — | — | — | 51 | — | — | — | — | — | (51 | ) | (51 | ) | |||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | — | — | 77,876 | — | 74 | — | 74 | |||||||||||||||||||||||||||||||||||||
Vesting of restricted stock awards | — | — | — | — | — | — | 10,276 | — | — | — | — | |||||||||||||||||||||||||||||||||||||
Stock-based compensation expense | — | — | — | — | — | — | — | — | 157 | — | 157 | |||||||||||||||||||||||||||||||||||||
Accrued dividends on redeemable convertible preferred stock | — | 992 | — | 1,736 | — | — | — | — | (231 | ) | (2,497 | ) | (2,728 | ) | ||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | (14,090 | ) | (14,090 | ) | |||||||||||||||||||||||||||||||||||
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Balances at June 30, 2019 | 25,000,000 | $ | 31,474 | 22,594,491 | $ | 54,227 | — | $ | — | 1,483,113 | $ | 1 | $ | — | $ | (79,440 | ) | $ | (79,439 | ) | ||||||||||||||||||||||||||||
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Six Months Ended June 30, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (33,098 | ) | $ | (16,149 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock based compensation | 2,703 | 201 | ||||||
Depreciation | 11 | — | ||||||
Change in fair value of notes payable | — | 83 | ||||||
Amortization/accretion of investments | 370 | — | ||||||
Change in operating assets and liabilities: | ||||||||
Prepaid expenses and other current assets | 1,491 | (610 | ) | |||||
Accounts payable | (98 | ) | (31 | ) | ||||
Accrued expenses | (1,075 | ) | 464 | |||||
Net cash used in operating activities | (29,696 | ) | (16,042 | ) | ||||
Cash flows from investing activities | ||||||||
Purchases of investments | (10,197 | ) | — | |||||
Maturities of investments | 29,500 | — | ||||||
Sale of investments | 30,692 | — | ||||||
Purchase of machinery and equipment | (378 | ) | — | |||||
Net cash provided by investing activities | 49,617 | — | ||||||
Cash flows from financing activities | ||||||||
Proceeds from stock option exercises | 134 | — | ||||||
Cash paid for initial public offering costs | — | (398 | ) | |||||
Proceeds from issuance of convertible preferred stock, net of issuance costs | — | 82,544 | ||||||
Proceeds from issuance of convertible loan notes | — | 10,000 | ||||||
Net cash provided by financing activities | 134 | 92,146 | ||||||
Net increase in cash, cash equivalents and restricted cash | 20,055 | 76,104 | ||||||
Cash, cash equivalents and restricted cash at beginning of period | 43,075 | 4,205 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 63,130 | $ | 80,309 | ||||
Supplemental disclosure of non-cash financing activities: | ||||||||
Accretion of issuance costs to redeemable convertible preferred stock | $ | — | $ | 456 | ||||
Exercise of Series B preferred stock tranche right | $ | — | $ | 300 | ||||
Accrued dividends on redeemable convertible preferred stock | $ | — | $ | 3,957 | ||||
Conversion of loan notes into series C preferred stock | $ | — | $ | 10,083 | ||||
Deferred offering costs included in prepaid expenses and other current assets and accounts payable or accrued | $ | — | $ | 1,217 | ||||
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended June 30, | ||||||||
| 2020 | 2019 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (16,149 | ) | $ | (14,090 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock based compensation | 201 | 157 | ||||||
Change in fair value of notes payable | 83 | — | ||||||
Change in operating assets and liabilities: | ||||||||
Prepaid expenses and other current assets | (610 | ) | (207 | ) | ||||
Accounts payable | (31 | ) | (192 | ) | ||||
Accrued expenses | 464 | (373 | ) | |||||
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Net cash used in operating activities | (16,042 | ) | (14,705 | ) | ||||
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Cash flows from financing activities | ||||||||
Cash received from stock option exercise | — | 74 | ||||||
Cash paid for initial public offering costs | (398 | ) | — | |||||
Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs | 82,544 | 10,949 | ||||||
Proceeds from issuance of convertible loan notes | 10,000 | — | ||||||
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Net cash provided by financing activities | 92,146 | 11,023 | ||||||
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Net increase (decrease) in cash, cash equivalents and restricted cash | 76,104 | (3,682 | ) | |||||
Cash, cash equivalents and restricted cash at beginning of period | 4,205 | 12,079 | ||||||
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Cash, cash equivalents and restricted cash at end of period | $ | 80,309 | $ | 8,397 | ||||
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Supplemental disclosure of non-cash financing activities: | ||||||||
Accretion of issuance costs to redeemable convertible preferred stock | $ | 456 | $ | 51 | ||||
Exercise of series B preferred stock tranche right | $ | 300 | $ | — | ||||
Accrued dividends on redeemable convertible preferred stock | $ | 3,957 | $ | 2,728 | ||||
Conversion of convertible loan notes into series C preferred stock | $ | 10,083 | $ | — | ||||
Deferred offering costs included in prepaid expenses and other current assets and accounts payable or accrued expenses | $ | 1,217 | $ | — | ||||
The accompanying notes are an integral part of these condensed financial statements.
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, and include the accounts of the Company. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification, or ASC, and Accounting Standards Update, or ASU, of the Financial Accounting Standards Board, or FASB. The Company’s significant accounting policies are disclosed in the audited financial statements for the year ended December 31, 2019, included in the Company’s registration statement on Form S-1 relating to its initial public offering, or IPO, (File No. 333-239932) dated and filed on July 17, 2020 with the U.S. Securities and Exchange Commission, or the SEC, as amended, or the Registration Statement, which became effective on August 6, 2020. Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies other than those disclosed in Note 2 below.
commissions and other offering expenses payable by the Compan
As of May 13, 2020, the issuance date of the Company’s audited financial statements for the year ended December 31, 2019, the Company concluded that there was substantial doubt about its ability to continue as a going concern for one year after the date that those financial statements were issued. Subsequent to the issuance of those financial statements, the Company received net proceeds of $68.5 million from the IPO and $75 million from the issuance of Series C redeemable convertible preferred stock in June 2020. Accordingly, as of the issuance date of these unaudited condensed financial statements, the Company expects its cash and cash equivalents of $80.3 million as of June 30, 2020, together with the net proceeds from the IPO will be sufficient to fund its operating expenses and capital expenditure requirements for at least 12 months beyond the date of issuance of these unaudited condensed financial statements.The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations.
2 – SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES
Deferred offering costs
Company’s IPO. The Company capitalizes certain legal, professional accountingbases its estimates on historical experience, known trends and other third-party feesmarket-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummationperiodically reviewed in light of the equity financing, these costschanges in circumstances, facts and experience. Changes in estimates are recorded in the condensed statementsperiod in which they become known. Actual results may differ from those estimates or assumptions.
Fair Value Option
As permitted under ASC 825, Financial Instruments, or ASC 825, the Company has elected the fair value option to accountexpected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectation for its convertible loan notes. In accordance with ASC 825, the Company records these convertible loan notes at fair value with changes in fair value recorded as a componenteach pool of other income (expense), net in the condensed statements of operations and comprehensive loss. As a result of applying the fair value option, direct costs and feessimilar financial asset. The new guidance requires enhanced disclosures related to the convertible loan notes were expensed as incurredtrade receivables and were not deferred. The Company concluded that it was appropriate to apply the fair value option to the convertible loan notes because there are no non-contingent beneficial conversion options related to the convertible loan notes.
Recently adopted accounting pronouncements
associated credit losses. In DecemberMay 2019, the FASB issued ASU2019-12,Income Taxes2019-05,740): Simplifying the Accounting326) Targeted Transition Relief,” which allows for Income Taxes, or ASU 2019-12. ASU 2019-12 includes several provisions to simplify the accounting for income taxes and removesa transition election on certain exceptions for recognizing deferred taxes for investments, performing intra period allocation and calculating income taxes in interim periods. For public entities, theinstruments. The guidance is effective for annual reporting periods beginning after December 15, 2020 andSmaller Reporting Companies for interim periods within those fiscal years. For nonpublic entities and emerging growth companies that choose to take advantage of the extended transition period, the guidance is effective for annual reporting periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. Early adoption is permitted for all entities. The Company early adopted ASU 2019-12 prospectively effective January 1, 20202022 and the adoption did not have any impact on the Company’s unaudited condensed financial statements.
interim periods in those fiscal years. In November 2018,2019, the FASB issued ASU2018-18,Collaborative Arrangements (Topic 808): ClarifyingInteraction between Topic 808impact of this pronouncement on its consolidated financial statements.
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | Short-term Investments | Investments, non-current | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Commercial paper | $ | 2,991 | $ | 0 | $ | — | $ | 2,991 | $ | 2,991 | $ | — | ||||||||||||
Corporate debt securities | 29,522 | 0 | (33 | ) | 29,489 | 19,249 | 10,240 | |||||||||||||||||
Total | $ | 32,513 | $ | 0 | $ | (33 | ) | $ | 32,480 | $ | 22,240 | $ | 10,240 | |||||||||||
Amortized Cost | Unrealized Gains | Unrealized Losses | Fair Value | Short-term Investments | Investments, non-current | |||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||
Commercial paper | $ | 42,709 | $ | 8 | $ | (16 | ) | $ | 42,701 | $ | 42,701 | $ | — | |||||||||||
Corporate debt securities | 41,169 | — | (66 | ) | 41,103 | 10,130 | 30,973 | |||||||||||||||||
Total | $ | 83,878 | $ | 8 | $ | (82 | ) | $ | 83,804 | $ | 52,831 | $ | 30,973 | |||||||||||
Estimated | ||||||||
Amortized | Fair | |||||||
Cost | Value | |||||||
(in thousands) | ||||||||
Due in one year or less | $ | 22,258 | $ | 22,240 | ||||
Due after one year through two years | 10,255 | 10,240 | ||||||
| $ | 32,513 | $ | 32,480 | |||||
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies, and in certain cases eliminates, the disclosure requirements on fair value measurements in Topic 820. The amendments in ASU No. 2018-13 are effective for the Company on January 1, 2020. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU No. 2018-13 and delay adoption of the additional disclosures until their effective date. The Company adopted ASU 2018-13 effective January 1, 2020 and the adoption did not have any impact on the Company’s unaudited condensed financial statements and related disclosures.
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception, or ASU 2017-11. Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. ASU 2017-11 is required to be adopted for annual periods beginning after December 15, 2019. The Company adopted ASU 2017-11 during the three months ended March 31, 2020 and the adoption of ASU 2017-11 did not have any impact on the Company’s unaudited condensed financial statements and related disclosures.
3 – FAIR VALUE MEASUREMENT
| June 30, 2020 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 80,045 | $ | — | $ | — | $ | 80,045 | ||||||||
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Total assets | $ | 80,045 | $ | — | $ | — | $ | 80,045 | ||||||||
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| December 31, 2019 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| (in thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Money market funds | $ | 4,003 | $ | — | $ | — | $ | 4,003 | ||||||||
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Total assets | $ | 4,003 | $ | — | $ | — | $ | 4,003 | ||||||||
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Liabilities: | ||||||||||||||||
Series B preferred stock tranche right liability | $ | — | $ | — | $ | 300 | $ | 300 | ||||||||
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Total liabilities | $ | — | $ | — | $ | 300 | $ | 300 | ||||||||
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VALUATIONOF SERIES B PREFERRED STOCK TRANCHE RIGHT LIABILITY
June 30, 2021 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Money markets funds (included in cash equivalents) | $ | 61,907 | $ | — | $ | — | $ | 61,907 | ||||||||
Commercial paper | — | 2,991 | — | 2,991 | ||||||||||||
Corporate debt securities | — | 29,489 | — | 29,489 | ||||||||||||
Total assets | $ | 61,907 | $ | 32,480 | $ | — | $ | 94,387 | ||||||||
December 31, 2020 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
(in thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Money markets funds (included in cash equivalents) | $ | 7,839 | $ | — | $ | — | $ | 7,839 | ||||||||
Commercial paper | — | 42,701 | — | 42,701 | ||||||||||||
Corporate debt securities | — | 41,103 | — | 41,103 | ||||||||||||
Total assets | $ | 7,839 | $ | 83,804 | $ | — | $ | 91,643 | ||||||||
The following table provides a roll-forward of the aggregate fair value of the Company’s series B preferred stock tranche right liability, for which fair value is determined using Level 3 inputs:
| Series B Preferred Stock Tranche Right Liability | ||||
| (in thousands) | ||||
Balance as of December 31, 2019 | $ | 300 | ||
Exercise of series B preferred stock tranche right | (300 | ) | ||
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Balance as of June 30, 2020 | $ | — | ||
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VALUATIONOF CONVERTIBLE LOAN NOTES
The Company elected the fair value option to account for its convertible loan notes issued during April 2020. The fair value of the convertible loan notes was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.
The fair value of the initial closing of the Company’s convertible loan notes in April 2020 was determined to be equal to the proceeds of $10.0 million on issuance. The fair value of the convertible loan notes at the time of conversion into the Series C preferred stock in June 2020 was determined to be equal to $1.6016 per share, the value of the Company’s Series C preferred stock into which the convertible loan notes were converted. The change in fair value of the convertible notes prior to close of the Series C preferred stock financing of $0.1 million primarily related to the accrued interest earned on the convertible loan notes prior to such financing.
The following table presents a roll-forward of the aggregate fair values of the Company’s convertible loan notes (Note 5) for which fair value is determined by Level 3 inputs:
| Convertible Loan Notes | ||||
| (in thousands) | ||||
Balance as of December 31, 2019 | ||||
Initial fair value | $ | 10,000 | ||
Change in fair value plus accrued interest | 83 | |||
Settlement of convertible loan notes | (10,083 | ) | ||
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Balance as of June 30, 2020 | $ | — | ||
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| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (in thousands) | ||||||||
Payroll and employee related expenses | $ | 837 | $ | 1,051 | ||||
External research and development | 2,572 | 1,969 | ||||||
Other accrued expenses | 327 | 80 | ||||||
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Total accrued expenses | $ | 3,736 | $ | 3,100 | ||||
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June 30, | December 31, | |||||||
2021 | 2020 | |||||||
(in thousands) | ||||||||
Payroll and employee related expenses | $ | 1,677 | $ | 1,555 | ||||
External research and development | 2,077 | 3,633 | ||||||
Other accrued expenses | 750 | 390 | ||||||
Total accrued expenses | $ | 4,504 | $ | 5,578 | ||||
On June 2, 2020, upon the series Cits preferred stock, financing (Note 6), thewhich included all cumulative but unpaid dividends, to common stock and additional
The Company elected the fair value option to account for the convertible loan notes. The Company recorded the convertible loan notes at fair value and subsequently remeasured them to fair value upon settlement of the convertible loan notes. Changes in fair value were recognized as a component of other income (expense), net in the condensed statements of operations and comprehensive loss. The Company recognized a loss in the condensed statements of operations and comprehensive loss of $0.1 million as change in fair value of the convertible notes during the three and six months ended June 30, 2020.
6 – REDEEMABLE CONVERTIBLE PREFERRED STOCK
As of each balance sheet date, the Preferred Stock consisted of the following:
| June 30, 2020 | ||||||||||||||||
| Issued and Outstanding | Carrying Value | Liquidation Preference | Common Stock Issuable Upon Conversion | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Series A | 25,000,000 | $ | 33,479 | $ | 33,479 | 3,343,542 | ||||||||||
Series B | 29,972,284 | 75,314 | 75,014 | 4,499,824 | ||||||||||||
Series C | 53,123,923 | 85,475 | 85,475 | 7,104,883 | ||||||||||||
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| 108,096,207 | $ | 194,268 | $ | 193,968 | 14,948,249 | |||||||||||
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| December 31, 2019 | ||||||||||||||||
| Issued and Outstanding | Carrying Value | Liquidation Preference | Common Stock Issuable Upon Conversion | |||||||||||||
| (dollars in thousands) | ||||||||||||||||
Series A | 25,000,000 | $ | 32,482 | $ | 32,482 | 3,343,542 | ||||||||||
Series B | 26,283,386 | 64,446 | 64,446 | 3,946,001 | ||||||||||||
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| 51,283,386 | $ | 96,928 | $ | 96,928 | 7,289,543 | |||||||||||
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Preferred stock is classified outside of stockholders’ deficit because the shares contain redemption features that are not solely within the control of the Company.
Series C Preferred Stock Financing
In June 2020, the Company entered into the Series C Preferred Stock Purchase Agreement, or the Series C Agreement, pursuant to which the Company was authorized to issue 62,489,557 shares of Series Credeemable convertible preferred stock (Series C), at a priceas of $1.6016 per share. As part of the closing, the Company issued 46,828,167 shares of Series C at $1.6016 per share for consideration of $75.0 million and an additional 6,295,756 shares of Series C in satisfaction of the conversion of $10.0 million convertible loan notes and $0.1 million of accrued interest. The aggregate purchase price of the Series C was $85.1 million and the Company incurred issuance costs of $0.4 million, which was recorded as a reduction to the Series C carrying value.
Series B Preferred Stock Financing
In January 2020, the Company issued 3,688,898 of Series B at a price of $2.16867 per share, resulting in net proceeds received of $8.0 million. The rights and preferences of the Series B issued in January 2020 are identical to Series B issued in prior periods. As a result of the issuance, the fair value of the associated outstanding series B tranche right liability of $0.3 million was reclassified to Series B. In connection with the Series C financing, the conversion price of the Series B was decreased from $16.21536 to $14.4451 such that the rate at which shares of Series B may be converted into shares of common stock was adjusted from 1:1 to 0.15013:1.
Dividends
Preferred stock accrues dividends on a cumulative basis at $0.08 per share per annum for Series A, $0.17349 per share per annum for Series B and $0.128128 per share per annum for Series C, to be calculated daily and is payable when and if declared by the Company’s board of directors. No dividends may be paid to common stockholders until all dividends to preferred stockholders are paid in full, except stock dividends paid to common stockholders. Cumulative dividends were as follows:
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (in thousands) | ||||||||
Series A | $ | 8,479 | $ | 7,482 | ||||
Series B | $ | 10,014 | $ | 7,446 | ||||
Series C | $ | 392 | $ | — | ||||
Through June 30, 2020, no dividends have been declared or paid by the Company.
72021 and December 31, 2020.
The voting, dividend and liquidation rights of the common stockholders are subject to and qualified by the rights, powers and preferences of the preferred stock. E
The Company’s common stock available for future issuance as of June 30, 2020 is summarized as follows:
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8 – STOCK-BASED COMPENSATION
Stock Options
In August 2015, the Company’s board of directors approved the Checkmate Pharmaceuticals, Inc. 2015 Stock Option and Grant Plan, or 2015 Plan, to encourage and enable the officers, employees, directors, consultants and other key persons to acquire a proprietary interest in the Company. The 2015 Plan provided for the granting of incentive stock options, non-statutory stock options and restricted stock awards as determined by the board of directors. Such awards generally vest over a four-year period. The maximum number ofsold 5,109,861 shares of common stock, reserved for issuance underinclusive of 109,861 shares sold by the 2015 Plan was 2,025,764Company pursuant to the full exercise of the underwriters’ option to purchase additional shares. As of June 30, 2020, a total of 729,575 shares of common stock were available for future grant.
The Company estimates the fair value of stock option awards on the grant date using the Black-Scholes option valuation model with the following weighted-average assumptions:
| Three and Six Months Ended June 30, | ||||||||
| 2020 | 2019 | |||||||
Risk-free interest rate | N/A | 1.30 | % | |||||
Expected term (in years) | N/A | 5.75 | ||||||
Expected volatility | N/A | 70.0 | % | |||||
Dividend yield | N/A | — | ||||||
There were no stock options granted during the three and six months ended June 30, 2020. The per share weighted average grant date fair value of stock options granted during the three and six months ended June 30, 2019 was $1.61. As of June 30, 2020, total unrecognized compensation expense related to stock options totaled $0.95 million, which is expected to be recognized over a weighted average period of 2.6 years.
The following table summarizes the activity under the Company’s stock option plan during the six months ended June 30, 2020:
| Number of Options | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | |||||||||||||
Outstanding at December 31, 2019 | 1,073,044 | $ | 2.45 | 8.7 | $ | 906 | ||||||||||
Granted | — | $ | — | |||||||||||||
Forfeited | — | $ | — | |||||||||||||
Exercised | — | $ | — | |||||||||||||
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Outstanding at June 30, 2020 | 1,073,044 | $ | 2.45 | 8.2 | $ | 906 | ||||||||||
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Vested and expected to vest at June 30, 2020 | 1,073,044 | $ | 2.45 | 8.2 | $ | 906 | ||||||||||
Exercisable at June 30, 2020 | 426,980 | $ | 2.23 | 7.6 | $ | 468 | ||||||||||
The aggregate intrinsic value of options is calculated asnet proceeds received by the difference betweenCompany from the exercise price of the optionsIPO were $67.7 million, after deducting underwriting discounts and the fair value of the Company’s common stock for those options that had exercise prices lower than the fair value of the Company’s common stock. There were no options exercised during the six months ended June 30, 2020.
Restricted Stock
The Company did not grant restricted stock during the six months ended June 30, 2020. All previously granted restricted stock was fully vested as of December 31, 2019.
Stock-based Compensation Expense
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
Research and development | $ | 39 | $ | 25 | $ | 78 | $ | 49 | ||||||||
General and administrative | 61 | 53 | 123 | 108 | ||||||||||||
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Total stock-based compensation expense | $ | 100 | $ | 78 | $ | 201 | $ | 157 | ||||||||
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9 – INCOME TAXES
The Company incurred federal and state net operating losses and recorded a full valuation allowance against net deferred assets for all periods presented. Accordingly,
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(in thousands) | (in thousands) | |||||||||||||||
Research and development | $ | 608 | $ | 39 | $ | 1,094 | $ | 78 | ||||||||
General and administrative | 879 | 61 | 1,609 | 123 | ||||||||||||
Total stock-based compensation expense | $ | 1,487 | $ | 100 | $ | 2,703 | $ | 201 | ||||||||
The Coronavirus Aid, Relief,weighted average exercise price of $12.70 per share and Economic Security Act, or CARES Act, signed into United States law on March 27, 2020 modifies certain provisionsa weighted average grant-date fair value of the Tax Cuts and Jobs Act, or TCJA with respect to net operating losses. Under the CARES Act, the limitation on the deduction of net operating losses to 80% of annual taxable income is removed for taxable years beginning before January 1, 2021. The CARES Act did not have a material impact on the unaudited condensed financial statements.
10$8.85 per share.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
(in thousands, except share and per share amounts) | (in thousands, except share and per share amounts) | |||||||||||||||
Numerator | ||||||||||||||||
Net loss | $ | (8,348 | ) | $ | (6,897 | ) | $ | (16,149 | ) | $ | (14,090 | ) | ||||
Accretion of issuance costs on redeemable convertible preferred stock | (429 | ) | (33 | ) | (456 | ) | (51 | ) | ||||||||
Accrued dividends on redeemable convertible preferred stock | (2,187 | ) | (1,476 | ) | (3,957 | ) | (2,728 | ) | ||||||||
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Net Loss attributable to common stockholders | $ | (10,964 | ) | $ | (8,406 | ) | $ | (20,562 | ) | $ | (16,869 | ) | ||||
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Denominator: | ||||||||||||||||
Weighted-average common shares outstanding—basic and diluted | 1,488,489 | 1,429,484 | 1,488,489 | 1,413,935 | ||||||||||||
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Net loss per share attributable to common stockholders—basic and diluted | $ | (7.37 | ) | $ | (5.88 | ) | $ | (13.81 | ) | $ | (11.93 | ) | ||||
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The following common stock equivalents outstanding at June 30, 20202021 and 20192020 have been excluded from the calculation of diluted net loss per share because their inclusion would have been antidilutive:
| June 30, | ||||||||
| 2020 | 2019 | |||||||
Options to purchase common stock | 1,073,044 | 812,539 | ||||||
Unvested restricted common stock | — | 5,376 | ||||||
Redeemable convertible preferred stock | 14,948,249 | 6,365,368 | ||||||
11
June 30, | ||||||||
2021 | 2020 | |||||||
Options to purchase common stock | 3,284,323 | 1,073,044 | ||||||
Redeemable convertible preferred stock | — | 14,948,249 | ||||||
million.
(“SNLA”) with Regeneron Pharmaceuticals, Inc. (“Regeneron”). The SNLA dictates the general terms that govern specific collaborative studies between the Company and Regeneron, including a Phase 2 proof of concept trial, with patient cohorts in
CTCSA. The costs of services performed, and material used in connection with the research and development activities of the CTCSA, Agreement, including reimbursements due to Pfizer, are included in research and development costs and expensed as incurred. The Company incurred $0.5$1.0 million and $0.1$0.5 million of expense during the threeyears ended December 31, 2020 and six months ended June 30,2019, respectively. By mutual agreement of the Company and the Alliance, the clinical trial was discontinued in 2020, respectively, and no expense relatingthe Company does not expect to incur any further costs in connection with the Pfizer reimbursement during the three and six months ended June 30, 2019.
CTCS
As of June 30, 2020,2021, the Company has incurred and paid license fees and milestone payments totaling $2.3$8.3 million pursuant to the Kuros License Agreement. These payments are comprised ofof: (i) a license fee of $1.0 million which was recognized in research and development expense in 2015, (ii) a $1.0 million milestone payment in connection with the dosing of the first patient in theour first Phase 1 clinical trial, which was recognized in research and development expense in 2016, and(iii) a $0.3 million license amendment fee in connection with the signing of the second amendment to the license agreementKuros License Agreement, which was recognized in research and development expense in 2018. As2018, (iv) a $2.0 million milestone payment in connection with the dosing of the first patient in the Phase 2 first-line melanoma trial for vidutolimod, which was recognized in the statement of operations for the three months ended March 31, 2021 and (v) a $4.0 million milestone payment in connection with the dosing in a Phase 2 trial intended to assess the efficacy and safety of vidutolimod in combination with nivolumab for the treatment of patients with
12 – SUBSEQUENT EVENTS
In August 2020, the Company’s boardoperations
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Report on Form common stock. or Quarterly Report, 20192020 included in our final prospectus, or the Prospectus, filed with the Securities and Exchange Commission, or the SEC,2020 Annual Report on August 7, 2020 relating to our Registration Statements on FormS-1 (File No. 333-239932).Report.CMP-001,vidutolimod (formerlyor TLR9,(“TLR9”), agonist delivered as a biologic virus-like particle or VLP,(“VLP”), utilizing aCMP-001vidutolimod is designed to trigger the body’s innate immune system, thereby altering the tumor microenvironment and directing activated anti-tumor T cells to attack both the injected tumor and also tumors throughout the body. In a clinical trial of CMP-001vidutolimod in combination with a systemic checkpoint inhibitor or CPI,(“CPI”), in patients whose tumors were unresponsive or no longer responsive to a CPI, we have observed a best objective response rate or ORR,(“ORR”), of 28% (27/98), including post-progression responders. We have assembled a strong management team and infrastructure to evaluate CMP-001are evaluating vidutolimod across multiple tumor types in combination with other immunotherapy agents. Our founder, Art Krieg, first reported the discovery of immunostimulatory cytosine-phosphate-guanine or CpG,(“CpG”), DNA in 1995, which, combined with the discovery of TLR9, led to the recognition that syntheticCMP-001vidutolimod as a foundational immuno-oncology therapy that engages the innate immune system to fight cancer and improve outcomes for patients with a broad range of solid tumors.CMP-001vidutolimod program, and the administrative support for such activities including raising capital, business planning, undertakingThrough2020,2021, we hadhave received net cash proceeds of $174.0$241.7 million from sales of redeemable convertibleour preferred stock, convertible debt and convertible debt.CMP-001vidutolimod or any other products we acquire or develop. Our net losses were $20.8$28.3 million and $28.3$36.9 million for the years ended December 31, 20182019 and 2019,2020, respectively, and for the six months ended June 30, 2020,2021, our net loss was $16.1$33.1 million. As of June 30, 2020,2021, we had an accumulated deficit of $117.8$173.2 million. We expect to continue to incur significant expenses and to increase operating losses for at least the next several years.initiateconduct additional clinical trials and preclinical studies of CMP-001,vidutolimod, including, among others, our currently anticipatedcurrent Phase 2 trial inandour current randomized Phase 22/3 trial in front-linefirst-line melanoma, and our currently anticipatedcurrent Phase 2 proof of concept study in head and neck squamous cell carcinoma, and our currently anticipated Phase 2 proof of concept trial with patient cohorts inCMP-001,vidutolimod, if any;approved;CMP-001vidutolimod and any other product candidates we choose to develop;
trials that could be impacted by
otherwise notified of actual costs. Any nonrefundable advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are expensed as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.
the Kuros License Agreement.
Change in Fair Value of Convertible Loan Notes
The fair value of the convertible loan notes at the time of conversion into the Series C preferred stock in June 2020 was determined to be equal to the value of the Series C preferred stock into which the convertible loan notes were converted, which was determined to be $1.6016 per share. The change in fair value of the convertible notes prior to close of the Series C preferred stock financing of $0.1 million primarily related to the accrued interest earned on the convertible notes prior to such financing.
On December 22, 2017, the Tax Cuts and Jobs Act, or TCJA, was signed into United States law. The TCJA includes a number of changes to then existing tax law, including, among other things, a permanent reduction in the federal corporate income tax rate from 35% to 21%, effective as of January 1, 2018, as well as limitation of the deduction for net operating losses to 80% of annual taxable income, for losses arising in taxable years beginning after December 31, 2017 (though any such net operating losses may be carried forward indefinitely). The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, signed into United States law on March 27, 2020 modifies certain provisions of the TCJA with respect to net operating losses. Under the CARES Act, the limitation on the deduction of net operating losses to 80% of annual taxable income is removed for taxable years beginning before January 1, 2021. The tax rate change under the TCJA resulted in (i) a reduction in the gross amount of our deferred tax assets as of December 31, 2017, without an impact on the net amount of our deferred tax assets, which are recorded with a full valuation allowance, and (ii) no income tax expense or benefit being recognized as of the enactment date of the TCJA.
operations
2020
| Three months ended | Six months ended | |||||||||||||||||||||||
| June 30, | Increase | June 30, | Increase | |||||||||||||||||||||
| 2020 | 2019 | (Decrease) | 2020 | 2019 | (Decrease) | |||||||||||||||||||
| (unaudited, in thousands) | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Research and development | $ | 6,476 | $ | 5,849 | $ | 627 | $ | 12,789 | $ | 12,049 | $ | 740 | ||||||||||||
General and administrative | 1,795 | 1,107 | 688 | 3,305 | 2,157 | 1,148 | ||||||||||||||||||
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Total operating expenses | 8,271 | 6,956 | (1,315 | ) | 16,094 | 14,206 | (1,888 | ) | ||||||||||||||||
Loss from operations | (8,271 | ) | (6,956 | ) | 1,315 | (16,094 | ) | (14,206 | ) | 1,888 | ||||||||||||||
Interest income | 6 | 59 | (53 | ) | 28 | 116 | (88 | ) | ||||||||||||||||
Change in fair value of convertible loan notes | (83 | ) | — | 83 | (83 | ) | — | 83 | ||||||||||||||||
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Total other income (expense) | (77 | ) | 59 | 136 | (55 | ) | 116 | 171 | ||||||||||||||||
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Net loss and comprehensive loss | $ | (8,348 | ) | $ | (6,897 | ) | $ | 1,451 | $ | (16,149 | ) | $ | (14,090 | ) | $ | 2,059 | ||||||||
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2020:
Three months ended | Six months ended | |||||||||||||||||||||||
June 30, | Increase | June 30, | Increase | |||||||||||||||||||||
2021 | 2020 | (Decrease) | 2021 | 2020 | (Decrease) | |||||||||||||||||||
(unaudited, in thousands) | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Research and development | $ | 14,865 | $ | 6,476 | $ | 8,389 | $ | 25,243 | $ | 12,789 | $ | 12,454 | ||||||||||||
General and administrative | 4,090 | 1,795 | 2,295 | 7,893 | 3,305 | 4,588 | ||||||||||||||||||
Total operating expenses | 18,955 | 8,271 | 10,684 | 33,136 | 16,094 | 17,042 | ||||||||||||||||||
Loss from operations | (18,955 | ) | (8,271 | ) | 10,684 | (33,136 | ) | (16,094 | ) | 17,042 | ||||||||||||||
Total other income (expense), net | (15 | ) | (77 | ) | (62 | ) | 38 | (55 | ) | 93 | ||||||||||||||
Net loss | $ | (18,970 | ) | $ | (8,348 | ) | $ | 10,622 | $ | (33,098 | ) | $ | (16,149 | ) | $ | 16,949 | ||||||||
associated with increased staffing.
associated with increased staffing.
associated with increased staffing.
Interest Income
Interest$0.6 million.
Change
The
conversion upon the sale of Series C preferred stock in June 2020, slightly offset by interest income.
capital resources
Since our inception, we have incurred recurring losses and generated negative operating cash flows. Our net loss was $20.8 million and $28.3 million for the years ended December 31, 2018 and 2019, respectively, and $16.1 million for the six months ended June 30, 2020.
As noted above, in August 2020 we completed an IPO in which we received net proceeds of approximately $67.0 million. In connection with the IPO all of our redeemable preferred stock converted to common stock. On September 3, 2020 the underwriters of the IPO exercised a portion of their overallotment option by purchasing an additional 109,861 shares from us at the IPO price, resulting in an additional $1.5 million in net proceeds.
| Six months ended |
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| June 30, | Increase | |||||||||||
| 2020 | 2019 | (decrease) | ||||||||||
| (unaudited, in thousands) | ||||||||||||
Net cash used in operating activities | $ | (16,042 | ) | $ | (14,705 | ) | $ | 1,337 | ||||
Net cash provided from financing activities | 92,146 | 11,023 | 81,123 | |||||||||
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Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 76,104 | $ | (3,682 | ) | $ | 79,786 | |||||
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Six months ended June 30, | Increase | |||||||||||
2021 | 2020 | (Decrease) | ||||||||||
( in thousands) | ||||||||||||
Net cash used in operating activities | $ | (29,696 | ) | $ | (16,042 | ) | $ | 13,654 | ||||
Net cash provided by investing activities | 49,617 | — | 49,617 | |||||||||
Net cash provided by financing activities | 134 | 92,146 | (92,012 | ) | ||||||||
Net increase in cash, cash equivalents and restricted cash | $ | 20,055 | $ | 76,104 | $ | (56,049 | ) | |||||
During the six months ended June 30,Q2 YTD 2020, net cash used in operating activities was $16.0 million, primarily resulting from our net loss of $16.1 million and cash used in operating activitiesworking capital of $0.2 million, partially offset by
options.
IPO.
We do not have any material principal contractual obligations and other commitments as of June 30, 2020.
2018, (iv) a $2.0 million milestone payment in connection with the dosing of the first patient in the Phase 2 first-line melanoma trial for vidutolimod, which we recognized in March 2021 and (v) a $4.0 million milestone payment in connection with the dosing in a Phase 2 trial intended to assess the efficacy and safety of vidutolimod in combination with nivolumab for the treatment of patients with
Off-Balance Sheet Arrangements
2021.
Recently issuedSecurities and Exchange Commission.
Smaller Reporting Company Status
As of June 30, 2020, we had no debt outstanding and therefore were not subject to interest rate risk related to debt.
investment portfolio.
Internal control over financial reportingIn the preparation of our financial statements in connection with our 2019 annual audit, we determined that a material weakness in our internal control over financial reporting existed during our fiscal year 2019. This weakness remains unremediated as of June 30, 2020. See “Risk Factors—We have identified a material weakness in our internal control over financial reporting. If we are unable to remediate this material weakness, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business.”
Our management, with the participation of our Chief Executive Officer In designing and Chief Business Officer, evaluated the effectiveness of the design and operation ofevaluating our disclosure controls and procedures, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based uponour management recognized that evaluation, our Chief Executive Officer and Chief Business Officer concluded that due to the material weakness, described below, our disclosureany controls and procedures, were not effective asno matter how well designed and operated, can provide only reasonable assurance of June 30, 2020.
The material weaknessachieving the desired control objectives, and our management necessarily was required to apply its judgment in internal control over financial reporting (as defined in Rule 13a-15(f)evaluating the cost-benefit relationship of the Exchange Act) related to the maintenance of an effective control environment commensurate with our financial reporting requirements. Specifically, we lacked sufficient personnel to maintain effective segregation of duties in the processing and recording of financial transactions.
This control deficiency did not result in any financial loss or any material impact to the financial statements for the periods covered by this Quarterly Report on Form 10-Q or for any prior periods.
To remediate the material weakness described above, we plan to restructure our finance organization and add additional personnel to allow us to maintain effective segregation of duties in the processing and recording of financial transactions. We expect that remediation will be completed by December 31, 2020 following sufficient operational time for the applicable remediatedpossible controls and subsequent testing.
procedures.
We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed on acceptable terms, or at all, could force us to delay, limit, reduce or terminate our product development or commercialization efforts.
Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to continue the clinical and preclinical development of CMP-001 and future product candidates. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives. If we are able to gain marketing approval of any product candidate, we will require significant additional amounts of cash in order to launch and commercialize such product. In addition, other unanticipated costs may arise.
Our future capital requirements depend on many factors, including:
the scope, progress, results and costs of researching and developing CMP-001 and our VLP technology and future product candidates, and conducting preclinical studies and clinical trials, including our currently anticipated Phase 2 trials for anti-PD-1 refractory melanoma and a randomized Phase 2 trial for front-line melanoma, including any unforeseen costs we may incur as a result of trial delays or other impacts due to the COVID-19 pandemic, discussed below;
the timing of, and the costs involved in, obtaining regulatory and marketing approvals for CMP-001 and future product candidates if clinical trials are successful;
the success of existing or any future collaborations;
the cost of commercialization activities for any approved product, including marketing, sales and distribution costs;
the cost of manufacturing CMP-001 and future product candidates for clinical trials;
our ability to establish and maintain strategic licensing or other arrangements and the financial terms of such agreements, including our license agreement with Kuros Biosciences AG (formerly known as Cytos Biotechnology LTD), or the Kuros License Agreement;
the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
the timing, receipt, and amount of sales of, or royalties on, our future products, if any; and
the emergence of competing cancer therapies and other adverse market developments.
We do not have any committed external source of funds or other support for our development efforts. Until we can generate sufficient product revenue to finance our cash requirements, which we may never do, we expect to finance our future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing or distribution arrangements.
We expect that our existing cash and cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements into the middle of 2023. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. In addition, because the design and outcome of our planned and anticipated clinical trials are highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of CMP-001 or any future product candidates.
We have never generated any revenue from product sales, and our ability to generate revenue from product sales and become profitable will depend significantly on our success in achieving a number of goals and on other factors.
Changes in tax law could adversely affect
The rules dealing with U.S. federal, state and local income taxation are constantly under review by persons involved in the legislative process and by the Internal Revenue Service, or IRS, and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future.
For example, the Tax Cuts and Jobs Act, or the TCJA, was enacted in 2017 and significantly reformed the Internal Revenue Code of 1986, as amended, or the Code. The TCJA, among other things, contained significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitations on the tax deduction for net interest expense (except for certain small businesses), limitations on the utilization of net operating losses, or NOLs, from taxable years beginning after December 31, 2017, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modification or repeal of many business deductions and credits.
It cannot be predicted whether, when, in what form or with what effective dates new tax laws may be enacted, or regulations and rulings may be promulgated or issued under existing or new tax laws, which could result in an increase in our or our shareholders’ tax liability or require changes in the manner in which we operate in order to minimize or mitigate any adverse effects of changes in tax law or in the interpretation thereof.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2019, we had U.S. federal NOL carryforwards of $80.7 million including $48.1 million which have an indefinite carryforward period and $32.6 million which expire at various dates through 2037. As of December 31, 2019, we had state net operating loss carryforwards of $67.2 million which expire at various dates between 2035 and 2039. As of December 31, 2019, we had federal and state research and development tax credit carryforwards of approximately $4.8 million available to reduce future tax liabilities, which begin to expire in 2031.
Under Sections 382 and 383 of the Code, and certain corresponding provisions of state law, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOL carryforwards or Credits to offset future taxable income or taxes. For these purposes, an ownership change generally occurs where the aggregate stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period. We may have experienced such ownership changes in the past, and we may experience ownership changes in the future as a result subsequent shifts in our stock ownership, some of which are outside our control. If finalized, Treasury Regulations currently proposed under Section 382 of the Code may further limit our ability to utilize our pre-change NOL carryforwards or Credits if we undergo a future ownership change. In addition, for taxable years beginning after December 31, 2020, the deductibility of federal NOLs generated in taxable years beginning after December 31, 2017 is limited to 80% of our taxable income in such year (after taking into account utilization of NOLs generated in taxable years beginning before January 1, 2018), where taxable income is determined without regard to such NOL deduction itself. Our NOLs or Credits may also be impaired under state law. Accordingly, due to these limitations, we may not be able to utilize a material portion of our NOLs or Credits. Furthermore, our ability to utilize our NOLs or Credits is conditioned upon our attaining profitability and generating U.S. federal and state taxable income. We have incurred significant net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future; and therefore, we do not know whether or when we will generate the U.S. federal or state taxable income necessary to utilize our NOLs or Credits.
A pandemic, epidemic, or outbreak of an infectious disease, such as the COVID-19 pandemic, may materially and adversely affect our business, including our preclinical studies, clinical trials, third parties on whom we rely, our supply chain, our ability to raise capital and our financial results.
We are subject to risks related to the public health crises such as the global pandemic associated with COVID-19, which we refer to as the COVID-19 pandemic. The COVID-19 pandemic originated in Wuhan, China, in December 2019 and has since spread to multiple countries, including the United States and most European countries. The pandemic and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, facilities and production have been suspended, and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. In response to the COVID-19
pandemic, we have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring all employees to work remotely, suspending all non-essential travel worldwide for our employees, and discouraging employee attendance at industry events and in-person work-related meetings, which could negatively affect our business. The extent to which the COVID-19 pandemic may impact our preclinical studies or clinical trial operations, as well as our supply chain, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, the severity of the COVID-19 pandemic, or the effectiveness of actions to contain and treat coronavirus.
The COVID-19 pandemic may also affect employees of third-party contract research organizations, or CROs, located in affected geographies that we rely upon to carry out our clinical trials. For example, a number of CMP-001 ongoing investigator-sponsored studies, including among others, the University of Pittsburgh-sponsored Phase 1/2 clinical trial evaluating CMP-001 in combination with nivolumab in advanced melanoma patients with lymph node disease and the Sheba Medical Center-sponsored Phase 1 trial evaluating CMP-001 in combination with nivolumab, ipilimumab and radiosurgery in subjects with metastatic colorectal cancer with liver metastases, have slowed or ceased enrollment. In addition, Pfizer Inc., or Pfizer, has currently paused enrollment of new patients in the ongoing JAVELIN Phase 2 trial, which may materially delay our plans to initiate a clinical trial evaluating CMP-001 for the treatment of advanced head and neck squamous cell carcinoma, or HNSCC. As COVID-19 continues to spread around the globe, we may experience additional disruptions that could severely impact our business and clinical trials, including:
delays or difficulties in enrolling patients in our clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials or absenteeism due to the COVID-19 pandemic that reduces site resources;
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures, the occurrence of which could affect the integrity of clinical trial data;
risk that participants enrolled in our clinical trials will acquire the COVID-19 coronavirus while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events or patient withdrawals from our trials;
limitations in employee resources that would otherwise be focused on conducting our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;
delays in receiving authorizations from local regulatory authorities to initiate our planned clinical trials;
delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials;
interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in our clinical trials;
changes in local regulations as part of a response to the COVID-19 coronavirus pandemic which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;
interruptions or delays in preclinical studies due to restricted or limited operations at research and development laboratory facilities;
delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; and
refusal of the FDA to accept data from clinical trials in affected geographies outside the United States.
Any negative impact COVID-19 has to patient enrollment or treatment or the development of CMP-001 and future product candidates could cause costly delays to clinical trial activities, which could adversely affect our ability to obtain regulatory approval for and to commercialize CMP-001 and future product candidates, if approved, increase our operating expenses, and have a material adverse effect on our financial results. The COVID-19 pandemic has also caused significant volatility in public equity markets and disruptions to the U.S. and global economies. This increased volatility and economic dislocation may make it more difficult for us to raise capital on favorable terms, or at all.
Although we have begun to experience the impact of the COVID-19 pandemic on our business and operations, we cannot currently predict the scope and severity of any potential business shutdowns or disruptions. If we or any of the third parties with whom we engage, however, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business and our results of operations and financial condition. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also heighten many of the other risks described in this ‘‘Risk Factors’’ section, such as those relating to the timing and completion of our clinical trials and our ability to obtain future financing.
Risks related to product development
We are heavily dependent on the success of CMP-001,vidutolimod, our only product candidate.
The results of preclinical studies, preliminary study results, and early clinical trials of CMP-001vidutolimod and future product candidates may not be predictive of the results of later-stage clinical trials or of the results of clinical trials conducted in other types of cancer orCMP-001Vidutolimod and future product candidates may not perform as we expect, and we may be unable to demonstrate to the FDA’s satisfaction that CMP-001vidutolimod or any future product candidates are safe, pure, and potent, or effective for their desired indications. These setbacks may result in enhanced scrutiny by regulators or institutional review boards or IRBs,(“IRBs”) of clinical trials of product candidates, including CMP-001,vidutolimod, which could result in regulators or IRBs prohibiting the commencement of clinical trials, requiring additional nonclinical studies as a precondition to commencing clinical trials or imposing restrictions on the design or scope of clinical trials, as well as increasing the costs of trials or limiting the significance of the results of trials. Such setbacks could also adversely impact the desire of investigators to enroll patients in, and the desire of patients to enroll in, clinical trials of our product candidates.
a controlled environment with a placebo or active control.
We anticipate that CMP-001
CMP-001
If we fail to develop
We expect initiallyare developed through preclinical studies to focus our resources onlater-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize processes and results. Any of CMP-001. Part of our strategy, however, is to pursue clinical development of additional product candidates using our VLP technology. Developing, obtaining marketing approval for, and commercializingthese changes could cause vidutolimod or any future product candidates willto perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. Such changes may also require substantial additional fundingtesting, or notification to, or approval by, the FDA or a comparable foreign regulatory authority. This could delay completion of clinical trials, require the conduct of bridging clinical trials or studies, require the repetition of one or more clinical trials, increase clinical trial costs, delay approval of vidutolimod and will be subject to the risks of failure inherent in drug product development. We cannot assure you that we will be able to successfully advance any future product candidates through the development process.
Even if we obtain approval from the FDA or comparable foreign regulatory authoritiesand jeopardize our ability to market any futurecommence product candidates for any indication, we cannot assure you that any such product candidates will be successfully commercialized, widely accepted in the marketplace, or more effective than other commercially available alternatives. sales and generate revenue.
Difficulty
Identifyingmake for the products;
The eligibility criteria of our planned clinical trials will further limit the pool of available study participants asmake it more difficult for us to raise capital on favorable terms, or at all.
The enrollment of patients further depends on many factors, including:
the design of the clinical trial;
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
our ability to obtain and maintain patient consents;
reporting
the ability to monitor patients adequately during and after treatment; and
the risk that patients enrolled in clinical trials will drop out of the clinical trials before clinical trial completion.
If we experience delays in the completion of, or termination of, any clinical trial of CMP-001 or any future product candidates, the commercial prospects of CMP-001 or such future product candidates will be harmed, and our ability to generate product revenue from such product candidates could be delayed or prevented.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
Due to our limited financial and managerial resources, we must focus on a limited number of research programs and product candidates and on specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future discovery and preclinical development programs and product candidates for specific indications may not yield any commercially viable products.
CMP-001 is based on a novel approach to the treatment of cancer, which makes it difficult to predict the time and cost of product candidate development.
While oncolytic immunotherapies are an emerging class of cancer treatment, they remain a novel approach. We have concentrated all of our research and development efforts on CMP-001, and our future success depends on the successful development of this therapeutic approach. Should we encounter development problems, the FDA and foreign regulatory authorities may refuse to approve CMP-001, or may require additional information, tests, or trials, which could significantly delay product development and significantly increase our development costs. Moreover, even if we are able to provide the requested information or clinical data to the FDA or foreign regulatory authority, there would be no guarantee that the FDA or foreign regulatory authority would accept them or approve CMP-001. We or our contract manufacturing organizations, or CMOs, may also experience delays in developing a sustainable, reproducible and scalable manufacturing process, or developing or qualifying and validating product release assays, other testing and manufacturing methods, and our or their equipment and facilities in a timely manner, which may prevent us from completing our clinical trials or commercializing CMP-001 or future product candidates on a timely or profitable basis, if at all.
In addition, the clinical trial requirements of the FDA and comparable foreign regulatory authorities and the criteria these regulators use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The FDA and comparable foreign regulatory authorities have limited experience with the approval of oncolytic immunotherapies, which could lengthen the regulatory review process. Any product candidates that are approved may be subject to extensive post-approval regulatory requirements, including requirements pertaining to manufacturing, distribution, and promotion. We may need to devote significant time and resources to compliance with these requirements which could increase our development costs and delay or prevent commercialization of CMP-001 or any future product candidates.
government regulation
CMP-001
preclinical testing, the FDA or comparable foreign regulatory authority may order us to cease further development, decline to approve the product candidate or issue a letter requesting additional data or information prior to making a final decision regarding whether or not to approve the product candidate. The FDA or comparable foreign regulatory authorities, or IRBs and other reviewing entities, may also require, or we may voluntarily develop, strategies for managing adverse events during clinical development, which could include restrictions on our enrollment criteria, the use of stopping criteria, adjustments to a study’s design, or the monitoring of safety data by a data monitoring committee, among other strategies. For example, patients enrolled in our ongoing clinical trials of CMP-001vidutolimod have experienced mild to moderate adverse events, consisting mainly ofCMP-001vidutolimod and future product candidates.
Changes in product candidate manufacturing or formulation may result in additional costs or delay.
As product candidates are developed through preclinical studies to later-stage clinical trials towards approval and commercialization, it is common that various aspects of the development program, such as manufacturing methods and formulation, are altered along the way in an effort to optimize processes and results. Any of these changes could cause CMP-001 or any future product candidates to perform differently and affect the results of planned clinical trials or other future clinical trials conducted with the altered materials. Such changes may also require additional testing, or notification to, or approval by the FDA or a comparable foreign regulatory authority. This could delay completion of clinical trials, require the conduct of bridging clinical trials or studies, require the repetition of one or more clinical trials, increase clinical trial costs, delay approval of CMP-001 and future product candidates and jeopardize our ability to commence product sales and generate revenue.
Even if CMP-001 or any future product candidates receive regulatory approval, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense and limit how we manufacture and market our products.
Any product candidate for which we may obtain marketing approval will be subject to extensive and ongoing requirements of and review by the FDA and comparable foreign regulatory authorities, including requirements related to the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising, marketing, and promotional activities for such product. These requirements further include submissions of safety and other post-marketing information, including manufacturing deviations and reports, registration and listing requirements, the payment of annual fees, continued compliance with current good manufacturing practice, or cGMP, requirements relating to manufacturing, quality control, quality assurance, and corresponding maintenance of records and documents, and good clinical practices, or GCPs, for any clinical trials that we conduct post-approval.
The FDA and comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after approval. If the FDA or comparable foreign regulatory authorities become aware of new safety information after approval of any of CMP-001 and future product candidates, they may withdraw approval, issue public safety alerts, require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on a product’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Any such restrictions could limit sales of the product.
We and any of our suppliers or collaborators, including our contract manufacturers, could be subject to periodic unannounced inspections by the FDA to monitor and ensure compliance with cGMPs and other FDA regulatory requirements. Application holders must further notify the FDA, and depending on the nature of the change, obtain FDA pre-approval for product and manufacturing changes.
In addition, later discovery of previously unknown adverse events or that the product is less effective than previously thought or other problems with any products, manufacturers or manufacturing processes, or failure to comply with regulatory requirements both before and after approval, may yield various negative results, including:
restrictions on manufacturing, distribution, or marketing of such products;
restrictions on the labeling, including required additional warnings, such as boxed warnings, contraindications, precautions, and restrictions on the approved indication or use;
modifications to promotional pieces;
issuance of corrective information;
requirements to conduct post-marketing studies or other clinical trials;
clinical holds or termination of clinical trials;
requirements to establish or modify a REMS or similar strategy;
changes to the way the product is administered to patients;
liability for harm caused to patients or subjects;
reputational harm;
the product becoming less competitive;
warning or untitled letters;
suspension of marketing or withdrawal of the products from the market;
regulatory authority issuance of safety alerts, Dear Healthcare Provider letters, press releases, or other communications containing warnings or other safety information about the product;
refusal to approve pending applications or supplements to approved applications that we submit;
recalls of products;
fines, restitution or disgorgement of profits or revenues;
suspension or withdrawal of marketing approvals;
refusal to permit the import or export of our products;
product seizure or detention;
FDA debarment, suspension and debarment from government contracts, and refusal of orders under existing government contracts, exclusion from federal healthcare programs, consent decrees, or corporate integrity agreements; or
injunctions or the imposition of civil or criminal penalties, including imprisonment.
Any of these events could prevent us from achieving or maintaining market acceptance of any particular product or could substantially increase the costs and expenses of commercializing such product, which in turn could delay or prevent us from generating significant revenues from its marketing and sale. Any of these events could further have other material and adverse effects on our operations and business and could adversely impact our business, financial condition, results of operations, stock price and prospects.
Further, the FDA’s policies or those of comparable foreign regulatory authorities may change and could impose extensive and ongoing regulatory requirements and obligations on any product candidate for which we obtain marketing approval. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and be subject to regulatory enforcement action, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
Regulatory approval by the FDA or comparable foreign regulatory authorities is limited to those specific indications and conditions for which approval has been granted, and we may be subject to substantial fines, criminal penalties, injunctions, or other enforcement actions if we are determined to be promoting the use of our products for unapproved or
may seek ahave received Fast Track designation by the FDA for CMP-001 orvidutolimod for certain designations and may seek such designation for any future product candidates, but such designation may not lead to a faster development or regulatory review or approval process and does not increase the likelihood that CMP-001vidutolimod and future product candidates will receive marketing approval.
CMP-001vidutolimod or any future product candidates in one jurisdiction does not mean that we will be successful in obtaining regulatory approval of CMP-001vidutolimod or any future product candidates in other jurisdictions.
Separately,
Risks related In 2020 and 2021, a number of companies announced receipt of complete response letters due to commercialization
Ifthe FDA’s inability to complete required inspections for their applications.
If we are successful in obtaining marketing approval from applicablesubject to extensive and ongoing requirements of and review by the FDA and comparable foreign regulatory authorities, including requirements related to the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising, marketing, and promotional activities for CMP-001such product. These requirements further include submissions of safety and other post-marketing information, including manufacturing deviations and reports, registration and listing requirements, the payment of annual fees, continued compliance with current good manufacturing practices (“cGMPs”), requirements relating to manufacturing, quality control, quality assurance, and corresponding maintenance of records and documents, and good clinical practices (“GCPs”) for any clinical trials that we conduct post-approval.
launching commercial sales of CMP-001vidutolimod and future product candidates, whether alonethey may withdraw approval, issue public safety alerts, require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on a product’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval studies or post-market surveillance. Any such restrictions could limit sales of the product.
receiving an approved label with claimsthe supply chain must also meet chain of distribution requirements and build electronic, interoperable systems for product tracking and tracing and for notifying the FDA of counterfeit, diverted, stolen and intentionally adulterated products or other products that are necessary or desirableotherwise unfit for successful marketing, and that does not contain safety or other limitations that would impede our ability to market CMP-001 or any future product candidates;
creating market demand for our product candidates through marketing, sales and promotion activities;
hiring, training, and deploying a sales force or contracting with third parties to commercialize CMP-001 or any future product candidatesdistribution in the United States;
establishing and maintaining agreements with wholesalers, distributors, and group purchasing organizations on commercially reasonable terms;
creating partnerships with,refusal of orders under existing government contracts, exclusion from federal healthcare programs, consent decrees, or offering licenses to, third parties to promote and sell product candidates in foreign markets where we receive marketing approval;
maintaining patent and trade secret protection and regulatory exclusivity for CMP-001
achieving appropriate reimbursement for CMP-001 or any future product candidates;
effectively competing withsale. Any of these events could further have other therapies;material and
maintaining an acceptable tolerability profile of CMP-001 or any future product candidates following launch.
To the extent we are not able to do any of the foregoing, adverse effects on our operations and business and could adversely impact our business, financial condition, results of operations, stock price and prospects will be materially harmed.
We face significant competition from other biopharmaceutical and biotechnology companies, academic institutions, government agencies, and other research organizations, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us. If their product candidates are shown to be safer or more effective than ours, our commercial opportunity may be reduced or eliminated.
The development and commercialization of cancer immunotherapy products is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary rights. We face competition with respect to CMP-001, and will face competition with respect to any product candidates that we may seek to develop or commercialize in the future, from major biopharmaceutical companies, specialty biopharmaceutical companies, and biotechnology companies worldwide. There are a number of large biopharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of solid tumors, including oncolytic immunotherapy and cancer vaccine approaches. Additionally, certain companies whom we view as our most direct potential competitors are currently developing therapies utilizing TLR9 agonists in cancer immunotherapy that may have utility for similar indications that we are targeting. Potential competitors also include academic institutions, government agencies, and other public and private research organizations that conduct research, seek patent protection, and establish collaborative arrangements for research, development, manufacturing, and commercialization.
While CMP-001 is intended to be used in combination with other drugs with different mechanisms of action, if and when marketed it will still compete with a number of drugs that are currently marketed or in development that also target cancer. To compete effectively with these drugs, CMP-001 or any future product candidates will need to demonstrate advantages in clinical efficacy and safety compared to these competitors when used alone or in combination with other drugs.
Our commercial opportunities could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are easier to administer or are less expensive alone or in combination with other therapies than any products that we may develop alone or in combination with other therapies. Our competitors also may obtain
Many of the companies with which we are competing or may compete in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketing approved products than we do. Mergers and acquisitions in the biopharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in developing or acquiring technologies complementary to, or necessary for, our programs. If we are unable to successfully compete with these companies our business, financial condition, results of operations, stock price and prospects may be materially harmed.
If we are unable to establish effective marketing, sales and distribution capabilities or enter into agreements with third parties to market and sell CMP-001 or any future product candidates, if they are approved, the revenues that we generate may be limited and we may never become profitable.
We currently do not have a commercial infrastructure for the marketing, sale, and distribution of our cancer immunotherapies. If CMP-001 or any future product candidates receive marketing approval, we intend to commercialize such product candidates on our own in the United States and potentially with pharmaceutical or biotechnology partners in other geographies. In order to commercialize our products, we must build our marketing, sales, and distribution capabilities or make arrangements with third parties to perform these services. We may not be successful in doing so. Should we decide to move forward in developing our own marketing capabilities, we may incur expenses prior to product launch or even approval in order to recruit a sales force and develop a marketing and sales infrastructure. If a commercial launch is delayed as a result of the FDA’s or comparable foreign regulatory authority’s requirements or for other reasons, we would incur these expenses prior to being able to realize any revenue from sales of CMP-001 and future product candidates. Even if we are able to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing teams may not be successful in commercializing CMP-001 or any future product candidates. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.
We may also or alternatively decide to collaborate with third-party marketing and sales organizations to commercialize any approved product candidates in the United States, in which event, our ability to generate product revenues may be limited. To the extent we rely on third parties to commercialize any products for which we obtain regulatory approval, we may receive less revenues than if we commercialized these products ourselves, which could materially harm our prospects. In addition, we would have less control over the sales efforts of any other third parties involved in our commercialization efforts, and could be held liable if they failed to comply with applicable legal or regulatory requirements.
We have no prior experience in the marketing, sale, and distribution of biopharmaceutical products, and there are significant risks involved in building and managing a commercial infrastructure. The establishment and development of commercial capabilities, including compliance plans, to market any products we may develop will be expensive and time consuming and could delay any product launch, and we may not be able to successfully develop this capability. We will have to compete with other biopharmaceutical and biotechnology companies, including oncology-focused companies, to recruit, hire, train, manage, and retain marketing and sales personnel, which is expensive and time consuming and could delay any product launch. Developing our sales capabilities may also divert resources and management attention away from product development.
In the event we are unable to develop a marketing and sales infrastructure, we may not be able to commercialize CMP-001 or any future product candidates in the United States or elsewhere, which could limit our ability to generate product revenues and materially harm our business, financial condition, results of operations, stock price and prospects. Factors that may inhibit our efforts to commercialize CMP-001 or any future product candidates include:
the inability to recruit, train, manage, and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians to prescribe CMP-001 or any future product candidates;
our inability to effectively oversee a geographically dispersed sales and marketing team;
the costs associated with training sales and marketing personnel on legal and regulatory compliance matters and monitoring their actions;
an inability to secure adequate coverage and reimbursement by government and private health plans;
the clinical indications for which the products are approved and the claims that we may make for the products;
limitations or warnings, including distribution or use restrictions, contained in the product’s approved labeling;
any distribution and use restrictions imposed by the FDA or comparable foreign regulatory authorities or to which we agree as part of a mandatory REMS or voluntary risk management plan;
liability for sales or marketing personnel who fail to comply with the applicable legal and regulatory requirements;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization or engaging a contract sales organization.
If CMP-001 or any future product candidates do not achieve broad market acceptance, the revenues that we generate from their sales may be limited, and we may never become profitable.
We have never commercialized a product candidate for any indication. Even if CMP-001 and future product candidates are approved by the appropriate regulatory authorities for marketing and sale, they may not gain acceptance among physicians, patients, third-party payors, and others in the medical community. If any product candidates for which we obtain regulatory approval do not gain an adequate level of market acceptance, we could be prevented from or significantly delayed in achieving profitability. Market acceptance of CMP-001 and future product candidates by the medical community, patients, and third-party payors will depend on a number of factors, some of which are beyond our control. For example, physicians are often reluctant to switch their patients and patients may be reluctant to switch from existing therapies even when new and potentially more effective or safer treatments enter the market.
Efforts to educate the medical community and third-party payors on the benefits of CMP-001 and our novel approach to cancer treatment, and future product candidates, may require significant resources and may not be successful. If CMP-001 or any future product candidates are approved but do not achieve an adequate level of market acceptance, we could be prevented from or significantly delayed in achieving profitability. The degree of market acceptance of CMP-001 and future product candidates will depend on a number of factors, including:
the efficacy of our CMP-001 and our VLP modality, and future product candidates alone or in combination with checkpoint inhibitor immunotherapies or other therapies;
the commercial success of the checkpoint blockade drugs with which CMP-001 or future products are or may be co-administered;
the prevalence and severity of adverse events associated with CMP-001 and future product candidates or those products with which they are co-administered;
the clinical indications for which the products are approved and the approved claims that we may make for the products;
limitations or warnings contained in the product’s FDA-approved labelingpolicies or those of comparable foreign regulatory authorities including potential limitations or warnings for CMP-001may change and future product candidates that may be more restrictive than other competitive products;
changes in the standard of care for the targeted indications for CMP-001could impose extensive and future product candidates, which could reduce the marketing impact of any claims that we could make following FDA approval or approval by comparable foreignongoing regulatory authorities, if obtained;
the relative convenience and ease of administration of CMP-001 and future product candidates and any products with which they are co-administered;
the cost of treatment compared with the economic and clinical benefit of alternative treatments or therapies;
the availability of adequate coverage or reimbursement by third parties, such as insurance companies and other healthcare payors, and by government healthcare programs, including Medicare and Medicaid;
the price concessions required by third-party payors to obtain coverage;
the extent and strength of our marketing and distribution of CMP-001 and future product candidates;
the safety, efficacy, and other potential advantages over, and availability of, alternative treatments already used or that may later be approved;
distribution and use restrictions imposed by the FDA or comparable foreign regulatory authorities with respect to CMP-001 and future product candidates or to which we agree as part of a REMS or voluntary risk management plan;
the timing of market introduction of CMP-001 and future product candidates, as well as competitive products;
our ability to offer CMP-001 and future product candidates for sale at competitive prices;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the extent and strength of our third-party manufacturer and supplier support;
the actions of companies that market any products with which CMP-001 and future product candidates are co-administered;
the approval of other new products;
adverse publicity about CMP-001 and future product candidates or any products with which they are co-administered, or favorable publicity about competitive products; and
potential product liability claims.
The size of the potential markets for CMP-001 or any future product candidates is difficult to estimate and, if any of our assumptions are inaccurate, the actual markets for CMP-001 or any future product candidates may be smaller than our estimates.
The potential market opportunities for CMP-001 or any future product candidates are difficult to estimate and will depend in large part on the drugs with which CMP-001 or any future product candidates are co-administered and the success of competing therapies and therapeutic approaches. Our estimates of the potential market opportunities in melanoma, HNSCC and other indications are predicated on many assumptions, which may include industry knowledge and publications, third-party research reports, and other surveys. Although we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain, and their reasonableness has not been assessed by an independent source. If any of the assumptions proves to be inaccurate, the actual markets and patient populations eligible for CMP-001 and future product candidates could be smaller than our estimates of the potential market opportunities.
Negative developments in the field of immuno-oncology could damage public perception of CMP-001 or any future product candidates and negatively affect our business.
The commercial success of CMP-001 or any future product candidates will depend in part on public acceptance of the use of cancer immunotherapies. Adverse events in clinical trials of CMP-001 or any future product candidates or in clinical trials of others developing similar products and the resulting publicity, as well as any other negative developments in the field of immuno-oncology that may occur in the future, including in connection with competitor therapies, could result in a decrease in demand for CMP-001 or any future product candidates that we may develop. These events could also result in the suspension, discontinuation, or clinical hold of or modification to our clinical trials. If public perception is influenced by claims that the use of cancer immunotherapies is unsafe, whether related to our therapies or those of our competitors, CMP-001 and future product candidates may not be accepted by the general public or the medical community and potential clinical trial subjects may be discouraged from enrolling in our clinical trials. As a result, we may not be able to continue or may be delayed in conducting our development programs.
Future negative developments in the field of immuno-oncology or the biopharmaceutical industry could also result in greater governmental regulation, stricter labeling requirements and potential regulatory delays in the testing or approvals of CMP-001 or any future product candidates. Any increased scrutiny could delay or increase the costs of obtaining marketing approval for CMP-001 or any future product candidates.
Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of CMP-001 and future product candidates that we may develop.
We will face an inherent risk of product liability exposure related to the testing of CMP-001 and future product candidates in human clinical trials and will face an even greater risk if we commercially sell CMP-001 or any future product candidates that we may develop. If we cannot successfully defend ourselves against claims that CMP-001 and future product candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
decreased demand for any of CMP-001 and future product candidates that we may develop;
injury to our reputation and significant negative media attention;
regulatory investigations that could require costly recalls or product modifications;
withdrawal of clinical trial participants;
significant costs to defend the related litigation;
substantial monetary awards to trial participants or patients;
loss of revenue;
the diversion of management’s attention away from managing our business; and
the inability to commercialize CMP-001 and future product candidates that we may develop.
Although we maintain product liability insurance coverage, it may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage when we begin clinical trials and if we successfully commercialize any product candidate. Insurance coverage is increasingly expensive. We may not be able to maintain product liability insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.
Even if we are able to commercialize CMP-001 or any future product candidates, such drugs may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which would harm our business.
The regulations that govern regulatory approvals, pricing and reimbursement for new drugs vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product candidate in a particular country, but then be subject to price regulations that delay our commercial launch of the product candidate, possibly for lengthy time periods, and negatively impact the revenues we are able to generate from the sale of the product candidate in that country. Adverse pricing limitations may hinder our ability to recoup our investment in CMP-001 or any future product candidates, even if CMP-001 and future product candidates obtain marketing approval.
Our ability to commercialize CMP-001 and future product candidates successfully also will depend in partobligations on the extent to which coverage and reimbursement for CMP-001 and future product candidates and related treatments will be available from third-party payors, including government authorities, private health insurers and other organizations. Third-party payors decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular drugs. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for drugs. For products administered under the supervision of a physician, such as CMP-001, obtaining coverage and adequate reimbursement may be particularly difficult because of the higher prices often associated with such drugs. We cannot be sure that coverage will be available for any product candidate that we commercialize and, if coverage is available, the level of reimbursement. Reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval. If reimbursement iswe are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not available or is available onlyable to limited levels,maintain regulatory compliance, we may not be able to successfully commercializelose any product candidate for which we obtain marketing approval.
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or similar regulatory authorities outside the United States. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacturing, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private payors for any approved drugsapproval that we develop couldmay have a material adverse effect onobtained and be subject to regulatory enforcement action, which would adversely affect our operating results, ourbusiness, prospects and ability to raise capital needed to commercialize drugs and our overall financial condition.
achieve or sustain profitability.
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted that may impact our business if we are able to commercialize any product candidates. In August 2011, the Budget Control Act of 2011, among other things, included aggregate reductions of Medicare payments to providers up to 2% per fiscal year, and, due to subsequent legislative amendments, will remain in effect through 2029 unless additional Congressional action is taken. Theincluding the Coronavirus Aid, Relief and Economic Security Act or(“CARES Act”) will remain in effect through 2030 unless additional Congressional action is taken. Pursuant to the CARES Act, which was signed into law on March 27, 2020 designed to provide financial support and resources to individuals and businesses affected by thesuspendedand subsequent legislation, these reductions have been suspended from May 1, 2020 through December 31, 2020, and extended2021. Proposed legislation, if passed, would extend this suspension until the sequester by one year, through 2030end of the pandemic. In addition, hethe American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
Additionally, in May 2019, CMS issued a final rule to allow Medicare Advantage Plans the option of using step therapy, a type of prior authorization, for Part B drugs beginning January 1, 2020. This final rule codified CMS’s policy change that was effective January 1, 2019. However, it is unclear whether the Biden administration will challenge, reverse, revoke or otherwise modify these executive and administrative actions after January 20, 2021.
biosimilar competition.
We review each individual request for access through the Cures Act, the Right to Try Act and similar state laws, and may or may not provide access depending upon the facts of each request. Checkmate has adopted an Expanded Access Policy which is available on our website.
Our commercial success will depend in part on the maintenance of our license agreements. Currently, we
Third parties may in the future initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could harm our business.
Our commercial success depends on our ability and the ability of our current or future collaborators to develop, manufacture, market and sell CMP-001 and future product candidates, and to use our related proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property and proprietary rights of third parties. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. We may become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to CMP-001 and future product candidates, including interference proceedings, post-grant review, inter partes review and derivation proceedings before the U.S. Patent and Trademark Office, or USPTO. Third parties may assert infringement or other intellectual property claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party’s intellectual property rights, and we are unsuccessful in demonstrating that such intellectual property rights are invalid or unenforceable, we could be required to obtain a license from such third party to continue developing, manufacturing and commercializing CMP-001 and future product candidates. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing and royalty payments. We also could be forced, including by court order, to cease developing, manufacturing, and commercializing CMP-001 or any future product candidates. In addition, in any such proceeding or litigation, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar material adverse effect on our business.
In addition, we are developing CMP-001 in combination with certain PD-1 blockades, including avelumab, pembrolizumab and nivolumab, which are covered by patents or licenses held by Merck KGaA and Pfizer, Merck US and Bristol Myers Squibb, respectively, to which we do not have a license other than for use in connection with the applicable clinical trial. We also may develop any future product candidates in combination with products developed by additional companies that are covered by patents or licenses held by those entities to which we do not have a license. In the event that a labeling instruction is required in product packaging recommending that combination, we could be accused of, or held liable for, infringement of the third-party patents covering the product candidate or product recommended for administration with CMP-001 or any future product candidates. In such a case, we could be required to obtain a license from the other company or institution to use the required or desired package labeling, which may not be available on commercially reasonable terms, or at all.
The USPTOU.S. Patent and Trademark Office (the “USPTO”) and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payments and other similar provisions during the patent application process and to maintain patents after they are issued. For example, periodic maintenance fees, renewal fees, annuity fees and various other government fees on issued patents and patent applications often must be paid to the USPTO and foreign patent agencies over the lifetime of our licensed patents or any patents we own in the future. In certain circumstances, we may rely on future licensing partners to take the necessary action to comply with these requirements with respect to licensed intellectual property. Although an unintentional lapse can be cured for a period of time by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction.CMP-001vidutolimod or any future product candidates, which could have a material adverse effect on our business.
Patent terms may be inadequate to protect our competitive position with respect to CMP-001 and future product candidates for an adequate amount of time.
Given the amount of time required for the development, testing and regulatory review of new product candidates, such as CMP-001 and future product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits a patent term extension of up to five years beyond the normal expiration of the patent, but no longer than 14 years from the product’s approval date, which is limited to the approved indication (or any additional indications approved during the period of extension). However, the applicable authorities, including the USPTO in the United States, and any equivalent regulatory authorities in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their products earlier than might otherwise be the case, which could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.
CMP-001 and future product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.
CMP-001 is a biological product candidate. We believe that any of our product candidates approved in the United States as a biological product under a BLA should qualify for the 12-year period of regulatory exclusivity. The enactment of the Biologics Price Competition and Innovation Act of 2009, or BPCIA, as part of the ACA, created an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. Certain changes, however, and supplements to an approved BLA, and subsequent applications filed by the same sponsor, manufacturer, licensor, predecessor in interest, or other related entity do not qualify for the 12-year exclusivity period. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement the BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological products.
However, there is also a risk that this exclusivity could be changed in the future. For example, this exclusivity could be shortened due to congressional action or through other actions, including future proposed budgets, international trade agreements and other arrangements or proposals. The extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing. It is also possible that payers will give reimbursement preference to biosimilars over reference biologics, even absent a determination of interchangeability.
To the extent that we do not receive any anticipated periods of regulatory exclusivity for CMP-001 and future product candidates or the FDA or foreign regulatory authorities approve any biosimilar, interchangeable, or other competing products to CMP-001 and future product candidates, it could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.
Intellectual property rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
we, or our current or future collaborators, might not have been the first to file patent applications covering certain of our or their inventions;
others may independently develop similar or alternative technologies or duplicate our technology without infringing our owned or in-licensed intellectual property rights;
it is possible that our pending patent applications or those we may own or in-license in the future will not lead to issued patents;
issued patents that we hold rights to may be held invalid or unenforceable, including as a result of legal challenges by our competitors;
our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
we cannot ensure that any of our pending patent applications, if issued, or those of our licensors, will include claims having a scope sufficient to protect our product candidates;
we cannot ensure that any patents issued to us or our licensors will provide a basis for an exclusive market for our commercially viable product candidates or will provide us with any competitive advantages;
we cannot ensure that our commercial activities or product candidates will not infringe upon the patents of others;
we cannot ensure that we will be able to successfully commercialize our product candidates on a substantial scale, if approved, before the relevant patents that we own or license expire;
we may not develop additional proprietary technologies that are patentable;
the patents of others may harm our business; and
we may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.
Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations, stock price and prospects.
Risks related to manufacturing and our reliance on third parties
CMP-001
As of June 30, 2020,2021, we had 2125 full-time employees, and in connection with becoming a public company, we expect to increase our number of employees and the scope of our operations. To manage our anticipated development and expansion, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from itsThis may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. See “– We have identified a material weakness in our internal control over financial reporting. If we are unable to remediate this material weakness, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business.” The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the development of CMP-001vidutolimod and future product candidates. If our management is unable to effectively manage our expected development and expansion, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize CMP-001vidutolimod and future product candidates, if approved, and to compete effectively will depend, in part, on our ability to effectively manage the future development and expansion of our company.
In addition, our independent registered public accounting firm will be required to provide an attestation report on our internal control over financial reporting. However, while we remain an emerging growth company, we will not be required to provide the attestation report.
We determinedbusiness and may cause investors to lose confidence in our reported financial information and may lead to a decline in our stock price.
reportable conditions.
Prior
transactions.
demands that are placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act. If we engage in future acquisitionsfail to adequately staff our accounting and finance function, or strategic partnerships, our capital requirements may increase, our stockholders may be diluted, we may incur debt or assume contingent liabilities, and we may be subject to other risks.
We may evaluate various acquisitions and strategic partnerships, including licensing or acquiring complementary products, intellectual property rights, technologies, or businesses. Any potential acquisition or strategic partnership may entail numerous risks, including:
increased operating expenses and cash requirements;
the assumption of additional indebtedness or contingent liabilities;
the issuance of our equity securities;
assimilation of operations, intellectual property and products of an acquired company, including difficulties associated with integrating new personnel;
the diversion of our management’s attention from our existing product programs and initiatives in pursuing such a strategic merger or acquisition;
retention of key employees, the loss of key personnel, and uncertainties in our abilityfail to maintain key business relationships;
risksadequate internal control over financial reporting, any new or recurring material weaknesses could prevent our management from concluding our internal control over financial reporting is effective and uncertainties associated with the other party to such a transaction, including the prospects of that party, their regulatory compliance status, and their existing products or product candidates and marketing approvals; and
our inability to generate revenue from acquired technology or products sufficient to meet our objectives in undertaking the acquisition or even to offset the associated acquisition and maintenance costs.
In addition, if we undertake acquisitions, we may issue dilutive securities, assume or incur debt obligations, incur large one-time expenses and acquire intangible assets that could result in significant future amortization expense. Moreover, we may not be able to locate suitable acquisition opportunities and this inability could impair our ability to grow or obtain access to technology or products that may be important to the development ofprevent material misstatements in our business. Any of the foregoing may materially harmfinancial statements, which could cause our business financial condition, results of operations, stock price and prospects.
Unstable market and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
Global financial markets are experiencing, as a result of the COVID-19 pandemic, and have in the past experienced, extreme volatility and disruptions, declines in consumer confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be no assurance that further deterioration in credit and financial markets and confidence in economic conditions will not occur. Our general business strategy and ability to raise capital may be adversely affected by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the current equity and credit markets deteriorate it may make any necessary debt or equity financing more difficult, more costly, and more dilutive. Failure to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition, there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies, including very recently in connection with the ongoing COVID-19 pandemic, which has resulted in decreased stock prices for many companies notwithstanding the lack of a fundamental change in their underlying business models or prospects. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors, including potentially worsening economic conditions and other adverse effects or developments relating to the ongoing COVID-19 pandemic, political, regulatory and other market conditions, may negatively affect the market price of shares of our common stock, regardless of our actual operating performance.
As of June 30 , 2020, our cash and cash equivalents were $80.3 million. While we are not aware of any downgrades, material losses, or other significant deterioration in the fair value of our cash equivalents since December 31, 2019, no assurance can be given that further deterioration of the global credit and financial markets would not negatively impact our current portfolio of cash equivalents or our ability to meet our financing objectives. Furthermore, our stock price may decline due in part to the volatility of the stock market and the general economic downturn.
We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Earthquakes or other natural disasters or pandemics such as the COVID-19 pandemic could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. We plan to put disaster recovery and business continuity plans in place, however, these may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, could have a material adverse effect on our business.
Our internal computer systems, or those of our third-party CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of CMP-001 and future product candidates’ development programs.
Despite our implementation of security measures, our internal computer systems, and those of our CROs, CMOs, IT suppliers and other contractors and consultants are vulnerable to damage from computer viruses, cyber-attacks and other unauthorized access, natural disasters, terrorism, war, and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our development programs for CMP-001 and future product candidates. For example, the loss of clinical trial data from completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to our data or applications, or inappropriate disclosure of personal, confidential or proprietary information, we could incur liability and the further development of any of CMP-001 and future product candidates could be delayed.
We may be unable to adequately protect our information systems from cyberattacks, which could result in the disclosure of confidential or proprietary information, including personal data, damage our reputation, and subject us to significant financial and legal exposure.
We rely on information technology systems that we or our third-party providers operate to process, transmit and store electronic information in our day-to-day operations. In connection with our product discovery efforts, we may collect and use a variety of personal data, such as names, mailing addresses, email addresses, phone numbers and clinical trial information. A successful cyberattack could result in the theft or destruction of intellectual property, data, or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations. Cyberattacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect. Cyberattacks could include wrongful conduct by hostile foreign governments, industrial espionage, wire fraud and other forms of cyber fraud, the deployment of harmful malware, denial-of-service, social engineering fraud or other means to threaten data security, confidentiality, integrity and availability. A successful cyberattack could cause serious negative consequences for us, including, without limitation, the disruption of operations, the misappropriation of confidential business information, including financial information, trade secrets, financial loss and the disclosure of corporate strategic plans. Although we devote resources to protect our information systems, we realize that cyberattacks are a threat, and there can be no assurance that our efforts will prevent information security breaches that would result in business, legal, financial or reputational harm to us, or would have a material adverse effect on our results of operations and financial condition. Any failure to prevent or mitigate security breaches or improper access to, use of, or disclosure of our clinical data or patients’ personal data could result in significant liability under state (e.g., state breach notification laws), federal (e.g., HIPAA, as amended by HITECH), and international law (e.g., the GDPR) and may cause a material adverse impact to our reputation, affect our ability to conduct new studies and potentially disrupt our business.
We rely on our third-party providers to implement effective security measures and identify and correct for any such failures, deficiencies or breaches. If we or our third-party providers fail to maintain or protect our information technology systems and data integrity effectively or fail to anticipate, plan for or manage significant disruptions to our information technology systems, we or our third-party providers could have difficulty preventing, detecting and controlling such cyber-attacks and any such attacks could result in the losses described above as well as disputes with physicians, patients and our partners, regulatory sanctions or penalties, increases in operating expenses, expenses or lost revenues or other adverse consequences, any of which could have a material adverse effect on our
business, results of operations, financial condition, prospects and cash flows. Any failure by such third parties to prevent or mitigate security breaches or improper access to or disclosure of such information could have similarly adverse consequences for us. If we are unable to prevent or mitigate the impact of such security or data privacy breaches, we could be exposed to litigation and governmental investigations, which could lead to a potential disruption to our business. By way of example, the California Consumer Privacy Act, or CCPA, which went into effect on January 1, 2020, creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal data. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability, and many similar laws have been proposed at the federal level and in other states. By way of example regarding foreign laws and regulations with respect to data privacy and security, the GDPR went into effect in the EU in May 2018 and introduces strict requirements for processing the personal data of EU data subjects. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater.
Our employees, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk that our employees, principal investigators, CROs and consultants may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or disclosure of unauthorized activities to us that violate the regulations of the FDA and other regulatory authorities, including those laws requiring the reporting of true, complete and accurate information to such authorities; healthcare fraud and abuse laws and regulations in the United States and abroad; or laws that require the reporting of financial information or data accurately. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials or creating fraudulent data in our pre-clinical studies or clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We adopted a code of conduct applicable to all of our employees, but it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. Additionally, we are subject to the risk that a person could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Our third-party manufacturers and suppliers use biological materials and may use hazardous materials, and any claims relating to improper handling, storage or disposal of these materials could be time consuming or costly and could have a material adverse effect on the success of our business.
Our third-party manufacturers and suppliers may use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to human health and safety or the environment. The operations of our third-party manufacturers and suppliers also produce hazardous waste products. We and our third-party manufacturers are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. We cannot entirely eliminate the risk of contamination or injury from these materials or wastes. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with civil or criminal fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.
In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or commercialization efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
Risks related to our common stock
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance initiatives.
As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Exchange Act, which require, among other things, that we file with the Securities and Exchange Commission, or SEC, annual, quarterly, and current reports with respect to our business and financial condition. In addition, the Sarbanes-Oxley Act, as well as rules adopted by the SEC and Nasdaq to implement provisions of the Sarbanes-Oxley Act, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, in July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that required the SEC to adopt additional rules and regulations in these areas, such as “say on pay” and proxy access. The Jumpstart Our Business Startups Act, or JOBS Act, permits emerging growth companies and smaller reporting companies like us to implement many of these requirements over a longer period and up to five years from the pricing of our IPO. We intend to take advantage of this extended time period for compliance, but cannot guarantee that we will not be required to implement these requirements sooner than budgeted or planned and thereby incur unexpected expenses. Stockholder activism, the current political and economic environment, and the high levels of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.
We expect the rules and regulations applicable to public companies to substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition, and results of operations. The increased costs will increase our net loss and may require us to reduce costs in other areas of our business. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to maintain the same or similar coverage. We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees, or as executive officers.
substantially.
If securities analysts do not continue to publish research or reports about our business or if they publish negative evaluations
We are an emerging growth company, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements, and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of our IPO, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our common stock that is held by30th,30
| * | Filed herewith |
| † | Portions of this exhibit (indicated by asterisk) have been omitted in accordance with Item 601(b)(10) of Regulation S-K |
| (1) | The certifications on Exhibit 32 hereto are deemed to be furnished with this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act. |
| CHECKMATE PHARMACEUTICALS, INC. | ||
| By: | /s/ Barry Labinger | |
| Barry Labinger | ||
| President, Chief Executive Officer and Director | ||
(Principal Executive Officer) | ||
| By: | /s/ | |
| Chief | ||
(Principal Financial Officer) |
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