UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to .
Commission File Number:
(Exact name of Registrant as specified in its charter)
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 4 2022, the registrant had
TABLE OF CONTENTS
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Item 1 |
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F-1 |
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F-1 |
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F-2 |
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F-3 |
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F-5 |
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F-6 |
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Item 2 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3 |
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Item 4 |
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Item 1 |
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Item 1A |
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Item 2 |
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Item 3 |
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Item 4 |
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Item 5 |
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Item 6 |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
PHATHOM PHARMACEUTICALS, INC.
Balance Sheets
(Unaudited)
(in thousands, except share and par value amounts)
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March 31, |
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December 31, |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Operating lease right-of-use assets |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Accounts payable (including related party amounts of $ |
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Accrued clinical trial expenses |
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— |
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Accrued expenses (including related party amounts of $ |
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Accrued interest |
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Operating lease liabilities, current |
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Total current liabilities |
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Long-term debt, net of discount |
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Operating lease liabilities |
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Other long-term liabilities |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock, $ |
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Common stock, $ |
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Treasury stock — |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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See accompanying notes.
F-1
PHATHOM PHARMACEUTICALS, INC.
Statements of Operations and Comprehensive Loss
(Unaudited)
(in thousands, except share and per share amounts)
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Three Months Ended |
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2022 |
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2021 |
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Operating expenses: |
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Research and development (includes related party amounts of $ |
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$ |
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$ |
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General and administrative (includes related party amounts of $ |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Interest income |
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Interest expense |
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Other (expense) |
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Total other (expense) |
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Net loss and comprehensive loss |
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$ |
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$ |
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Net loss per share, basic and diluted |
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$ |
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$ |
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Weighted-average shares of common stock outstanding, basic |
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See accompanying notes.
F-2
PHATHOM PHARMACEUTICALS, INC.
Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share amounts)
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Common Stock |
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Treasury Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2021 |
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$ |
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$ |
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$ |
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$ |
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Cashless exercise of common stock warrants |
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— |
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— |
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— |
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— |
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401(k) matching contribution |
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— |
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— |
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— |
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Vesting of restricted shares |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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ESPP shares issued |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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Balance at March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes.
F-3
PHATHOM PHARMACEUTICALS, INC.
Statements of Stockholders’ Equity
(Unaudited)
(in thousands, except share amounts)
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Common Stock |
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Treasury Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Shares |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2020 |
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$ |
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— |
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$ |
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$ |
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$ |
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Issuance of common stock from exercise of stock options |
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— |
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— |
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— |
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401(k) matching contribution |
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— |
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— |
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— |
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Vesting of restricted shares |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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ESPP shares issued |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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Balance at March 31, 2021 |
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$ |
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— |
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$ |
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$ |
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$ |
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See accompanying notes.
F-4
PHATHOM PHARMACEUTICALS, INC.
Statements of Cash Flows
(Unaudited)
(in thousands)
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Three Months Ended |
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2022 |
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2021 |
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Cash flows from operating activities |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Stock-based compensation |
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Issuance of PIK interest debt |
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— |
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Amortization of debt discount |
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Other |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets (includes the change in related party |
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Accounts payable and accrued expenses (includes the change in related party |
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Accrued clinical trial expenses |
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Accrued interest |
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Operating right-of-use asset and lease liabilities |
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Other long-term assets |
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( |
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Net cash used in operating activities |
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Cash flows from investing activities |
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Cash paid for property, plant and equipment |
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Net cash used in investing activities |
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Cash flows from financing activities |
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Proceeds from issuance of common stock from exercise of stock options |
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— |
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Net cash provided by financing activities |
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— |
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Net (decrease) in cash and cash equivalents |
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Cash and cash equivalents – beginning of period |
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Cash and cash equivalents – end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information |
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Interest paid |
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$ |
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$ |
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Supplemental disclosure of noncash investing and financing activities |
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Property and equipment purchases included in accounts payable and accrued liabilities |
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$ |
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$ |
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Settlement of ESPP liability in common stock |
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$ |
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$ |
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Settlement of 401(k) liability in common stock |
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$ |
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$ |
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See accompanying notes.
F-5
PHATHOM PHARMACEUTICALS, INC.
Notes to Unaudited Financial Statements
1. Organization, Basis of Presentation and Summary of Significant Accounting Policies
Organization and Basis of Presentation
Liquidity and Capital Resources
From inception to March 31, 2022, the Company has devoted substantially all of its efforts to organizing and staffing the Company, business planning, raising capital, in-licensing its initial product candidate, vonoprazan, meeting with regulatory authorities, managing the clinical trials of vonoprazan, and providing other general and administrative support for these operations. The Company has a limited operating history, has never generated any revenue, and the sales and income potential of its business is unproven. The Company has incurred net losses and negative cash flows from operating activities since its inception and expects to continue to incur additional net losses in the future as it continues to develop and prepares for commercialization of vonoprazan. From inception to March 31, 2022, the Company has funded its operations through the issuance of convertible promissory notes, commercial bank debt, the sale of
The accompanying financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities in accordance with GAAP. Management is required to perform a two-step analysis over the Company’s ability to continue as a going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern (Step 1). If management concludes that substantial doubt is raised, management is also required to consider whether its plans alleviate that doubt (Step 2).
Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date these financial statements were issued. There can be no assurance that the Company will be successful in acquiring additional funding, if needed, that the Company’s projections of its future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.
Use of Estimates
The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to accruals for research and development expenses and the valuation of various equity instruments. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results could differ materially from those estimates and assumptions.
Fair Value Measurements
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or non-recurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets.
Level 2: Inputs, other than the quoted prices in active markets that are observable either directly or indirectly.
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
F-6
The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, are classified within the Level 1 designation discussed above, while prepaid and other current assets, accounts payable, and accrued liabilities, approximate fair value due to their short maturities.
The Company has
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Cash and cash equivalents include cash in readily available checking accounts and money market funds.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
Property, Plant, and Equipment, Net
Property, plant and equipment are recorded at cost, less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the useful life of the asset. Computer equipment and related software are depreciated over to
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property, plant and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount. The impairment loss, if recognized, would be based on the excess of the carrying value of the impaired asset over its respective fair value.
F-7
Leases
At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, the Company records the associated lease liability and corresponding right-of-use asset upon commencement of the lease using the implicit rate or a discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. The Company additionally evaluates leases at their inception to determine if they are to be accounted for as an operating lease or a finance lease. A lease is accounted for as a finance lease if it meets one of the following five criteria: the lease has a purchase option that is reasonably certain of being exercised, the present value of the future cash flows is substantially all of the fair market value of the underlying asset, the lease term is for a significant portion of the remaining economic life of the underlying asset, the title to the underlying asset transfers at the end of the lease term, or if the underlying asset is of such a specialized nature that it is expected to have no alternative uses to the lessor at the end of the term. Leases that do not meet the finance lease criteria are accounted for as an operating lease. Operating lease assets represent a right to use an underlying asset for the lease term and operating lease liabilities represent an obligation to make lease payments arising from the lease. Operating lease liabilities with a term greater than one year and their corresponding right-of-use assets are recognized on the balance sheet at the commencement date of the lease based on the present value of lease payments over the expected lease term. Certain adjustments to the right-of-use asset may be required for items such as initial direct costs paid or incentives received. As the Company’s leases do not typically provide an implicit rate, the Company utilizes the appropriate incremental borrowing rate, determined as the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and in a similar economic environment. Lease cost is recognized on a straight-line basis over the lease term and variable lease payments are recognized as operating expenses in the period in which the obligation for those payments is incurred. Variable lease payments primarily include common area maintenance, utilities, real estate taxes, insurance, and other operating costs that are passed on from the lessor in proportion to the space leased by the Company. The Company has elected the practical expedient to not separate between lease and non-lease components. In addition, the Company elected the short-term lease exception for leases with an initial term of one year or less. Consequently, such leases are not recorded on the Company's balance sheets.
Research and Development Expenses and Accruals
All research and development costs are expensed in the period incurred and consist primarily of salaries, payroll taxes, employee benefits, stock-based compensation charges for those individuals involved in research and development efforts, external research and development costs incurred under agreements with contract research organizations and consultants to conduct and support the Company’s ongoing clinical trials of vonoprazan, and costs related to manufacturing vonoprazan for clinical trials.
In-Process Research and Development
The Company evaluates whether acquired intangible assets are a business under applicable accounting standards. Additionally, the Company evaluates whether the acquired assets have a future alternative use. Intangible assets that do not have future alternative use are considered acquired in-process research and development. When the acquired in-process research and development assets are not part of a business combination, the value of the consideration paid is expensed on the acquisition date. Future costs to develop these assets are recorded to research and development expense as they are incurred.
General and Administrative Expenses
General and administrative expenses consist of salaries, stock-based compensation, facilities and third-party expenses. General and administrative expenses are associated with the activities of the executive, finance, accounting, information technology, legal, medical affairs and human resource functions.
Stock-Based Compensation
Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (generally the vesting period) on a straight-line basis with forfeitures recognized as they occur.
F-8
The Company also maintains an employee stock purchase program, or ESPP, under which it may issue shares. The Company estimates the fair value shares that will be issued under the ESPP, and of stock options using the Black-Scholes valuation model, which requires the use of estimates. The Company recognizes stock-based compensation cost for shares that it will issue under the ESPP on a straight-line basis over the requisite service period of the award.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the statement of operations in the period that includes the enactment date.
The Company recognizes net deferred tax assets to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company would be able to realize its deferred tax assets in the future in excess of their net recorded amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The Company records uncertain tax positions on the basis of a two-step process whereby (i) management determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, management recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within income tax expense. Any accrued interest and penalties are included within the related tax liability.
Beginning in 2022, the Tax Cuts and Jobs Act, or TCJA, eliminates the option to deduct research and development expenditures currently and requires taxpayers to amortize domestic and foreign research and development expenditures over
Comprehensive Loss
Comprehensive loss is defined as a change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss was the same as its reported net loss for all periods presented.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as
Net Loss Per Share
Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration for potentially dilutive securities. The Company included
F-9
Recently Adopted Accounting Standards
There were no recently adopted accounting standards which would have a material impact on the Company's financial statements.
Recently Issued Accounting Pronouncements
The Company assesses the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board or other standard setting bodies on the Company's financial statements as well as material updates to previous assessments, if any, from the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There were no new material accounting standards issued in the first quarter of 2022 that impacted the Company.
2. Balance Sheet Details
Property, Plant and Equipment, net
Property, plant and equipment, net, consist of the following (in thousands):
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March 31, |
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|
December 31, |
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||
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|
2022 |
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|
2021 |
|
||
Computer equipment and software |
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$ |
|
|
$ |
|
||
Furniture and fixtures |
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Leasehold improvements |
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||
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|
||
Less: accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Total property, plant and equipment, net |
|
$ |
|
|
$ |
|
Depreciation expense for the three months ended March 31, 2022 and 2021 was approximately $
Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
March 31, |
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|
December 31, |
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||
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|
2022 |
|
|
2021 |
|
||
Accrued research and development expenses |
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$ |
|
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$ |
|
||
Accrued compensation expenses |
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Accrued professional & consulting expenses |
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Accrued other |
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||
Total accrued expenses |
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$ |
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|
$ |
|
3. Related Party Transactions
Frazier is a principal stockholder of the Company. The Company has conducted operations within office space controlled by Frazier and Frazier allocated a portion of the costs associated with this office space to the Company. In addition, Frazier paid for various goods and services, such as employee wages, insurance and expense reimbursements and various administrative services associated with the operations of the Company and charged the Company for those expenses. As of March 31, 2022 and December 31, 2021 the Company had outstanding accounts payable and accrued expenses due to Frazier in the amount of $
Frazier is a principal stockholder in PCI Pharma Services (“PCI”). In the third quarter of 2019, the Company engaged PCI for clinical manufacturing services. As of March 31, 2022 and December 31, 2021, the Company had $
F-10
Takeda became a common stockholder of the Company in connection with the May 2019 license agreement (see Note 4). In conjunction with this license, Takeda provides proprietary supplies for the Company’s ongoing clinical development of vonoprazan in addition to the exclusive license for the commercialization of vonoprazan in the United States, Canada and Europe. On May 5, 2020, the Company entered into a Commercial Supply Agreement, or the Commercial Supply Agreement, with Takeda, pursuant to which Takeda will supply commercial quantities of vonoprazan bulk drug product or drug substance. Pursuant to the Commercial Supply Agreement, Takeda has agreed to supply the Company with, and the Company has agreed to purchase from Takeda, certain quantities of vonoprazan bulk drug product according to approved specifications at a fixed price per batch of bulk drug product in order to commercialize vonoprazan in accordance with the Takeda License. Unless terminated earlier, the term of the Commercial Supply Agreement extends for a period of
4. Commitments and Contingencies
License Agreement
On May 7, 2019, the Company entered into a license agreement with Takeda pursuant to which it was granted an exclusive license to commercialize vonoprazan fumarate in the United States, Canada and Europe, or, the Takeda License. The Company also has the right to sublicense its rights under the agreement, subject to certain conditions.
In consideration of the Takeda License, the Company (i) paid Takeda $
Purchase Commitments
In December 2020, the Company entered into a supply agreement with Sandoz pursuant to which Sandoz will supply commercial quantities of amoxicillin capsules and clarithromycin tablets, package these antibiotics with vonoprazan, and provide in finished convenience packs. The supply agreement commits the Company to a minimum purchase obligation of approximately $
Contingencies
In the event the Company becomes subject to claims or suits arising in the ordinary course of business, the Company would accrue a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
F-11
5. Lease Commitments
As of March 31, 2022, the Company had operating leases for office space in both Buffalo Grove, Illinois and Florham Park, New Jersey, with remaining lease terms of
The total rent expense for the three months ended March 31, 2022 and 2021 was approximately $
The following table summarizes supplemental balance sheet information related to the operating leases (in thousands):
|
|
March 31, |
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|
December 31, |
|
||
|
|
2022 |
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2021 |
|
||
Assets: |
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|
||
Operating lease right-of-use assets |
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|
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Total right-of-use assets |
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$ |
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$ |
|
||
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|
||
Liabilities: |
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|
||
Operating lease liabilities, current |
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|
||
Operating lease liabilities, non-current |
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|
||
Total operating lease liabilities |
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$ |
|
|
$ |
|
As of March 31, 2022, the future minimum annual lease payments under the operating leases were as follows (in thousands):
2022 |
|
$ |
|
||
2023 |
|
|
|
||
2024 |
|
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|
||
Thereafter |
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|
||
Total minimum lease payments |
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$ |
|
||
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|
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|
||
Less: amount representing interest |
|
|
( |
) |
|
Present value of operating lease liabilities |
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|
|
||
Less: operating lease liabilities, current |
|
|
( |
) |
|
Operating lease liabilities |
|
$ |
|
||
|
|
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|
||
Weighted-average remaining lease term (in years) |
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|
||
Weighted-average incremental borrowing rate |
|
|
% |
Operating cash flows for the three months ended March 31, 2022 and 2021 included cash payments for operating leases of approximately $
In February 2022, the Company entered into an operating lease for
The Company also entered into
F-12
6. Debt
Total debt consists of the following (in thousands):
|
|
March 31, |
|
|
Long-term debt, current portion |
|
$ |
— |
|
Long-term debt, non-current portion |
|
|
|
|
Unamortized debt discount |
|
|
( |
) |
Total debt, net of debt discount |
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$ |
|
On September 17, 2021, or the Closing Date, the Company entered into a Loan and Security Agreement, or, the Loan Agreement, with Hercules Capital, Inc., in its capacity as administrative agent and collateral agent and as a lender, or, in such capacity, the Agent or Hercules, and the other financial institutions that from time to time become parties to the Loan Agreement as lenders, or, collectively, the Lenders.
The Loan Agreement provides for term loans in an aggregate principal amount of up to $
The Company paid a $
The Term Loan will mature on
In addition, the Company is obligated to pay a final payment fee of
The Company may elect to prepay all or a portion of the Term Loan Advances prior to maturity, subject to a prepayment fee of up to
As collateral for the obligations, the Company has granted to Hercules a senior security interest in all of Company’s right, title, and interest in, to and under substantially all of Company’s property, inclusive of intellectual property.
F-13
The Loan Agreement contains customary closing fees, prepayment fees and provisions, events of default, and representations, warranties and covenants, including a financial covenant requiring Phathom to maintain certain levels of cash subject to a control agreement in favor of the Agent (minus accounts payable not paid within 120 days of invoice), or Qualified Cash, and commencing on May 15, 2023, trailing three-month net product revenue from the sale of vonoprazan and products containing vonoprazan. The revenue covenant will be waived at any time in which the Company maintains Qualified Cash equal to at least
In connection with the entry into the Loan Agreement, the Company issued to Hercules a warrant, or, the Warrant, to purchase a number of shares of the Company’s common stock equal to
The initial $
Future minimum principal and interest payments under the Term Loan, including the final payment fee, as of March 31, 2022 are as follows (in thousands):
Year ending December 31: |
|
|
|
|
2022 |
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$ |
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2023 |
|
|
|
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2024 |
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2025 |
|
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2026 |
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|
Total principal and interest payments |
|
|
|
|
Less interest and final payment fee |
|
|
( |
) |
Total term loan borrowings |
|
$ |
|
Prior to the Loan Agreement with Hercules, the Company had a loan with Silicon Valley Bank, or SVB, and approximately $
During the three months March 31, 2022 and 2021, the Company recognized $
7. Stockholders’ Equity
Common Stock
In March 2019, subsequent to the Merger, the Company sold
In March 2019, the founders granted the Company a repurchase right for the
In May 2019, the Company issued Takeda
F-14
For the period from January 1, 2019 to May 6, 2019, the Company issued
On October 29, 2019, upon completion of the IPO, the Company sold
In November 2020, the Company entered into an Open Market Sale AgreementSM, or, the Sales Agreement, with Jefferies LLC, or, the Sales Agent, under which it may, from time to time, sell shares of its common stock having an aggregate offering price of up to $
On December 16, 2020, the Company completed an underwritten public offering, in which it sold
A summary of the Company’s unvested shares is as follows:
Balance at December 31, 2021 |
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|
|
Share vesting |
|
|
( |
) |
Balance at March 31, 2022 |
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|
For accounting purposes, unvested shares of common stock are considered issued, but not outstanding until they vest.
Common stock reserved for future issuance consists of the following:
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March 31, |
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Common stock warrants |
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Stock options, PSUs and RSUs outstanding |
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Shares available for issuance under the 2019 Incentive Plan |
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Shares available for issuance under the ESPP Plan |
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Balance at March 31, 2022 |
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|
F-15
Preferred Stock
The Company is authorized to issue up to
Equity Incentive Plan
The Company’s 2019 Equity Incentive Plan (the “Existing Incentive Plan”) provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, and other stock awards to eligible recipients, including employees, directors or consultants of the Company. The Company had
2019 Incentive Award Plan
In October 2019, the board of directors adopted, and the Company’s stockholders approved, the 2019 Plan, which became effective in connection with the IPO. Under the 2019 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then employees, officers, non-employee directors or consultants of the Company or its subsidiaries.
Performance-based Units
During 2020, the Company granted the initial PSUs whereby vesting depends upon the approval by the FDA of vonoprazan for H. pylori and then, or concurrent with, erosive esophagitis. In 2022, the Company granted an additional
|
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Number of |
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Weighted- |
|
||
Unvested balance at December 31, 2021 |
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|
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$ |
|
||
Granted |
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Vested |
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- |
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- |
|
||
Forfeited |
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( |
) |
|
|
|
|
Unvested balance at March 31, 2022 |
|
|
|
|
$ |
|
As of March 31, 2022, there was approximately $
F-16
Restricted Stock Units
During 2022, the Company granted
|
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Number of |
|
|
Weighted- |
|
||
Unvested balance at December 31, 2021 |
|
|
- |
|
|
$ |
- |
|
Granted |
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|
||
Vested |
|
|
- |
|
|
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- |
|
Forfeited |
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( |
) |
|
|
|
|
Unvested balance at March 31, 2022 |
|
|
|
|
$ |
|
As of March 31, 2022, the Company had $
Employee Stock Purchase Plan
In October 2019, the board of directors adopted, and the Company’s stockholders approved, the Employee Stock Purchase Plan, or the ESPP, which became effective in connection with the IPO. The ESPP permits participants to purchase common stock through payroll deductions of up to
The ESPP is considered a compensatory plan, and the Company recorded related stock-based compensation of $
|
|
Three Months Ended |
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|||||
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2022 |
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2021 |
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Assumptions: |
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Expected term (in years) |
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||
Expected volatility |
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% |
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% |
||
Risk free interest rate |
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% |
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% |
||
Dividend yield |
|
|
|
|
The estimated weighted-average fair value of ESPP awards for the three months ended March 31, 2022 and 2021, were $
401(k) Plan
The Company established a 401(k) savings plan during the year ended December 31, 2020. The Company’s contributions to the plan are discretionary. During the three months ended March 31, 2022 and 2021, the Company incurred $
F-17
Stock Options
The fair value of each employee and non-employee stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company, prior to the IPO on October 29, 2019, was a private company and lacked company-specific historical and implied volatility information. Therefore, it estimated its expected volatility based on the historical volatility of a publicly traded set of peer companies. Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees was determined utilizing the “simplified” method for awards. The expected term of stock options granted to non-employees was equal to the contractual term of the option award. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield was
A summary of the Company’s stock option activity and related information is as follows:
|
|
Options |
|
|
Weighted- |
|
|
Weighted- |
|
|
Aggregate |
|
||||
Balance at December 31, 2021 |
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|
$ |
|
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$ |
|
||||
Options granted |
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||||
Options exercised and shares vested |
|
|
— |
|
|
|
— |
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|
||
Options forfeited, expired or cancelled |
|
|
( |
) |
|
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|
|
|
|
|
|
|||
Balance at March 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options exercisable as of March 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
The estimated weighted-average fair value of employee and nonemployee director stock options granted during 2022 was $
The weighted-average assumptions used to estimate the fair value of stock options using the Black-Scholes option valuation model were as follows:
|
|
Three Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Assumptions: |
|
|
|
|
|
|
||
Expected term (in years) |
|
|
|
|
|
|
||
Expected volatility |
|
|
% |
|
|
% |
||
Risk free interest rate |
|
|
% |
|
|
% |
||
Dividend yield |
|
|
|
|
|
|
Stock-Based Compensation Expense
Stock-based compensation expense recognized for all equity awards, including founder stock, has been reported in the statements of operations and comprehensive loss as follows (in thousands):
|
|
Three Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Research and development expense |
|
$ |
|
|
$ |
|
||
General and administrative expense |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
F-18
8. Subsequent Event
The Company announced signing of a revenue interest financing agreement for up to $
F-19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the unaudited interim financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with our audited financial statements and notes thereto for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”).
Forward Looking Statements
The following discussion and other parts of this quarterly report contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, research and development plans and costs, the impact of COVID-19, the timing and likelihood of regulatory filings and approvals, commercialization plans, pricing and reimbursement, the potential to develop future product candidates, the timing and likelihood of success of the plans and objectives of management for future operations, and future results of anticipated product development efforts, are forward-looking statements. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. The forward-looking statements in this quarterly report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy, short-term and long-term business operations and objectives. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions, including those described in the Part II, Item 1A under the heading “Risk Factors.” The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Overview
We are a biopharmaceutical company focused on developing and commercializing novel treatments for gastrointestinal, or GI, diseases. Our initial product candidate, vonoprazan, is an oral small molecule potassium-competitive acid blocker, or P-CAB. P-CABs are a novel class of medicines that block acid secretion in the stomach. Vonoprazan has shown rapid, potent, and durable anti-secretory effects and has demonstrated clinical benefits over the current standard of care as a single agent in the treatment of gastroesophageal reflux disease, or GERD, and in combination with antibiotics for the treatment of H. pylori, infection. Takeda Pharmaceutical Company Limited, or Takeda, developed vonoprazan and has received marketing approval in numerous countries in Asia and Latin America as well as Russia. Vonoprazan generated approximately $850 million in net sales in its seventh full year on the market since its approval in Japan in late 2014. In May 2019, we in-licensed the U.S., European, and Canadian rights to vonoprazan from Takeda.
In 2021 we reported topline data from two pivotal Phase 3 clinical trials for vonoprazan: one for the treatment of H. pylori infection (PHALCON-HP), and a second for the treatment of erosive GERD (PHALCON-EE), also known as erosive esophagitis, or EE. In April 2021, we reported positive topline data from PHALCON-HP, and in October 2021, we reported positive topline data from PHALCON-EE. In September 2021, we submitted new drug applications (NDAs) for two treatment regimens containing vonoprazan for the treatment of H. pylori, vonoprazan triple therapy (vonoprazan, amoxicillin, clarithromycin) and vonoprazan dual therapy (vonoprazan, amoxicillin), and in November 2021, the U.S. Food and Drug Administration, or FDA, accepted both NDAs for filing, granted each of them Priority Review, and assigned us a Prescription Drug User Fee Act (PDUFA) action date in May 2022. In addition, both of our H. pylori NDAs received qualified infectious disease product (QIDP) designations which provides a potential extension of any regulatory exclusivity awarded following approval. On May 3, 2022, we received FDA approval for vonoprazan triple therapy, under the brand name VOQUEZNA TRIPLE PAK and vonoprazan dual therapy, under the brand name VOQUEZNA DUAL PAK, in each case for the treatment of H. pylori infection in adults and expect to launch both products in the third quarter of 2022. Further, in March 2022, we submitted an NDA for the use of vonoprazan as a treatment for adults for the healing of all grades of EE and relief of heartburn, and maintenance of healing of all grades of EE and relief of heartburn.
We have also progressed our clinical development program in NERD. In February 2022, we reported positive topline data from a Phase 2 trial studying vonoprazan for on-demand treatment of NERD, and in February 2022, we commenced enrollment of patients in a Phase 3 trial studying vonoprazan, dosed on a once-daily basis, for the treatment of NERD with topline data expected in 2023.
20
We plan to independently commercialize vonoprazan in the United States. We also plan to seek commercial partnerships for vonoprazan in Europe and Canada, expand development of vonoprazan into other indications, dosing regimens and alternative formulations and packaging, and in-license or acquire additional clinical or commercial stage product candidates for the treatment of GI diseases in a capital efficient manner.
We commenced our operations in 2018 and have devoted substantially all of our resources to date to organizing and staffing our company, business planning, raising capital, in-licensing our initial product candidate, vonoprazan, meeting with regulatory authorities, conducting our clinical trials of vonoprazan, preparing applications for regulatory approval for vonoprazan and preparing for the commercial launch. Our operations to date have been funded primarily through the issuance of convertible promissory notes, commercial bank debt, the proceeds from our initial public offering and our follow-on public offering. From our inception through March 31, 2022, we have raised aggregate gross proceeds of $90.3 million from the issuance of convertible promissory notes, $100.0 million of debt, net proceeds from our initial public offering of $191.5 million from the sale of 10,997,630 shares of common stock, which included the exercise in full by the underwriters of their option to purchase 1,434,473 additional shares at a public offering price of $19.00 per share, after deducting underwriting discounts, commissions and offering costs, and net proceeds of $88.6 million from the sale of 2,250,000 shares of common stock at a public offering price of $39.48 per share after deducting underwriting discounts and commissions, and an additional $0.2 million in offering costs.
We have incurred net losses since our inception. Our net losses for the three month periods ended March 31, 2022 and 2021 were $40.7 million and $34.8 million, respectively. As of March 31, 2022, we had an accumulated deficit of $570.0 million. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical development activities, other research and development activities, and pre-commercialization activities. We expect our expenses and operating losses will increase substantially as we advance vonoprazan through additional clinical trials, seek further regulatory approval for vonoprazan, expand our clinical, regulatory, quality, manufacturing and commercialization capabilities, incur significant commercialization expenses for marketing, sales, manufacturing and distribution, protect our intellectual property, expand our general and administrative support functions, including hiring additional personnel, and incur additional costs associated with operating as a public company.
We have never generated any revenue and do not expect to generate any revenues from product sales unless and until we commence commercialization of our initial approved products. Accordingly, until such time as we can generate significant revenue from sales of vonoprazan, if ever, we expect to finance our cash needs through equity offerings, our existing loan and security agreement, or the Loan Agreement, debt financings, or other capital sources, including potential collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all, and this risk could be exacerbated by the impact of COVID-19 on global economic conditions. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
License Agreement with Takeda
On May 7, 2019, we and Takeda entered into an exclusive license, or the Takeda License, pursuant to which we in-licensed the U.S., European, and Canadian rights to vonoprazan fumarate. During the term of the Takeda License, we and our affiliates are not permitted to commercialize any pharmaceutical product, other than vonoprazan, that treats acid-related disorders, except for certain generic and OTC competing products in specified circumstances. We will be responsible at our cost for the development, manufacture and commercialization of vonoprazan products. We are required to use commercially reasonable efforts to develop and commercialize the vonoprazan products in our licensed territory.
Under the Takeda License, Takeda has the sole right and authority, with our input, to prepare, file, prosecute, and maintain all Takeda and joint patents on a worldwide basis at its own cost. We are responsible, at our cost, for preparing, filing, prosecuting, and maintaining patents on inventions made solely by us in connection with vonoprazan, subject to input from Takeda.
21
We paid Takeda upfront consideration consisting of a cash fee of $25.0 million, 1,084,000 shares of our common stock, a warrant to purchase 7,588,000 shares of our common stock at an exercise price of $0.00004613 per share, or the Takeda Warrant, and issued Takeda a right to receive an additional common stock warrant, or the Takeda Warrant Right, if Takeda’s fully-diluted ownership of the Company represented less than a certain specified percentage of the fully-diluted capitalization, including shares issuable upon conversion of then outstanding convertible promissory notes, calculated immediately prior to the closing of our IPO. The Takeda Warrant Right expired without effect since no fair value had been allocated to it upon completion of our IPO, and no additional warrant was issued. We agreed to make milestone payments to Takeda upon achieving certain tiered aggregate annual net sales of licensed products in the United States, Europe, and Canada up to a total maximum milestone amount of $250.0 million. We also agreed to make tiered royalty payments at percentages in the low double digits on net sales of licensed products, subject to specified offsets and reductions. Royalties will be payable, on a product-by-product and country-by-country basis from the first commercial sale of such product in such country, until the latest of expiration of the licensed patents covering the applicable product, expiration of regulatory exclusivity in such country, or 15 years following first commercial sale in such country.
Components of Results of Operations
Operating Expenses
Research and Development
To date, our research and development expenses have related to the development of vonoprazan. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
Research and development expenses include:
We plan to increase our research and development expenses for the foreseeable future as we continue the development of vonoprazan. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future clinical trials and nonclinical studies of vonoprazan or any future product candidates due to the inherently unpredictable nature of clinical and preclinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements
Our future clinical development costs may vary significantly based on factors such as:
22
General and Administrative
General and administrative expenses consist of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance, accounting, legal, human resources and other administrative functions, legal fees relating to intellectual property and corporate matters, and professional fees for accounting and consulting services. We anticipate that our general and administrative expenses will significantly increase in the future to support our continued research and development activities, pre-commercial preparation activities in light of the recent approval of VOQUEZNA TRIPLE PAK and VOQUEZNA DUAL PAK to treat H. Pylori infection in adults and, if any future product candidate receives marketing approval, commercialization activities. We also anticipate increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission, or SEC, requirements, director and officer insurance premiums, and investor relations costs associated with operating as a public company.
Interest Income
Interest income consists of interest on our money market fund.
Interest Expense
Beginning on September 17, 2021, interest expense consists of (i) cash interest at a variable annual rate equal to the greater of (a) 5.50% and (b) the Prime Rate (as reported in the Wall Street Journal) plus 2.25% (the “Interest Rate”), (ii) payment-in-kind interest at a per annum rate of interest equal to 3.35%, and (iii) amortization of the Hercules Loan Agreement debt discount recorded in connection with the fair value of warrants issued to the lenders, the debt issuance costs incurred, and the obligation to make a final payment.
Prior to September 17, 2021, interest expense consisted of interest on our outstanding commercial bank debt with SVB at a variable annual rate equal to the greater of (a) 7.25% and (b) Prime Rate (as reported by the Wall Street Journal) plus 1.75% and amortization of the SVB Term Loan debt discount recorded in connection with the fair value of warrants issued to the lenders, the debt issuance costs incurred, and the obligation to make a final payment.
23
Results of Operations
Comparison of the Three Months Ended March 31, 2022 and 2021
The following table summarizes our results of operations for the three months ended March 31, 2022 and 2021 (in thousands):
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
$ |
17,660 |
|
|
$ |
20,580 |
|
|
$ |
(2,920 |
) |
General and administrative |
|
|
20,246 |
|
|
|
13,004 |
|
|
|
7,242 |
|
Total operating expenses |
|
|
37,906 |
|
|
|
33,584 |
|
|
|
4,322 |
|
Loss from operations |
|
|
(37,906 |
) |
|
|
(33,584 |
) |
|
|
(4,322 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|||
Interest income |
|
|
7 |
|
|
|
14 |
|
|
|
(7 |
) |
Interest (expense) |
|
|
(2,759 |
) |
|
|
(1,272 |
) |
|
|
(1,487 |
) |
Other (expense) |
|
|
(7 |
) |
|
|
(1 |
) |
|
|
(6 |
) |
Total other (expense) |
|
|
(2,759 |
) |
|
|
(1,259 |
) |
|
|
(1,500 |
) |
Net loss |
|
$ |
(40,665 |
) |
|
$ |
(34,843 |
) |
|
$ |
(5,822 |
) |
Research and Development Expenses. Research and development expenses were $17.7 million and $20.6 million for the three months ended March 31, 2022 and 2021, respectively. The decrease of $2.9 million consisted of a $5.3 million reduction of clinical trial cost partially offset by $1.2 million of chemistry manufacturing and controls, or CMC, costs related to vonoprazan, and $1.2 million of personnel-related and consulting expenses.
General and Administrative Expenses. General and administrative expenses were $20.2 million and $13.0 million for the three months ended March 31, 2022 and 2021, respectively. The increase of $7.2 million was due to increases of $5.7 million in professional services expenses for commercial, medical affairs and other services, $3.9 million in personnel-related expenses, partially offset by a $0.5 million reduction in consulting fees and a $1.9 million decrease in other expenses. Due to the planned continued buildout of administrative and commercial functions we expect general and administrative expenses to increase in future periods.
Other Income (Expense). Other expense of $2.8 million for the three months ended March 31, 2022 consisted of interest expense under the Hercules Loan Agreement. Other expense of $1.3 million for the three months ended March 31, 2021 consisted of interest expense under the SVB Term Loan.
Liquidity and Capital Resources
We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of March 31, 2022, we had cash and cash equivalents of $138.1 million.
Loan Agreement with Hercules
On September 17, 2021, (the “Closing Date”), we entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc., in its capacity as administrative agent and collateral agent and as a lender (in such capacity, the “Agent” or “Hercules”) and the other financial institutions that from time to time become parties to the Loan Agreement as lenders (collectively, the “Lenders”).
24
The Loan Agreement provides for term loans in an aggregate principal amount of up to $200.0 million (the “Term Loan”) under multiple tranches. The tranches consist of (i) a first tranche consisting of term loans in an aggregate principal amount of $100.0 million, all of which was funded on the Closing Date (the “First Advance”), (ii) a second tranche consisting of up to an additional $50.0 million, which became available to us upon achievement of the protocol-specified primary efficacy endpoints in our Phase 3 trial studying vonoprazan for the healing and maintenance of healing of erosive esophagitis with acceptable safety data, such that the results support the submission of a New Drug Application (“NDA”) or supplemental NDA without the need to conduct another Phase 3 study and will be available, if specified conditions are met, through December 15, 2022, (iii) a third tranche consisting of an additional $25.0 million, which will become available to us upon the achievement of (a) FDA approval of our NDA for vonoprazan and amoxicillin, or its NDA for vonoprazan, amoxicillin and clarithromycin, in each case for an indication relating to the treatment of H. pylori with an approved indication on the claim that is generally consistent with that sought in our NDA submission; and (b) filing of an NDA or supplemental NDA for vonoprazan for indications relating to the healing and maintenance of healing of erosive esophagitis (milestones (a) and (b), together, the “Second Performance Milestone”), and will be available, if specified conditions are met, through September 30, 2023, and (iv) a fourth tranche consisting of up to an additional $25.0 million, which will be available, if specified conditions are met, through March 31, 2024, upon achievement of the Second Performance Milestone. We intend to use the proceeds of the Term Loan advances for working capital and general corporate purposes. In addition, approximately $54 million of the proceeds from the First Advance was used to satisfy in full and retire our indebtedness under its previously outstanding credit facility with Silicon Valley Bank (the “SVB Term Loan”).
The Term Loan will mature on October 1, 2026 (the “Maturity Date”). The Term Loan bears (i) cash interest at a variable annual rate equal to the greater of (a) 5.50% and (b) the Prime Rate (as reported in the Wall Street Journal) plus 2.25% (the “Interest Rate”) and (ii) payment-in-kind interest at a per annum rate of interest equal to 3.35%. We may make payments of interest only through October 1, 2024, which may be extended to October 1, 2025, upon the achievement of the Second Performance Milestone on or prior to September 30, 2024 and the condition that no default or event of default exists, and which is further extendable to October 1, 2026, subject to FDA approval of our NDA (or supplemental NDA) for vonoprazan for an indication relating to the healing and maintenance of healing of erosive esophagitis with an approved indication on the label that is generally consistent with that sought in our NDA submission (or supplemental NDA submission) (the “Third Performance Milestone”) on or prior to September 30, 2025 and no default or event of default exists (the “interest only period”). After the interest-only period, the principal balance and related interest will be required to be repaid in equal monthly installments and continuing until the Maturity Date.
The Loan Agreement contains customary closing fees, prepayment fees and provisions, events of default, and representations, warranties and covenants, including a financial covenant requiring us to maintain certain levels of cash subject to a control agreement in favor of the Agent (minus accounts payable not paid within 120 days of invoice) (“Qualified Cash”), and commencing on May 15, 2023, trailing three-month net product revenue from the sale of vonoprazan and products containing vonoprazan. The revenue covenant will be waived at any time in which we maintain Qualified Cash equal to at least 60.0% (prior to the Third Performance Milestone), and 35% (following the Third Performance Milestone) of the total outstanding Term Loan principal amount, or our market capitalization is at least $900.0 million.
As collateral for the obligations, we granted to Hercules a senior security interest in all of our right, title, and interest in, to and under substantially all of our property, inclusive of intellectual property.
In connection with the entry into the Loan Agreement, we issued to Hercules a warrant (the “Warrant”) to purchase a number of shares of our common stock equal to 2.5% of the aggregate amount of the Term Loan advances funded, and will issue to Hercules additional warrants when future Term Loan advances are funded. On the Closing Date, we issued a Warrant for 74,782 shares of common stock. The Warrant will be exercisable for a period of seven years from the date of issuance at a per-share exercise price equal to $33.43, which was the closing price of our common stock on September 16, 2021.
At-the-Market-Offering
On November 10, 2020, we entered into an Open Market Sale AgreementSM, or the Sales Agreement, with Jefferies LLC, or the Sales Agent, under which we may, from time to time, sell shares of our common stock having an aggregate offering price of up to $125.0 million through the Sales Agent, or the ATM Offering. Sales of our common stock made pursuant to the Sales Agreement, if any, will be made under our shelf registration statement on Form S-3 which was filed on November 10, 2020 and declared effective by the SEC on November 16, 2020. We are not obligated to, and we cannot provide any assurances that we will, make any sales of the shares under the Sales Agreement. The Sales Agreement may be terminated by the Sales Agent or us at any time. There were no sales of our common stock under the ATM Offering for the three-month period ended March 31, 2022.
25
Underwritten Public Offering
On December 16, 2020, the Company completed an underwritten public offering, in which it sold 2,250,000 shares of its common stock at a price of $42.00 per share for total gross proceeds of $94.5 million. The net purchase price after deducting underwriting discounts and commissions was $39.48 per share, which generated net proceeds of $88.8 million. We incurred an additional $0.2 million of offering expenses in connection with the public offering.
Funding Requirements
Based on our current operating plan, we believe that our existing cash and cash equivalents together with the drawdown of the remaining $100 million under our Loan Agreement with Hercules, receipt of amounts potentially available under the revenue interest financing agreement and anticipated future sales of products containing vonoprazan will be sufficient to fund our operations through 2024. We expect such amounts will allow us to complete our ongoing Phase 3 clinical trial studying vonoprazan for NERD (daily dosing), and launch vonoprazan for H. pylori and, if approved, erosive esophagitis. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
26
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses, and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
Including our existing cash and cash equivalents, we believe that we have sufficient working capital on hand to fund operations such that there is no substantial doubt as to our ability to continue as a going concern at the date the financial statements were issued. There can be no assurance that we will be successful in acquiring additional funding, that our projections of future working capital needs will prove accurate, or that any additional funding would be sufficient to continue operations in future years.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods indicated (in thousands):
|
|
Three Months Ended |
|
|
|
|
||||||
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|||
Operating activities |
|
$ |
(45,102 |
) |
|
$ |
(49,765 |
) |
|
$ |
4,663 |
|
Investing activities |
|
|
(67 |
) |
|
|
(169 |
) |
|
|
102 |
|
Financing activities |
|
|
— |
|
|
|
412 |
|
|
|
(412 |
) |
Net (decrease) in cash |
|
$ |
(45,169 |
) |
|
$ |
(49,522 |
) |
|
$ |
4,353 |
|
Operating Activities
Net cash used in operating activities was approximately $45.1 million and $49.8 million for the three months ended March 31, 2022 and 2021, respectively. The net cash used in operating activities for the three months ended March 31, 2022 was due to approximately $32.8 million spent on ongoing research and development and general and administrative activities and a $12.3 million net change in operating assets and liabilities. The net change in operating assets and liabilities primarily related to a $7.5 million decrease in accounts payable and accrued expenses (including clinical trial expenses), a $4.3 million increase in prepaid assets and other current assets, and a $0.5 million increase in other long-term assets. The net cash used in operating activities for the three months ended March 31, 2021 was due to approximately $30.2 million spent on ongoing research and development and general and administrative activities and a $19.6 million net change in operating assets and liabilities. The net change in operating assets and liabilities primarily related to a $0.9 million increase in prepaid clinical activities, and an $18.7 million decrease in accounts payable and accrued expenses in support of the growth in our operating activities.
Investing Activities
Net cash used in investing activities for the three months ended March 31, 2022 and 2021, was primarily due to the cash we paid for acquiring property, plant and equipment.
Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2022 was $0 million. Net cash provided by financing activities for the three months ended March 31, 2021 was $0.4 million, due to issuance of common stock from exercise of stock options.
Contractual Obligations and Commitments
Other than disclosed below, there were no material changes outside the ordinary course of our business during the three months ended March 31, 2022 to the information regarding our contractual obligations that was disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our 2021 Form 10-K.
27
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
For a description of our critical accounting policies, please see the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Significant Judgments and Estimates” contained in our 2021 Form 10-K. There have not been any material changes to the critical accounting policies discussed therein during the three months ended March 31, 2022.
Other Company Information
JOBS Act
As an emerging growth company under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley.
We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of our IPO, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year, or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
Recent Accounting Pronouncements
The information required by this item is included in Note 1, Organization, Basis of Presentation and Summary of Significant Accounting Policies included in Part 1, Item 1 of this quarterly report.
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2022, there have been no material changes surrounding our market risk, including interest rate risk, foreign currency exchange risk, and inflation risk, from the discussion provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures About Market Risk” of our 2021 Form 10-K.
28
Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic and current reports that we file with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as of the end of the period covered by this quarterly report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the three months ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently subject to any material legal proceedings. From time to time, we may be involved in legal proceedings or subject to claims incident to the ordinary course of business. Regardless of the outcome, such proceedings or claims can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be obtained.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in Part I, Item 1A, “Risk Factors” of our 2021 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Issuer Repurchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
30
Item 6. Exhibits
|
|
|
|
Incorporated by Reference |
|
|
||||
Exhibit Number |
|
Exhibit Description |
|
Form |
|
Date |
|
Number |
|
Filed Herewith |
|
|
|
|
|
|
|
|
|
|
|
3.1 |
|
|
8-K |
|
10/29/19 |
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
8-K |
|
09/25/2020 |
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1 |
|
|
S-1/A |
|
10/15/19 |
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.2 |
|
Warrant to purchase shares of common stock issued to Takeda Company Limited, dated May 7, 2019 |
|
S-1 |
|
9/30/19 |
|
4.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4.3 |
|
Warrant to purchase stock issued to Silicon Valley Bank, dated May 14, 2019 |
|
S-1 |
|
9/30/19 |
|
4.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4.4 |
|
Warrant to purchase stock issued to WestRiver Innovation Lending Fund VIII, L.P., dated May 14, 2019 |
|
S-1 |
|
9/30/19 |
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
4.5 |
|
|
S-1/A |
|
10/15/19 |
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.6 |
|
|
10-K |
|
12/31/21 |
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.1# |
|
Employment Letter Agreement, dated March 22, 2022, by and between Molly Henderson and the Company |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
32.1* |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
32.2* |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Calculation Linkbase Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Label Linkbase Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
101.PRE |
|
Inline XBRL Presentation Linkbase Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
X |
|
|
|
|
|
|
|
|
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
|
|
|
|
|
|
|
|
# Indicates management contract or compensatory plan
* This certification is deemed not filed for purpose of section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
PHATHOM PHARMACEUTICALS, INC. |
||
|
|
|
|
|
Date: |
May 10, 2022 |
By: |
|
/s/ Terrie Curran |
|
|
|
|
Terrie Curran |
|
|
|
|
Chief Executive Officer and Director |
|
|
|
|
(Principal Executive Officer) |
|
|
|
|
|
Date: |
May 10, 2022 |
By: |
|
/s/ Molly Henderson |
|
|
|
|
Molly Henderson |
|
|
|
|
Chief Financial and Business Officer |
|
|
|
|
(Principal Financial and Accounting Officer) |
32
Exhibit 10.1
March 22, 2022
Molly Henderson
Basking Ridge, New Jersey
mhender1221@gmail.com
Re: Employment Offer Letter
Dear Molly:
Phathom Pharmaceuticals, Inc. (the “Company”) is pleased to offer you a position on the terms set forth in this letter (this “Agreement”).
1
2
3
4
5
6
7
8
If you choose to accept this Agreement under the terms described above, please acknowledge your acceptance of our offer by returning a signed copy of this letter and the Proprietary Information and Inventions Assignment Agreement to our attention.
9
Sincerely,
Phathom Pharmaceuticals, Inc.
Name: Joe Hand
Chief Administrative Officer
Agreed and Accepted:
I have read and understood this Agreement and hereby acknowledge, accept and agree to the terms as set forth above and further acknowledge and agree that no other commitments were made to me as part of my offer except as specifically set forth herein.
/s/ Molly Henderson Date: March 22, 2022 .
Molly Henderson
Attachments: Proprietary Information and Inventions Assignment Agreement
10
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Terrie Curran, certify that:
Date: May 10, 2022 |
/s/ Terrie Curran |
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Terrie Curran |
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Chief Executive Officer and President (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Molly Henderson, certify that:
Date: May 10, 2022 |
/s/ Molly Henderson |
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Molly Henderson |
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Chief Financial and Business Officer (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Phathom Pharmaceuticals, Inc. (the “Company”) for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terrie Curran, as Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
Date: May 10, 2022 |
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/s/ Terrie Curran |
|
|
Terrie Curran |
|
|
Chief Executive Officer and President (Principal Executive Officer) |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Phathom Pharmaceuticals, Inc. (the “Company”) for the quarter ended March 31, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Molly Henderson, as Chief Financial and Business Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge, that:
Date: May 10, 2022 |
|
/s/ Molly Henderson |
|
|
Molly Henderson |
|
|
Chief Financial and Business Officer (Principal Financial and Accounting Officer) |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.