Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included herein and our audited consolidated financial statements and related notes for the year ended December 31, 2020 included in our Form 10-K, filed on March 31, 2021. Some of the information contained in this discussion and analysis or set forth elsewhere in this filing, including information with respect to our plans and strategy for our business, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. All statements other than statements relating to historical matters including statements to the effect that we “believe,” “expect,” “anticipate,” “plan,” “target,” “intend” and similar expressions should be considered forward-looking statements. As a result of many factors, including those factors set forth in the risks identified the “Risk Factors’’ section of our other filings with the Securities and Exchange Commission, or the SEC, our actual results could differ materially from the results, performance or achievements expressed in or implied by these forward-looking statements.
Company Overview
We are a biopharmaceutical company focused on the discovery, development and commercialization of novel antibiotics for serious infectious diseases. We are conducting a Phase 3 clinical program focused on the infectious disease C. difficile infection (or "CDI"). Based on a thorough review of the design and enrollment status of our two ongoing blinded Phase III Ri-CoDIFy trials, on August 11, 2021, we announced the combination of these Phase III clinical trials evaluating ridinilazole versus vancomycin into a single study.We are also seeking to expand our product candidate portfolio through the development of new mechanism, precision antibiotics using our proprietary Discuva Platform. Our lead CDI product candidate is ridinilazole (formerly SMT19969), an orally administered small molecule antibiotic.
To date, we have financed our operations primarily through issuances of our common stock (and before the Redomiciliation Transaction issuances of Summit Therapeutics plc’s ordinary shares and American Depositary Shares, or ADSs), payments to us under our license and commercialization agreement with Eurofarma Laboratórios SA, or Eurofarma, payments to us under our now-terminated license and collaboration agreement with Sarepta, and development funding and other assistance from government entities, philanthropic, non-government and not for profit organizations and patient advocacy groups for our product candidates. In particular, we have received funding from BARDA, CARB-X, Innovate UK, Wellcome Trust and a number of not for profit organizations.
We have devoted substantially all of our efforts to research and development, including clinical trials. We have not completed the development of any drugs. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. The net losses we incur may fluctuate significantly from quarter to quarter and year to year, due to the nature and timing of our research and development activities. We expect to incur significant expenses in continuing our Phase 3 clinical program, including concluding a pivotal clinical trial and assessing that trial's data for our lead product candidate, ridinilazole (formerly SMT19969), for the treatment of patients with CDI and seeking marketing approval for ridinilazole in the United States, as well as other geographies. In addition, if we obtain marketing approval of ridinilazole in the United States or other jurisdictions where we retain commercial rights, we expect to incur significant sales, marketing, distribution and outsourced manufacturing expenses, as well as ongoing research and development expenses.
Business Impact of COVID-19 Pandemic
In December 2019, an outbreak of respiratory illness caused by a novel coronavirus, commonly referred to as COVID-19, began in Wuhan, China and has now spread worldwide. On March 11, 2020, the World Health Organization declared the outbreak a global pandemic and public health emergency, and on March 13, 2020, the President of the United States declared the virus as a national emergency. In addition to those who have been directly affected, millions more have been affected by government efforts in the United States, the United Kingdom, the European Union and around the world to slow the spread of the pandemic through quarantines, travel restrictions, heightened border scrutiny and other measures. The pandemic and measures taken in response by governments, private industry, individuals and others have also had significant direct and indirect adverse impacts on businesses and commerce as supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services has spiked, while demand for other goods and services has decreased significantly.
The COVID-19 pandemic and measures taken to contain it have affected our business and operations in several ways. These include, but are not limited to, the following:
•A substantial portion of our employees are remote working. We have been unable to undertake certain activities directly at the same level as prior to the COVID-19 pandemic, including clinical trial visits and investigator meetings, with such activities being done remotely where possible. We have been relying on remote means of working and communication both internally and externally. We are continuing to monitor and support the health and well-being of our employees and their productivity as remote working continues.
•Certain of our clinical trial sites have suspended enrollment due to facility closures, reduced staff and operations, quarantine travel restrictions and other governmental restrictions. Additionally, we experienced patient enrollment at a slower pace than expected at certain clinical trial sites which resulted in increased clinical development costs.
•Many of our clinical trial sites have been operating with reduced staff and other restrictions. We increased our efforts to engage with our clinical trial sites with a focus on retaining patients and maintaining scheduled visits and treatments, and where possible, instituted practices such as addition of home healthcare provider services for patients and remote monitoring.
The progression of the COVID-19 pandemic continues to evolve and its enduring impact on our business remains uncertain. There may be other material adverse impacts on our business, operations and financial condition that are unpredictable at this time, including delays in the development and regulatory approval of our product candidates and difficulties in retaining qualified personnel during the pandemic and once it subsides. The extent to which the pandemic may impact our business will depend on future developments, such as the duration of the pandemic, quarantines, travel restrictions and other measures in the United States, the United Kingdom, the European Union and around the world, business closures or business disruptions and the effectiveness of actions taken to contain the pandemic.
Results of Operations
Comparison of the three months ended June 30, 2021 to the three months ended June 30, 2020
The following table summarizes the results of our operations for the three months ended June 30, 2021 and 2020, together with the changes to those items:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Change June 30, 2021 vs.
June 30, 2020
|
|
|
2021
|
|
2020
|
|
Increase/(Decrease)
|
|
|
(in thousands, except percentages)
|
Revenue
|
|
57
|
|
|
170
|
|
|
$
|
(113)
|
|
|
(66.5)
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%
|
Operating expenses
|
|
|
|
|
|
|
|
|
Research and development
|
|
23,923
|
|
|
13,572
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|
|
10,351
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|
|
76.3
|
|
General and administrative
|
|
5,984
|
|
|
5,774
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|
|
210
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|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
29,907
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|
|
19,346
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|
|
10,561
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|
|
54.6
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Other operating income
|
|
6,120
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|
|
3,820
|
|
|
2,300
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|
|
60.2
|
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Operating loss
|
|
(23,730)
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|
|
(15,356)
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|
|
(8,374)
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|
|
(54.5)
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Other expense, net
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(686)
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(114)
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(572)
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|
|
(501.8)
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Loss before income taxes
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|
(24,416)
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|
|
(15,470)
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|
|
(8,946)
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|
|
(57.8)
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|
Income tax benefit
|
|
—
|
|
|
191
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|
|
(191)
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|
|
(100.0)
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|
Net loss
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|
$
|
(24,416)
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|
|
$
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(15,279)
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$
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(9,137)
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|
|
(59.8)
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%
|
Revenue
Revenue was $0.1 million for the three months ended June 30, 2021, compared to $0.2 million for the three months ended June 30, 2020. The Company's revenue in these periods relates wholly to the receipt of a $2.5 million upfront payment and $1.0 million enrollment milestone payment received in respect of the license and commercialization agreement signed with Eurofarma in December 2017.
Operating Expenses
Research and Development Expenses
The table below summarizes our research and development expenses by category for the three months ended June 30, 2021 and 2020. Our CDI program expenses and antibiotic pipeline development activities include costs paid to contract research organizations, manufacturing costs for our clinical trials and laboratory testing costs and research related expenses. Other research and development costs include staff and travel costs (including those of our internal CDI and antibiotic development teams), research and development related legal costs, patent registration fees, an allocation of facility-related costs and other non-core program related expenses.
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Three Months Ended
June 30,
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|
Change June 30, 2021 vs.
June 30, 2020
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|
2021
|
|
2020
|
|
Increase/(Decrease)
|
|
(in thousands, except percentages)
|
CDI program
|
$
|
16,442
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|
|
$
|
9,477
|
|
|
$
|
6,965
|
|
|
73.5
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%
|
Antibiotic pipeline research and development costs
|
478
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|
|
387
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|
|
91
|
|
|
23.5
|
|
Other research and development costs
|
7,003
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|
|
3,708
|
|
|
3,295
|
|
|
88.9
|
|
Total
|
$
|
23,923
|
|
|
$
|
13,572
|
|
|
$
|
10,351
|
|
|
76.3
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%
|
Research and development expenses increased by $10.3 million to $23.9 million for the three months ended June 30, 2021, from $13.6 million for the three months ended June 30, 2020. This was primarily due to increased expenditure related to our CDI program, and research and development related staffing and facilities costs (including stock based compensation).
Investment in the CDI program increased by $7.0 million to $16.4 million for the three months ended June 30, 2021, from $9.5 million for the three months ended June 30, 2020. This increase primarily related to clinical and manufacturing activities associated with the Phase 3 clinical trials of ridinilazole that commenced in February 2019.
Investment in antibiotic pipeline development activities was $0.5 million for the three months ended June 30, 2021, which reflects costs associated with development of the Company's preclinical candidate, SMT-738, from the DDS-04 series for development in the fight against multidrug resistant infections, specifically carbapenem-resistant Enterobacteriaceae ("CRE") infections. Expenses associated with the Company's antibiotic pipeline development activities were $0.4 million for the three months ended June 30, 2020, which reflects costs associated with work on the DDS-01 series and the gonorrhea program which the Company ceased work on at the end of 2020.
Other research and development expenses increased by $3.3 million to $7.0 million during the three months ended June 30, 2021, as compared to $3.7 million during the three months ended June 30, 2020. This was primarily due to an increase in staff and facilities costs related to the CDI program, including stock based compensation.
General and Administrative Expenses
General and administrative expenses increased by $0.2 million to $6.0 million for the three months ended June 30, 2021, from $5.8 million for the three months ended June 30, 2020. This increase primarily related to increased corporate and support staff related costs, including stock based compensation, offset by a decrease in legal and professional fees pertaining to additional fees incurred during the three months ended June 30, 2020 in connection with the Redomiciliation Transaction.
Other Operating Income
Other operating income was $6.1 million for the three months ended June 30, 2021, as compared to $3.8 million for the three months ended June 30, 2020.
The Company recognized other operating income from the BARDA contract of $1.6 million during the three months ended June 30, 2021, as compared to $1.2 million during the three months ended June 30, 2020. This increase of $0.4 million is due to increased funding received for the adolescent patient clinical trial for ridinilazole, which had first patient enrolled during May 2021. During the three months ended June 30, 2021, $4.2 million was recognized in respect of U.K. research and development tax credits for the three months ended June 30, 2021 as compared to $2.6 million for the three months ended June 30, 2020. This increase of $1.6 million is due primarily to additional research and development expenses incurred during the three months ended June 30, 2021 that were not funded by third parties.
Other income (expense), net
Other expense, net was $0.7 million for the three months ended June 30, 2021, which primarily consisted of a foreign currency loss of $0.4 million and interest accrued on a promissory note payable to a related party of $0.2 million. Other income, net was $0.1 million for the three months ended June 30, 2020, which primarily consisted of a foreign currency gain of $0.1 million.
Income tax benefit
The income tax benefit for the three months ended June 30, 2021 was $0 as compared to $0.2 million for the three months ended June 30, 2020. The Company's income tax expense during the second quarter of 2020 relates to the Company's U.S. corporate taxation due in relation to the U.S. tax resident trading entity. The Company has recorded a full valuation allowance against its deferred tax assets in excess of our deferred tax liabilities, as the deferred tax liability represents future reversals of existing taxable temporary differences.
Comparison of the six months ended June 30 2021 to the six months ended June 30 2020
The following table summarizes the results of our operations for the six months ended June 30, 2021 and 2020, together with the changes to those items:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
Change June 30, 2021 vs.
June 30, 2020
|
|
|
2021
|
|
2020
|
|
Increase/(Decrease)
|
|
|
(in thousands, except percentages)
|
Revenue
|
|
249
|
|
|
494
|
|
|
$
|
(245)
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|
|
(49.6)
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%
|
Operating expenses
|
|
|
|
|
|
|
|
|
Research and development
|
|
42,302
|
|
|
26,484
|
|
|
15,818
|
|
|
59.7
|
|
General and administrative
|
|
10,169
|
|
|
9,346
|
|
|
823
|
|
|
8.8
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
52,471
|
|
|
35,830
|
|
|
16,641
|
|
|
46.4
|
|
Other operating income
|
|
11,569
|
|
|
10,640
|
|
|
929
|
|
|
8.7
|
|
Operating loss
|
|
(40,653)
|
|
|
(24,696)
|
|
|
(15,957)
|
|
|
(64.6)
|
|
Other (expense) income, net
|
|
(1,251)
|
|
|
3,147
|
|
|
(4,398)
|
|
|
(139.8)
|
|
Loss before income taxes
|
|
(41,904)
|
|
|
(21,549)
|
|
|
(20,355)
|
|
|
(94.5)
|
|
Income tax benefit
|
|
—
|
|
|
136
|
|
|
(136)
|
|
|
(100.0)
|
|
Net loss
|
|
$
|
(41,904)
|
|
|
$
|
(21,413)
|
|
|
$
|
(20,491)
|
|
|
(95.7)
|
%
|
Revenue
Revenue was $0.2 million for the six months ended June 30, 2021, compared to $0.5 million for the six months ended June 30, 2020. The Company's revenue in these periods relates wholly to the receipt of a $2.5 million upfront payment and $1.0 million enrollment milestone payment received in respect of the license and commercialization agreement signed with Eurofarma in December 2017.
Operating Expenses
Research and Development Expenses
The table below summarizes our research and development expenses by category for the six months ended June 30, 2021 and 2020. Our CDI program expenses and antibiotic pipeline development activities include costs paid to contract research organizations, manufacturing costs for our clinical trials and laboratory testing costs and research related expenses. Other research and development costs include staff and travel costs (including those of our internal CDI and antibiotic development teams), research and development related legal costs, patent registration fees, an allocation of facility-related costs and other non-core program related expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
June 30,
|
|
Change June 30, 2021 vs.
June 30, 2020
|
|
2021
|
|
2020
|
|
Increase/(Decrease)
|
|
(in thousands, except percentages)
|
CDI program
|
$
|
29,425
|
|
|
$
|
18,987
|
|
|
$
|
10,438
|
|
|
55.0
|
%
|
Antibiotic pipeline research and development costs
|
627
|
|
|
947
|
|
|
(320)
|
|
|
(33.8)
|
|
Other research and development costs
|
12,250
|
|
|
6,550
|
|
|
5,700
|
|
|
87.0
|
|
Total
|
$
|
42,302
|
|
|
$
|
26,484
|
|
|
$
|
15,818
|
|
|
59.7
|
%
|
Research and development expenses increased by $15.8 million to $42.3 million for the six months ended June 30, 2021, from $26.5 million for the six months ended June 30, 2020. This was due to increased expenditure related to our CDI program, and research and development related staffing and facilities costs (including stock based compensation), offset by decreased expenditure related to the antibiotic pipeline development activities.
Investment in the CDI program increased by $10.4 million to $29.4 million for the six months ended June 30, 2021, from $19.0 million for the six months ended June 30, 2020. This increase primarily related to clinical and manufacturing activities associated with the Phase 3 clinical trials of ridinilazole that commenced in February 2019.
Investment in antibiotic pipeline development activities was $0.6 million for the six months ended June 30, 2021, compared to $0.9 million for the six months ended June 30, 2020. This decrease primarily related to the decision not to advance the DDS-01 series of antibiotics and to cease work on the gonorrhea program at the end of 2020.
Other research and development expenses increased by $5.7 million to $12.3 million during the six months ended June 30, 2021, as compared to $6.6 million during the six months ended June 30, 2020. This was primarily due to an increase in staff and facilities costs related to the CDI program, including stock based compensation.
General and Administrative Expenses
General and administrative expenses increased by $0.9 million to $10.2 million for the six months ended June 30, 2021, from $9.3 million for the six months ended June 30, 2020. This increase primarily related to increased corporate and support staff related costs, including stock based compensation, offset by a decrease in legal and professional fees pertaining to additional fees incurred during the six months ended June 30, 2020 in connection with the Redomiciliation Transaction.
Other Operating Income
Other operating income was $11.6 million for the six months ended June 30, 2021, as compared to $10.6 million for the six months ended June 30, 2020.
The Company recognized other operating income from the BARDA contract of $3.3 million during the six months ended June 30, 2021, as compared to $6.1 million during the six months ended June 30, 2020. This decrease of $2.8 million is due to reaching the funding limit on certain work segments of the contract, this decrease is partially offset by an increase in U.K. research and development tax credits. During the six months ended June 30, 2021, $7.9 million was recognized in respect of U.K. research and development tax credits for the six months ended June 30, 2021, as compared to $4.3 million for the six months ended June 30, 2020. This increase of $3.6 million is due primarily to additional research and development expenses incurred during the six months ended June 30, 2021 that were not funded by third parties.
Other income (expense), net
Other expense, net was $1.3 million for the six months ended June 30, 2021, which primarily consisted of a foreign currency loss of $0.9 million and interest accrued on a promissory note payable to a related party of $0.2 million. Other income, net was $3.1 million for the six months ended June 30, 2020, which primarily consisted of a foreign currency gain of $3.3 million.
Income tax benefit
The income tax benefit for the six months ended June 30, 2021 was $0 as compared to $0.1 million for the six months ended June 30, 2020. The Company's income tax benefit during the six months ended June 30, 2020 relates to the Company's U.S. corporate taxation due in relation to the U.S. tax resident trading entity. The Company has recorded a full valuation allowance against its deferred tax assets in excess of our deferred tax liabilities, as the deferred tax liability represents future reversals of existing taxable temporary differences.
Liquidity and Capital Resources
Sources of liquidity
To date, we have financed our operations primarily through issuances of our common stock (and before the Redomiciliation Transaction issuances of Summit Therapeutics plc’s ordinary shares and American Depositary Shares, or "ADSs"), payments to us under our former license and collaboration agreement with Sarepta and our license and commercialization agreement with Eurofarma and development funding and other assistance from government entities, philanthropic, non-government and not for profit organizations and patient advocacy groups for our product candidates. In particular, we have received funding from BARDA, CARB-X, Innovate UK, Wellcome Trust and a number of not for profit organizations.
In January 2019, we received net proceeds of $24.4 million from the issuance and sale of 15,625,000 shares of common stock to a single investor, Mr. Robert W. Duggan. In December 2019, we received net proceeds of $49.1 million from the issuance and sale of 35,075,690 shares of common stock to three existing investors. As part of the equity placing, the participating investors were granted warrants with the right to subscribe for 5,261,353 new shares of common stock at an exercise price of $1.58 per share. On November 6, 2020, we received net proceeds of $50.0 million from the issuance and sale of 14,970,060 shares of common stock to three existing investors. Following the issuance of an unsecured promissory note on March 24, 2021, we received net proceeds of $55.0 million. Such note was later repaid without interest or penalty, rescinded and replaced by a new note on April 20, 2021, pursuant to a second unsecured promissory note we received net proceeds of $55.0 million. Subsequently, on May 12, 2021, the Company received proceeds of $75.0 million in the aggregate from the sale of 14,312,976 shares of Common Stock at a price per share of $5.24 in the Company’s rights offering, the proceeds of which were used in part to repay amounts outstanding on the second unsecured promissory note.
Funding requirements
Since our inception, we have incurred significant operating losses. We anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development and general and administrative expenses will continue to be significant in connection with continuing our Phase 3 clinical program, including concluding a pivotal clinical trial and assessing that trial's data for our lead product candidate, ridinilazole, for the treatment of CDI, conducting preclinical research and development activities and seeking marketing approval for ridinilazole in the United States as well as other geographies where we retain commercialization rights. In addition, our expenses will increase if and as we:
•continue the research and development of ridinilazole, as well as our early-stage programs targeting infections caused by Enterobacteriaceae;
•seek to identify and develop additional future product candidates, including through our bacterial genetics-based Discuva Platform for the discovery and development of new mechanism antibiotics, and specifically our research activities against a group of bacteria that collectively are known as the ESKAPE pathogens;
•seek marketing approvals for any product candidates that successfully complete clinical development;
•ultimately establish a sales, marketing and distribution infrastructure in jurisdictions where we have retained commercialization rights and scale up external manufacturing capabilities to commercialize any product candidates for which we receive marketing approval;
•acquire or in-license other product candidates and technology;
•maintain, expand and protect our intellectual property portfolio;
•hire additional clinical, regulatory and scientific personnel;
•expand our physical presence; and
•add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts.
As of June 30, 2021, we had cash and cash equivalents of $103.4 million. We believe that our existing cash resources, funding agreements, licensing agreement milestone receipts and research and development tax credits receivable, will be sufficient to enable us to fund our current operating plans for at least the next twelve months. We believe these funding sources will be sufficient for us to continue our Phase 3 clinical program, including concluding a pivotal clinical trial and assessing that trial's data for our lead product candidate, ridinilazole. In the event we need to raise additional capital, our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations and financial condition.
We have based the foregoing estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. This estimate assumes, among other things, that we do not obtain any additional funding through grants and clinical trial support or through new collaboration arrangements. Our future capital requirements will depend on many factors, including:
•the progress, costs and results of our clinical trials of ridinilazole for CDI;
•the number and development requirements of other future product candidates that we pursue;
•the costs, timing and outcome of regulatory review of ridinilazole and our other product candidates we develop;
•the costs and timing of commercialization activities, including product sales, marketing, distribution and manufacturing, for any of our product candidates that receive marketing approval;
•subject to receipt of marketing approval, revenue received from commercial sales of ridinilazole or any other product candidates;
•the costs and timing of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property-related claims;
•our contract with BARDA and whether BARDA elects to pursue its final designated option beyond the base period and two exercised options;
•the amounts we receive from Eurofarma under our license and commercialization agreement, including for the achievement of development, commercialization and sales milestones and for product supply transfers;
•our ability to establish and maintain collaborations, licensing or other arrangements and the financial terms of such arrangements;
•the extent to which we acquire or invest in other businesses, products and technologies;
•the rate of the expansion of our physical presence;
•the extent to which we change our physical presence; and
•the costs of operating as a domestic issuer in the United States following the Redomiciliation Transaction.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of some, or all, of the following: equity and debt offerings, collaborations, strategic alliances, grants and clinical trial support from government entities, philanthropic, non-government and not-for-profit organizations and patient advocacy groups, and marketing, distribution or licensing arrangements. We do not have any committed external source of funds other than amounts we may receive from BARDA and Eurofarma under our arrangements with them and our research and development tax credits receivable. As a result, we will need additional capital to fund our operations. Additional capital, when needed, may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing stockholders. Debt 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 or other distributions. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements 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 product candidates that we would otherwise prefer to develop and market ourselves.
Cash Flows
The following table summarizes the results of our cash flows for the six months ended June 30, 2021 and 2020:
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|
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Six Months Ended
June 30,
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Change June 30, 2021
vs. June 30, 2020
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2021
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2020
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Increase/(Decrease)
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(in thousands)
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Net cash used in operating activities
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$
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(39,843)
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$
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(23,491)
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$
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(16,352)
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Net cash used in investing activities
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(190)
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(327)
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137
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Net cash provided by financing activities
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75,979
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3
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|
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75,976
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Effect of exchange rates on cash and cash equivalents
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1,023
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(3,617)
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4,640
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Net change in cash and cash equivalents
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$
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36,969
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$
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(27,432)
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$
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64,401
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Operating Activities
Net cash used in operating activities for the six months ended June 30, 2021 was $39.8 million, consisting primarily of operating costs of $41.3 million, offset by $1.5 million received from licensing agreements and funding arrangements. Net loss of $41.9 million for the six months ended June 30, 2021 included net $2.1 million of non-cash items. Significant non-cash items include stock-based compensation expense of $4.5 million, net unrealized foreign exchange gains of $1.5 million and depreciation and amortization expense of $1.2 million. The significant items in the change in operating assets and liabilities that impacted our use of cash in operations were an increase in research and development tax credit receivable of $7.9 million, an increase in accrued liabilities of $3.3 million and a decrease in deferred revenue and income of $1.6 million.
Net cash used in operating activities for the six months ended June 30, 2020, was $23.5 million, consisting primarily of operating costs of $33.4 million, offset by $9.9 million received from licensing agreements and funding arrangements. Net loss of $21.4 million for the six months ended June 30, 2020 included net $2.1 million of non-cash items. Significant non-cash items include depreciation and amortization expense of $0.9 million and stock-based compensation expense of $0.8 million. The significant items in the change in operating assets and liabilities that impacted our use of cash in operations were an increase in research and development tax credit receivable of $4.5 million, an increase in deferred revenue and income of $3.1 million, a decrease in accounts payable of $1.1 million and a decrease in accrued liabilities of $0.5 million.
Investing Activities
Net cash outflows in investing activities for the six months ended June 30, 2021, was $0.2 million compared to $0.3 million for the six months ended June 30, 2020. Net cash outflows from investing activities represented amounts paid to acquire property, plant and equipment and intangible assets.
Financing Activities
Net cash inflows from financing activities for the six months ended June 30, 2021, included net proceeds of $74.9 million from the rights offering in May 2021, proceeds from of the promissory notes from a related party of $110.0 million, offset by repayments of the promissory notes from a related party of $110.0 million and proceeds from the exercise of stock options of $1.1 million.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, accrued research and development expenses, income taxes, and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in Note 3 to our audited consolidated financial statements included in our Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 31, 2021. There have been no changes to our critical accounting policies and estimates since the date of issuance of those audited financial statements.
Contractual obligations and commitments
The following table summarizes our contractual obligations as of June 30, 2021.
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Payment due by period
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Total
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Less that 1 year
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Between 1 and 3 years
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Between 3 and 5 years
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More that 5 years
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(in thousands)
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Operating lease obligations
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$
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2,221
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$
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1,007
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$
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639
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$
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460
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$
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115
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The preceding table excludes contingent payment obligations which primarily consist of commitments under our agreements with the Wellcome Trust, the University College London and certain employees, former employees and former directors of Discuva, pursuant to which we will be required to pay royalties or make milestone payments. As of June 30, 2021, we were unable to estimate the amount, timing or likelihood of achieving the milestones or making future product sales that these contingent payment obligations relate to. For additional information regarding these agreements, see “Business - Our Collaborations and Funding Arrangements” in our Annual Report on Form 10-K, filed on March 31, 2021.
Additionally, we enter into contracts in the normal course of business with various third parties for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts generally provide for termination upon notice, and therefore are cancellable contracts and not included in the table of contractual obligations and commitments.
Off-Balance Sheet Arrangements
Other than the contractual obligations and commitments described above, we did not have during the periods presented, and we do not currently have, any off‑balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements, please see Note 2 of Notes to Consolidated Financial Statements included herein.