You should read the following discussion and analysis of our financial condition
and results of operations together with our financial statements and related
notes appearing elsewhere in this Annual Report on Form 10 -K. In addition to
historical information, this discussion and analysis contains forward-looking
statements that involve risks, uncertainties and assumptions. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of certain factors. We discuss factors that we believe could cause
or contribute to these differences below and elsewhere in this report, including
those set forth under Item 1A. “Risk Factors” and under “Cautionary
Note Regarding Forward-Looking Statements” in this Annual Report.
Overview
We are a biopharmaceutical company developing novel therapies designed to treat
patients with cancer by inhibiting fundamental tumor-promoting pathways and by
harnessing the immune system to attack cancer cells. Our strategy is to
identify, acquire, and develop molecules that will rapidly translate into high
impact therapeutics that generate durable clinical benefit and enhanced patient
outcomes.
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Our lead clinical stage program is DKN-01, a monoclonal antibody that inhibits
Dickkopf -related protein 1, or
signaling pathways and enables tumor cells to proliferate and spread, as well as
suppresses the immune system from attacking the tumor. When DKN-01 binds to
generated responses and clinical benefit in several patient populations. We are
currently studying DKN-01 in multiple ongoing clinical trials in patients with
esophagogastric cancer, hepatobiliary cancer, gynecologic cancers, or prostate
cancer. We entered into an exclusive option and license agreement (the “BeiGene
Agreement”) with BeiGene, Ltd., or BeiGene, which granted BeiGene the right to
develop and commercialize DKN-01 in
Zealand
We intend to apply our extensive experience identifying and developing
transformational products to aggressively develop these antibodies and build a
pipeline of programs that has the potential to change the practice of cancer
medicine.
We have devoted substantially all of our resources to development efforts
relating to our product candidates, including manufacturing and conducting
clinical trials of our product candidates, providing general and administrative
support for these operations and protecting our intellectual property. We do not
have any products approved for sale and have not generated any revenue from
product sales. We have funded our operations primarily through proceeds from our
sales of common stock and preferred stock and proceeds from the issuance of
notes payable.
We have incurred net losses in each year since our inception in 2011. Our net
loss was
for the year ended
accumulated deficit of approximately
resulted primarily from costs incurred in connection with our research and
development programs and from general and administrative costs associated with
our operations. We expect to continue to incur significant expenses and have
operating losses for at least the next several years as we:
? continue the development of our product candidate, DKN-01;
? seek to obtain regulatory approvals for DKN-01;
? outsource the manufacturing of DKN-01 for clinical trials and any indications
for which we receive regulatory approval;
? contract with third parties for the sales, marketing and distribution of DKN-01
for any indications for which we receive regulatory approval;
? maintain, expand and protect our intellectual property portfolio;
? continue our research and development efforts;
? add operational, financial and management information systems and personnel,
including personnel to support our product development efforts; and
? operate as a public company.
We do not expect to generate revenue from product sales unless and until we
successfully complete development and obtain marketing approval for one or more
of our product candidates, which we expect will take a number of years and is
subject to significant uncertainty. Accordingly, we will need to raise
additional capital prior to the commercialization of DKN-01 or any other product
candidate. Until such time, if ever, as we can generate substantial revenue from
product sales, we expect to finance our operating activities through a
combination of equity offerings, debt financings, government or other
third-party funding, commercialization, marketing and distribution arrangements
and other collaborations, strategic alliances and licensing arrangements, such
as the BeiGene Agreement. However, we may be unable to raise additional funds or
enter into such other arrangements when needed on favorable terms or at all. Our
failure to raise capital or enter into such other arrangements as and when
needed would have a negative impact on our financial condition and our ability
to develop our product candidates.
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As of
believe that our cash and cash equivalents as of
us to fund our operating expenses and capital expenditure requirements for at
least 12 months from the filing of this Annual Report on Form 10-
Financial Overview
Research and Development Expenses
Our research and development activities have included conducting nonclinical
studies and clinical trials, manufacturing development efforts and activities
related to regulatory filings for DKN-01 and TRX518. We recognize research and
development expenses as they are incurred. Our research and development expenses
consist primarily of:
? salaries and related overhead expenses for personnel in research and
development functions, including costs related to stock-based compensation;
fees paid to consultants and CROs for our nonclinical and clinical trials, and
? other related clinical trial fees, including but not limited to laboratory
work, clinical trial database management, clinical trial material management
and statistical compilation and analysis;
? costs related to acquiring and manufacturing clinical trial materials; and
? costs related to compliance with regulatory requirements.
We plan to increase our research and development expenses for the foreseeable
future as we continue the development of DKN-01 and any other product
candidates, subject to the availability of additional funding.
Our direct research and development expenses are tracked on a program-by-program
basis and consist primarily of internal and external costs, such as employee
costs, including salaries and stock-based compensation, other internal costs,
fees paid to consultants, central laboratories, contractors and CROs in
connection with our clinical and preclinical trial development activities. We
use internal resources to manage our clinical and preclinical trial development
activities and perform data analysis for such activities.
We participate, through our subsidiary in
government’s R&D Incentive program, such that a percentage of our eligible
research and development expenses are reimbursed by the Australian government as
a refundable tax offset and such incentives are reflected as other income.
This percentage was 43.5% for both the years ended
The table below summarizes our research and development expenses incurred by development program and the R&D incentive income for the years endedDecember 31, 2021 and 2020: Year Ended December 31, 2021 2020 (in thousands) Direct research and development by program: DKN-01 program$ 32,107 $ 17,956 TRX518 program 53 2,467 Total research and development expenses$ 32,160 $ 20,423
Australian research and development incentives
The successful development of our clinical product candidates is highly
uncertain. At this time, we cannot reasonably estimate the nature, timing or
costs of the efforts that will be necessary to complete the remainder of the
development of any of our product
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candidates or the period, if any, in which material net cash inflows from these
product candidates may commence. This is due to the numerous risks and
uncertainties associated with developing drugs, including the uncertainty of:
? the scope, rate of progress and expense of our ongoing, as well as any
additional, clinical trials and other research and development activities;
? future clinical trial results; and
? the timing and receipt of any regulatory approvals.
A change in the outcome of any of these variables with respect to the
development of a product candidate could result in a significant change in the
costs and timing associated with the development of that product candidate. For
example, if the FDA or another regulatory authority were to require us to
conduct clinical trials beyond those that we currently anticipate will be
required for the completion of clinical development of a product candidate, or
if we experience significant delays in enrollment in any of our clinical trials,
we could be required to expend significant additional financial resources and
time on the completion of clinical development.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related
costs, including stock-based compensation, for personnel in executive, finance
and administrative functions. General and administrative expenses also include
direct and allocated facility-related costs as well as professional fees for
legal, patent, consulting, accounting and audit services.
We anticipate that our general and administrative expenses will increase in the
future as we increase our headcount to support our continued research activities
and development of our product candidates. We also anticipate that we will incur
increased accounting, audit, legal, regulatory, compliance, director and officer
insurance costs as well as investor and public relations expenses associated
with being a public company.
Interest income
Interest income consists primarily of interest income earned on cash and cash
equivalents. During the year ended
million
interest income.
Research and development incentive income
Research and development incentive income includes payments under the R&D
Incentive program from the government of
the key elements of the Australian Government’s support for
innovation system. It was developed to assist businesses in recovering some of
the costs of undertaking research and development. The research and development
tax incentive provides a tax offset to eligible companies that engage in
research and development activities.
Companies engaged in research and development may be eligible for either:
? a 43.5% refundable tax offset for entities with an aggregated turnover of less
than
? a 38.5% non-refundable tax offset for all other entities.
We recognize as other income the amount we expect to be reimbursed for qualified
expenses.
Foreign currency translation adjustment
Foreign currency translation adjustment consists of gains (losses) due to the
revaluation of foreign currency transactions attributable to changes in foreign
currency exchange rates associated with our Australian subsidiary.
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Income taxes
Since our inception, we have not recorded any
income tax benefits for the net losses we have incurred in each year, due to our
uncertainty of realizing a benefit from those items. As of
had federal and state net operating loss carryforwards of
to expire in 2030, while the foreign net operating losses carryforward
indefinitely. Our federal net operating losses include
also be carried forward indefinitely. We may be able to utilize our net
operating loss carryforwards to reduce future federal and state income tax
liabilities. However, these net operating losses are subject to various
limitations under Internal Revenue Code (“IRC”) Section 382, which limits the
use of net operating loss carryforwards to the extent there has been an
ownership change of more than 50 percentage points. In addition, the net
operating loss carryforwards are subject to examination by the taxing
authorities and could be adjusted or disallowed due to such exams. Although we
have not undergone an IRC Section 382 Analysis, it is possible that the
utilization of our net operating loss carryforwards may be limited.
As of
tax credits of
expire in 2030.
There is no provision for income taxes in
have historically incurred operating losses and maintain a full valuation
allowance against our deferred tax assets in these jurisdictions. The deferred
tax asset recorded in the consolidated balance sheets relates to our Australian
operations.
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 consolidated financial statements, which we have
prepared in accordance with
(“GAAP”). The preparation of these consolidated financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements, as well as the reported expenses
during the reporting periods. 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. Our
actual results may differ from these estimates under different assumptions or
conditions.
While our significant accounting policies are more fully described in Note 2 to
our consolidated financial statements appearing elsewhere in this report, we
believe that the following accounting policies are the most critical for fully
understanding and evaluating our financial condition and results of operations.
As part of the process of preparing consolidated financial statements, we are
required to estimate accrued research and development expenses. This process
involves communicating with our applicable personnel to identify services that
have been performed on our behalf and estimating the level of service performed
and the associated cost incurred for the service when we have not yet been
invoiced or otherwise notified of actual cost. The majority of our service
providers invoice us monthly for services performed. We make estimates of our
accrued research and development expenses as of each balance sheet date in our
consolidated financial statements based on facts and circumstances known to us.
We periodically confirm the accuracy of our estimates with selected service
providers and make adjustments, if necessary. To date, we have not adjusted our
estimate at any particular balance sheet date by any material amount. Examples
of estimated accrued research and development expenses include:
? fees paid to CROs for management of our clinical trial activities;
? fees paid to investigative sites in connection with clinical trials;
? fees paid to contract manufacturers in connection with the production of
clinical trial supplies; and
? professional services and fees.
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We base our expenses related to clinical trials on our estimates of the services
received and efforts expended pursuant to contracts with multiple research
institutions and CROs that conduct and manage clinical trials on our behalf. The
financial terms of these agreements are subject to negotiation, vary from
contract to contract and may result in uneven payment flows. Payments under some
of these contracts depend on factors such as the successful enrollment of
patients and the completion of clinical trial milestones. In accruing service
fees, we estimate the time period over which services will be performed and the
level of effort to be expended in each period. If we do not accurately identify
costs that we have begun to incur or if we underestimate or overestimate the
level of services performed or the costs of these services, our actual expenses
could differ from our estimates.
Stock-Based Compensation
We have issued options to purchase our common stock. We account for stock based
compensation in accordance with ASC 718, Compensation-Stock Compensation. ASC
718 establishes accounting for stock-based awards exchanged for employee and
non-employee services. Under the fair value recognition provisions of ASC 718,
stock-based compensation cost is measured at the grant date based on the fair
value of the award and is recognized as expense over the requisite service or
vesting period. Determining the appropriate fair value model and calculating the
fair value of stock-based payment awards require the use of highly subjective
assumptions, including the expected life of the stock-based payment awards and
stock price volatility.
We estimate the grant date fair value of stock options and the related
compensation expense, using the Black-Scholes option valuation model. This
option valuation model requires the input of subjective assumptions including:
(1) expected life (estimated period of time outstanding) of the options granted,
(2) volatility, (3) risk-free rate and (4) dividends. In general, the
assumptions used in calculating the fair value of stock-based payment awards
represent management’s best estimates, but the estimates involve inherent
uncertainties and the application of management judgment. As a result, if
factors change and we use different assumptions, our stock-based compensation
expense could be materially different in the future.
JOBS Act
We are an “emerging growth company”, or EGC, as defined in the Jumpstart Our
Business Startups Act of 2012 (the “JOBS Act”). The JOBS Act permits an
“emerging growth company” such as us to take advantage of an extended transition
period to comply with new or revised accounting standards applicable to public
companies until those standards would otherwise apply to private companies. We
may elect to use the extended transition period for complying with new or
revised accounting standards under Section 102(b) (1) of the JOBS Act. This
election would allow us to delay the adoption of new or revised accounting
standards that have different effective dates for public and private companies
until those standards apply to private companies. As a result of this election,
our financial statements may not be comparable to companies that comply with
public company effective dates.
We may take advantage of these reporting exemptions until we are no longer an
emerging growth company, which in certain circumstances could be for up to
five years. We will remain an “emerging growth company” until the earliest of
(a) the last day of the first fiscal year in which our annual gross revenues
exceed
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or
the Exchange Act, which would occur if the market value of our shares that are
held by non-affiliates exceeds
most recently completed second fiscal quarter, (c) the date on which we have
issued more than
three-year period and (d) the last day of our 2022 fiscal year containing the
fifth anniversary of the date on which shares of our common stock became
publicly traded in the
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Results of Operations
Comparison of the Years Ended
The following tables summarize our results of operations for the years endedDecember 31, 2021 and 2020: Year Ended December 31, 2021 2020 Change (in thousands) License revenue$ 1,500 $ 1,500 $ - Operating expenses: Research and development 32,160 20,423 11,737 General and administrative 10,766 9,616 1,150 Total operating expenses 42,926 30,039 12,887 Loss from operations (41,426) (28,539) (12,887) Interest income 9 93 (84) Interest expense (41) (39) (2) Australian research and development incentives 1,226 231 995 Foreign currency gains (losses) (379) 738 (1,117) Loss before income taxes (40,611) (27,516) (13,095) Income taxes 24 2 22 Net loss$ (40,587) $ (27,514) $ (13,073) Revenues
License revenues for the each of the years ended
commercialization of DKN- 01 in
Zealand
Research and Development Expenses
Year Ended December 31,
Increase
2021 2020 (Decrease)
(in thousands)
Direct research and development by program:
DKN-01 program $ 32,107 $ 17,956 $ 14,151
TRX518 program 53 2,467 (2,414)
Total research and development expenses $ 32,160 $ 20,423 $ 11,737
Research and development expenses were
2020
primarily due to an increase of
clinical trial material due to timing of manufacturing campaigns, an increase of
development of TRX518 in 2019 and timing of patient enrollment, an increase of
headcount of our research and development full time employees and an increase of
granted to employees during the year ended
were partially offset by a decrease of
associated with research and development activities and a
in rent expense due to the closing of our research laboratory in
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General and Administrative Expenses
General and administrative expenses were
2020
and other related expenses due to an increase in headcount of our general and
administrative full time employees as well as an increase in compensation
expense and an increase of
to new stock options granted to employees during the year ended
2021
and
decrease of
2021
million
Purchase Agreement.
Interest Income
We recorded interest income of
2020
of interest income. The decrease in interest income is primarily due to lower
interest rates during the year ended
We recorded R&D incentive income of
ended
applicable percentage of eligible research and development activities under the
Australian Incentive Program, net of our
included the cost of manufacturing of clinical trial material.
We perform certain supporting research and development activity outside of
(“Overseas research and development activities”). In
and development activities, considering such activities to be eligible research
and development activities under the Australian Incentive Program.
During the year ended
and development tax incentive payments from the
result of the 2020 research and development activities. During the year ended
incentive payments from the
research and development activities.
The remaining R&D incentive receivable has been recorded as “Research and
development incentive receivable” in the consolidated balance sheets.
Foreign Currency Gains (Loss)
We recorded foreign currency gains (losses) of
respectively, for the years ended
foreign currency gains (losses) is due to the changes in the Australian dollar
exchange rate related to activities of the Australian entity.
Interest Expense
We recorded an immaterial amount of interest expense for the years ended
Liquidity and Capital Resources
Since our inception, we have been engaged in organizational activities,
including raising capital, and research and development activities. We do not
yet have a product that has been approved by the
(the “FDA”), and have not yet achieved profitable operations or generated
positive cash flows from operations. There is no assurance that profitable
operations, if achieved, could be sustained on a continuing basis. Further, our
future operations are dependent on the success of efforts to raise additional
capital, our research and commercialization efforts, regulatory approval, and,
ultimately, the market acceptance of our products.
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In accordance with Accounting Standards Codification (“ASC”) 205-40, Going
Concern, we have evaluated whether there are conditions and events, considered
in the aggregate, that raise substantial doubt about our ability to continue as
a going concern within one year after the date that the consolidated financial
statements are issued. As of
of
at
net loss of
the foreseeable future. We believe that our cash and cash equivalents of
million
expenses for at least the next 12 months from the issuance of this Annual Report
on Form 10-K. In addition, we will seek additional funding through public or
private equity financings or government programs and will seek funding or
development program cost-sharing through collaboration agreements or licenses
with larger pharmaceutical or biotechnology companies. If we do not obtain
additional funding or development program cost-sharing, we could be forced to
delay, reduce or eliminate certain clinical trials or research and development
programs, reduce or eliminate discretionary operating expenses, and delay
company and pipeline expansion, which could adversely affect our business
prospects. The inability to obtain funding, as and when needed, could have a
negative impact on Leap’s financial condition and our ability to pursue our
business strategies.
Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Year Ended December 31,
2021 2020
(in thousands)
Cash used in operating activities $ (35,157) $ (25,957)
Cash provided by investing activities - 25
Cash provided by financing activities 98,035 73,997
Effect of exchange rate changes on cash and cash
equivalents (33) 115
Net increase in cash and cash equivalents $ 62,845 $ 48,180
Operating activities. Net cash used in operating activities for the year ended
our business of
decrease in deferred revenue of
development receivable of
other assets of
and change in restricted stock liability of
partially offset by an increase in accounts payable and accrued expenses of
million
offering costs of
million
asset of
foreign currency losses.
Net cash used in operating activities for the year ended
primarily related to our net loss from the operation of our business of
million
payable and accrued expenses of
There was also a non cash change of
These changes were partially offset by a decrease of
expenses and other assets, an increase of
decrease in research and development receivable of
based compensation expense of
million
Investing Activities. Net cash provided by investing activities during the year
ended
investing activities during the year ended
Financing Activities. Net cash provided by financing activities for the year
ended
of common stock in connection with the public offering the Company completed in
the issuance of common stock upon the exercise of stock options and warrants.
These increases were partially offset by payments of
costs.
Net cash provided by financing activities for the year ended
consisted of
connection with our public offering in June of 2020,
from the issuance of
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Series A Preferred Stock and Series B Preferred Stock in connection with the
common stock upon the exercise of stock options and warrants. These increases
were partially offset by payments of
Capital Requirements
We expect our expenses to increase substantially in connection with our ongoing
activities, particularly as we advance the preclinical activities and clinical
trials of our product candidates in development. In addition, we expect to incur
additional costs associated with operating as a public company.
Our expenses will also increase as we:
? pursue the clinical development of our most advanced product candidate, DKN-01;
? seek to identify and develop additional product candidates;
? maintain, expand and protect our intellectual property portfolio;
expand our operational, financial and management systems and increase
? personnel, including personnel to support our clinical development,
manufacturing and commercialization efforts and our operations as a public
company; and
? increase our product liability and clinical trial insurance coverage as we
initiate our clinical trials and commercialization efforts.
Additional funding may not be available at the time needed on commercially
reasonable terms, if at all.
Contractual Obligations and Contingent Liabilities
On
Street Lease, the (“Second Amendment”). Under the Second Amendment, we extended
the term of the 47 Thorndike Street Lease through
Second Amendment, we will continue to pay the current monthly base rent amount
of
with an increase commencing on
amount to approximately
We remain committed to
manufacturing agreements with vendors to manufacture DKN-01 for use in clinical
trials and
This description of our contractual obligations does not include potential
future milestones or royalties that we may be required to make under license and
collaboration agreements due to the uncertainty of events requiring payment
under these agreements.
We enter into contracts in the normal course of business with clinical research
organizations for clinical and preclinical research studies, external
manufacturers for product for use in our clinical trials, and other research
supplies and other services as part of our operations. These contracts generally
provide for termination on notice, and therefore are cancelable contracts and
not included as contractual commitments.
Recently Issued Accounting Pronouncements
We have reviewed all recently issued standards and have determined that, other
than as disclosed in Note 2 to our consolidated financial statements included in
this Annual Report on Form 10-K, such standards will not have a material impact
on our financial statements or do not otherwise apply to our operations.
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