UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the quarterly period ended June 30, 2023
OR
| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the transition period from to .
Commission File Number: 001-37985
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
(Address of principal executive offices and zip code)
(858 ) 362-6295
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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: Yes ☒ No ☐
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). Yes ☒ No ☐
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 | ☐ | Accelerated Filer | ☐ | |||||||||||||||||
| ☒ | Smaller Reporting Company | |||||||||||||||||||
| Emerging Growth Company | ||||||||||||||||||||
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 Act). Yes ☐ No ☒
As of August 2, 2023, there were 26,545,578 shares of the Registrant’s Common Stock outstanding.
AnaptysBio, Inc.
Table of Contents
| Page Number | ||||||||
| PART I. FINANCIAL INFORMATION | ||||||||
| PART II. OTHER INFORMATION | ||||||||
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
AnaptysBio, Inc.
Consolidated Balance Sheets
(in thousands, except par value data)
(unaudited)
| June 30, 2023 | December 31, 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables from collaborative partners | |||||||||||
| Short-term investments | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Long-term investments | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Current portion of operating lease liability | |||||||||||
| Total current liabilities | |||||||||||
| Liability related to sale of future royalties | |||||||||||
| Operating lease liability, net of current portion | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to unaudited consolidated financial statements.
1
AnaptysBio, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense), net: | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Non-cash interest expense for the sale of future royalties | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense), net | ( | ||||||||||||||||||||||
| Total other income (expense), net | ( | ( | |||||||||||||||||||||
| Net loss | ( | ( | ( | ( | |||||||||||||||||||
| Unrealized (loss) gain on available for sale securities | ( | ( | ( | ||||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss per common share: | |||||||||||||||||||||||
| Basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted-average number of shares outstanding: | |||||||||||||||||||||||
| Basic and diluted | |||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
2
AnaptysBio, Inc.
Consolidated Statement of Stockholders’ Equity
(in thousands)
(unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of common stock from exercises of options and employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Issuance of common stock upon vesting of restricted stock units | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Repurchases and retirements of common stock | ( | ( | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive gain, net | — | — | — | — | |||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, March 31, 2023 | ( | ( | |||||||||||||||||||||||||||||||||
| Issuance of common stock from exercises of options and employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Repurchases and retirements of common stock | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive loss, net | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
3
AnaptysBio, Inc.
Consolidated Statement of Stockholders’ Equity
(in thousands)
(unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of common stock from exercises of options and employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive loss, net | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ( | |||||||||||||||||||||||||||||||||
| Issuance of common stock from exercises of options and employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive loss, net | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
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AnaptysBio, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation | |||||||||||
| Accretion/amortization of investments, net | ( | ||||||||||
Amortization of right-of-use assets – operating | |||||||||||
| Non-cash interest expense | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables from collaborative partners | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||
| Accounts payable and other liabilities | |||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchases of investments | ( | ( | |||||||||
| Sales and maturities of investments | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Net cash provided by (used in) investing activities | ( | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Proceeds from issuance of common stock | |||||||||||
| Repurchase and retirements of common stock | ( | ||||||||||
| Repayment of liability for sale of future royalties | ( | ( | |||||||||
| Payments for debt issuance costs | ( | ( | |||||||||
| Net cash (used in) provided by financing activities | ( | ||||||||||
| Net decrease in cash and cash equivalents | ( | ( | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | |||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
| Non-cash investing and financing activities: | |||||||||||
| Amounts accrued for property and equipment | $ | $ | |||||||||
| Amounts accrued for issuance costs related to the sale of future royalties | $ | $ | |||||||||
| Amounts accrued for repurchases of common stock | $ | $ | |||||||||
| Receivable related to issuance of common stock, upon exercise of stock options | $ | ( | $ | ||||||||
See accompanying notes to unaudited consolidated financial statements.
5
AnaptysBio, Inc.
Notes to Unaudited Consolidated Financial Statements
1. Description of the Business
AnaptysBio, Inc. (“we,” “us,” “our,” or the “Company”) was incorporated in the state of Delaware in November 2005. We are a clinical-stage biotechnology company focused on delivering innovative immunology therapeutics. We are developing immune cell modulating antibodies, including two wholly owned checkpoint agonists in clinical-stage development, for autoimmune and inflammatory disease: rosnilimab, our PD-1 agonist, previously referred to as ANB030, in a planned Phase 2b trial for the treatment of moderate-to-severe rheumatoid arthritis (“RA”); and ANB032, our BTLA agonist, currently in a Phase 2b trial for the treatment of moderate-to-severe atopic dermatitis (“AD”). We also have other preclinical immune cell modulator candidates in our portfolio, including ANB033, an anti-CD122 antagonist antibody for the treatment of autoimmune and inflammatory diseases. In addition, we have developed two cytokine antagonists that we are exploring options for out-licensing: imsidolimab, our anti-IL-36R antibody, in a Phase 3 trial for the treatment of generalized pustular psoriasis (“GPP”), and etokimab, our anti-IL-33 antagonist that is Phase 2/3 ready. We have also discovered multiple therapeutic antibodies licensed to GlaxoSmithKline, Inc. (“GSK”) in a financial collaboration for immune-oncology, including an anti-PD-1 antagonist antibody (Jemperli (dostarlimab-gxly)), an anti-TIM-3 antagonist antibody (cobolimab, GSK4069889) and an anti-LAG-3 antagonist antibody (GSK4074386). We currently recognize revenue from milestones and royalties achieved under our immuno-oncology collaboration with GSK.
Since our inception, we have devoted our primary effort to research and development activities. Our financial support has been provided primarily from the sale of our common stock, royalty monetizations, as well as through funds received under our collaborative research and development agreements. Going forward, as we continue our expansion, we may seek additional financing and/or strategic investments. However, there can be no assurance that any additional financing or strategic investments will be available to us on acceptable terms, if at all. If events or circumstances occur such that we do not obtain additional funding, we will most likely be required to reduce our plans and/or certain discretionary spending, which could have a material adverse effect on our ability to achieve our intended business objectives. AnaptysBio management believes our currently available resources will provide sufficient funds to enable us to meet our operating plans for at least the next twelve months from the issuance of our consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
2. Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements include us and our wholly owned Australian subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. We operate in one reportable segment, and our functional and reporting currency is the U.S. dollar.
Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during
6
Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common equivalent shares outstanding for the period, as well as any dilutive effect from outstanding stock options and warrants using the treasury stock method. For each period presented, there is no difference in the number of shares used to calculate basic and diluted net loss per share.
The following table sets forth the weighted-average outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because to do so would be anti-dilutive (in common stock equivalent shares):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Options to purchase common stock | |||||||||||||||||||||||
| Restricted Stock Units | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
3. Balance Sheet Accounts and Supplemental Disclosures
Property and Equipment, net
Property and equipment, net consist of the following:
| (in thousands) | June 30, 2023 | December 31, 2022 | |||||||||
| Laboratory equipment | $ | $ | |||||||||
| Office furniture and equipment | |||||||||||
| Leasehold improvements | |||||||||||
| Property and equipment, gross | |||||||||||
| Less: accumulated depreciation and amortization | ( | ( | |||||||||
| Total property and equipment, net | $ | $ | |||||||||
Accrued Expenses
Accrued expenses consist of the following:
| (in thousands) | June 30, 2023 | December 31, 2022 | |||||||||
| Accrued compensation and related expenses | $ | $ | |||||||||
| Accrued professional fees | |||||||||||
| Accrued research, development and manufacturing expenses | |||||||||||
| Accrued for repurchases of common stock | |||||||||||
| Other | |||||||||||
| Total accrued expenses | $ | $ | |||||||||
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4. Collaborative Research and Development Agreements
GlaxoSmithKline Collaboration
In March 2014, we entered into a Collaboration and Exclusive License Agreement (the “GSK Agreement”) with TESARO, Inc. (“Tesaro”), an oncology-focused biopharmaceutical company now a part of GlaxoSmithKline (Tesaro and GlaxoSmithKline are hereinafter referred to, collectively, as “GSK”). Under the terms of the GSK Agreement, we agreed to perform certain discovery and early preclinical development of therapeutic antibodies with the goal of generating immunotherapy antibodies for subsequent preclinical, clinical, regulatory, and commercial development to be performed by GSK. Under the terms of the GSK Agreement, GSK paid an upfront license fee of $17.0 million in March 2014 and agreed to provide funding to us for research and development services related to antibody discovery programs for three specific targets. In November 2014, Amendment No. 1 to the GSK Agreement was agreed by both parties to add an additional antibody discovery program for an upfront license fee of $2.0 million. Currently, under the GSK Agreement, GSK is developing Jemperli (dostarlimab), an anti-PD-1 antagonist antibody, as a monotherapy for various solid tumor indications. In addition, GSK is developing dostarlimab in combination with additional therapies under the collaboration, including with two other development programs from the GSK Agreement: cobolimab, an anti-TIM-3 antibody, and GSK40974386, an anti-LAG-3 antibody, for various solid tumor indications.
For each development program, we are eligible to receive milestone payments of up to $18.0 million if certain preclinical and clinical trial events are achieved by GSK, up to an additional $90.0 million if certain U.S. and European regulatory submissions and approvals in multiple indications are achieved, and up to an additional $165.0 million upon the achievement of specified levels of annual worldwide net sales. We will also be eligible to receive tiered 4 -8 % royalties related to worldwide net sales of products developed under the collaboration. Unless earlier terminated by either party upon specified circumstances, the GSK Agreement will terminate, with respect to each specific developed product, upon the later of the 12 th anniversary of the first commercial sale of the product or the expiration of the last to expire of any patent. Prior to the adoption of ASC 606, Revenue from Contracts with Customers, we determined that the upfront license fees and research funding under the GSK Agreement, as amended, should be accounted for as a single unit of accounting and that the upfront license fees should be deferred and recognized as revenue over the same period that the research and development services are performed. In February 2016, Amendment No. 2 to the GSK Agreement was agreed by both parties to define the effective dates of the development programs of the GSK Agreement. We determined that the research and development services would be extended through December 31, 2016. As a result, the period over which the unrecognized license fees and discovery milestones were recognized was extended through December 31, 2016 and have since been recognized in full.
We assessed these arrangements in accordance with ASC 606 and concluded that the contract counterparty, GSK, is a customer. We identified the following material promises under the GSK Agreement: (1) the licenses under certain patent rights relating to six discovery programs (four targets) and transfer of certain development and regulatory information, (2) research and development (“R&D”) services, and (3) joint steering committee meetings. We considered the research and discovery capabilities of GSK for these specific programs and the fact that the discovery and optimization of these antibodies is proprietary and could not, at the time of contract inception, be provided by other vendors, to conclude that the license does not have stand-alone functionality and is therefore not distinct. Additionally, we determined that the joint steering committee participation would not have been provided without the R&D services and GSK Agreement. Based on these assessments, we identified all services to be interrelated and therefore concluded that the promises should be combined into a single performance obligation at the inception of the arrangement.
8
On October 23, 2020, Amendment No. 3 to the GSK Agreement (the “Amendment”) was agreed to by both parties to permit GSK to conduct development and commercialization in combination with any third-party molecules of Zejula, an oral, once-daily poly (ADP-ribose) polymerase (PARP) inhibitor. Under the Amendment, we were granted increased royalties upon sales of Jemperli, equal to 8 % of Net Sales (as defined in the GSK Agreement) below $1.0 billion and from 12 % up to 25 % of Net Sales above $1.0 billion. The Amendment also provided for a one-time, non-refundable cash payment of $60.0 million that we received and recognized as revenue in the fourth quarter of 2020. The $1.1 billion in cash milestone payments due under the GSK Agreement remain unchanged. Additionally, under the terms of the Amendment, GSK has agreed to certain diligence commitments with respect to the future development of Jemperli, and the parties have agreed to review such commitments under regular joint review committee meetings going forward.
We assessed this Amendment in accordance with ASC 606 and concluded the Amendment was a contract modification to the GSK Agreement. Based on our assessment, we identified the terms of the Amendment to be interrelated to the GSK Agreement’s single performance obligation, noting completion and delivery of terms under the Amendment were satisfied by both parties with the execution of the Amendment.
As of June 30, 2023, the transaction price for the GSK Agreement and Amendment includes the upfront payment, research reimbursement revenue, one-time payment associated with the Amendment, and milestones and royalties earned to date, which are allocated in their entirety to the single performance obligation.
We recognized $3.5 million and $4.8 million in royalty revenue during the three and six months ended June 30, 2023 related to GSK’s net sales of Zejula and Jemperli during the period which we estimate based on either GSK’s prior sales experience or actuals. Of the royalty revenue recognized during the three and six months ended June 30, 2023, $2.8 million and $3.3 million is Jemperli non-cash revenue related to the Jemperli Royalty Monetization Agreement and $0.7 million and $1.5 million is Zejula non-cash revenue related to the Zejula Royalty Monetization Agreement, each of such agreements as described in Note 5. We recognized $1.2 million and $2.2 million in royalty revenue during the three and six months ended June 30, 2022, related to GSK’s net sales of Zejula and Jemperli during the period based on GSK’s prior sales experience. Of the royalty revenue recognized during the three and six months ended June 30, 2022, $0.6 million and $0.9 million is Jemperli non-cash revenue related to the Jemperli Royalty Monetization Agreement and $0.6 million and $1.3 million is Zejula revenue prior to the Zejula Royalty Monetization Agreement. GSK reports sales information to us on a one quarter lag and differences between actual and estimated royalty revenues will be adjusted in the following quarter. All royalty revenue related to Zejula global net sales starting July 2022 are paid directly to a wholly owned subsidiary of DRI Healthcare Trust pursuant to the Zejula Royalty Monetization Agreement, as described in Note 5.
9
Milestones under the GSK Agreement are as follows:
Anti-PD-1 (Jemperli/Dostarlimab) | Anti-TIM-3 (GSK4069889A/Cobolimab) | Anti-LAG-3 (GSK40974386) | ||||||||||||||||||||||||
| Milestone Event | Amount | Quarter Recognized | Amount | Quarter Recognized | Amount | Quarter Recognized | ||||||||||||||||||||
Initiated in vivo toxicology studies using good laboratory practices (GLPs) | $ | Q2'15 | $ | Q4'15 | $ | Q3'16 | ||||||||||||||||||||
| IND clearance from the FDA | $ | Q1'16 | $ | Q2'16 | $ | Q2'17 | ||||||||||||||||||||
| Phase 2 clinical trial initiation | $ | Q2'17 | $ | Q4'17 | $ | Q4'19 | ||||||||||||||||||||
| Phase 3 clinical trial initiation - first indication | $ | Q3'18 | $ | Q4'22 | $ | — | ||||||||||||||||||||
| Phase 3 clinical trial initiation - second indication | $ | Q2'19 | $ | — | $ | — | ||||||||||||||||||||
Filing of the first BLA(1) - first indication | $ | Q1'20 | $ | — | $ | — | ||||||||||||||||||||
Filing of the first MAA(2) - first indication | $ | Q1'20 | $ | — | $ | — | ||||||||||||||||||||
Filing of the first BLA - second indication | $ | Q1'21 | $ | — | $ | — | ||||||||||||||||||||
| First BLA approval - first indication | $ | Q2'21 | $ | — | $ | — | ||||||||||||||||||||
First MAA approval - first indication | $ | Q2'21 | $ | — | $ | — | ||||||||||||||||||||
| First BLA approval - second indication | $ | Q3'21 | $ | — | $ | — | ||||||||||||||||||||
Filing of the first MAA - second indication(3) | $ | — | $ | — | $ | — | ||||||||||||||||||||
First MAA approval - second indication(3) | $ | — | $ | — | $ | — | ||||||||||||||||||||
First commercial sales milestone(3) | $ | — | $ | — | $ | — | ||||||||||||||||||||
Second commercial sales milestone(3) | $ | — | $ | — | $ | — | ||||||||||||||||||||
Third commercial sales milestone(3) | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Fourth commercial sales milestone | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Milestones recognized through June 30, 2023 | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Milestones that may be recognized in the future | $ | — | $ | — | $ | — | ||||||||||||||||||||
(1)Biologics License Application (“BLA”)
(2)Marketing Authorization Application (“MAA”)
5. Sale of Future Royalties
Jemperli Royalty Monetization Agreement
In October 2021, we signed a royalty monetization agreement (“Jemperli Royalty Monetization Agreement”) with Sagard Healthcare Royalty Partners, LP (“Sagard”). Under the terms of the Jemperli Royalty Monetization Agreement, we received $250.0 million in exchange for royalties and milestones payable to us under our GSK collaboration on annual global net sales of Jemperli below $1.0 billion starting in October 2021 (not including any combination products that contain both Jemperli and another Development Antibody). The aggregate Jemperli royalties and milestones to be received by Sagard under the Jemperli Royalty Monetization Agreement is capped at certain fixed multiples of the upfront payment based on time. Once Sagard receives an aggregate amount of either $312.5 million (125 % of the upfront) by the end of 2026, or $337.5 million (135 % of the upfront) during 2027, or $412.5 million (165 % of the upfront) at any time after 2027, the Jemperli Royalty Monetization Agreement will expire resulting in us regaining all subsequent Jemperli royalties and milestones. As of June 30, 2023, Sagard has received a total of $3.4 million in royalties and milestones.
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The Jemperli Royalty Monetization Agreement includes a call option pursuant to which at any time after December 1, 2024, we may reacquire our interest in the specified royalties by paying Sagard (in cash) a specified amount as described in the Jemperli Royalty Monetization Agreement. The exercise of this call option is at our sole discretion, which we currently do not anticipate exercising.
The proceeds received from Sagard of $250.0 0.4 million, which will be amortized over the estimated life of the arrangement using the effective interest rate method. The aggregate future estimated payments, less the $249.6 million, net of proceeds, will be recognized as non-cash interest expense over the life of the agreement. Royalty and milestone revenue will be recognized as earned on net sales of Jemperli, and these payments to Sagard will be recorded as a reduction of the liability when paid. As such payments are made to Sagard, the balance of the liability will be effectively repaid over the life of the Jemperli Royalty Monetization Agreement.
We estimate the effective interest rate used to record non-cash interest expense under the Jemperli Royalty Monetization Agreement based on the estimate of future royalty payments to be received by Sagard. As of June 30, 2023, the estimated effective rate under the agreement was 6.1 %. Over the life of the arrangement, the actual effective interest rate will be affected by the amount and the timing of the royalty payments received by Sagard and changes in our forecasted royalties. At each reporting date, we will reassess our estimate of total future royalty payments to be received and if such payments are materially different than our original estimates, we will prospectively adjust the imputed interest rate and the related amortization of the royalty obligation.
We recognized Jemperli non-cash royalty revenue of approximately $2.8 million and $3.3 million for the three and six months ended June 30, 2023, respectively, and $0.6 million and $0.9 million for the three and six months ended June 30, 2022, respectively, and non-cash interest expense of approximately $4.2 million and $8.1 million for the three and six months ended June 30, 2023, and $5.9 million and $10.7 million for the three and six months ended June 30, 2022, respectively. The interest and amortization of issuance costs is reflected as non-cash interest expense for the sale of future royalties in the Consolidated Statements of Operations.
The following table shows the activity within the liability account for the six months ended June 30, 2023:
| (in thousands) | June 30, 2023 | |||||||
Liability related to sale of future Jemperli royalties and milestones - balance at 12/31/2022 | $ | |||||||
| Issuance costs related to the sale of future royalties | ||||||||
| Amortization of issuance costs | ||||||||
| Royalty and milestone payments to Sagard | ( | |||||||
| Non-cash interest expense recognized | ||||||||
| Liability related to sale of future royalties and milestones - ending balance | $ | |||||||
Zejula Royalty Monetization Agreement
In October 2020, in connection with Amendment No. 3 to the GSK Agreement, GSK agreed, under the terms of a settlement agreement (the “GSK Settlement Agreement”), to pay us a royalty on all GSK net sales of Zejula starting January 1, 2021. Under the GSK Settlement Agreement, the royalty is paid at a rate of 1.0 % but is subject to reduction due to royalties paid to third parties, with a minimum royalty payable under the GSK Settlement Agreement of 0.5 % of global net sales of Zejula. The current effective royalty rate is 0.5 %.
In September 2022, we signed a purchase and sale agreement (the “Zejula Royalty Monetization Agreement”) with a wholly owned subsidiary of DRI Healthcare Trust (“DRI”) to monetize all of our future royalties on global net sales of Zejula under the GSK Settlement Agreement. Under the terms of the Zejula Royalty Monetization Agreement, we received $35.0 million in exchange for all royalties payable by GSK to us under the GSK Settlement Agreement on global net sales of Zejula starting in July 2022 (the “Purchased Royalty Interest”). In addition, under the Zejula Royalty Monetization Agreement, we are entitled to receive an additional $10.0 million payment from DRI if Zejula is approved by the U.S. Food and Drug Administration for the treatment of endometrial cancer on or prior to December 31, 2025.
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The proceeds received from DRI of $35.0 million were recorded as a liability, net of transaction costs of $0.2 million, which will be amortized over the estimated life of the arrangement using the effective interest rate method. Royalty revenue will be recognized as earned on net sales of Zejula, and these royalty payments to DRI will be recorded as a reduction of the liability when paid. The aggregate future estimated payments, less the $34.8 million, of net proceeds, will be recorded as non-cash interest expense over the life of the agreement. As such payments are made to DRI, the balance of the liability will be effectively repaid over the life of the Zejula Royalty Monetization Agreement.
We estimate the effective interest rate used to record non-cash interest expense under the Zejula Royalty Monetization Agreement based on the estimate of future royalty payments to be received by DRI. As of June 30, 2023, the estimated effective rate under the agreement was 2.2 %. Over the life of the arrangement, the actual effective interest rate will be affected by the amount and the timing of the royalty payments received by DRI and the changes in our forecasted royalties. At each reporting date, we will reassess our estimate of total future royalty payments to be received and if such payments are materially different than our original estimates, we will prospectively adjust the imputed interest rate and the related amortization of the royalty obligation.
We recognized Zejula non-cash royalty revenue of approximately $0.7 million and $1.5 million for the three and six months ended June 30, 2023, respectively, and $0.0 million 0.2 million and $0.6 million for the three and six months ended June 30, 2023, respectively, and $0.0 million
The following table shows the activity within the liability account for the six months ended June 30, 2023:
| (in thousands) | June 30, 2023 | |||||||
| Liability related to sale of future Zejula royalties and milestones - balance at 12/31/2022 | $ | |||||||
| Amortization of issuance costs | ||||||||
| Royalty and milestone payments to DRI | ( | |||||||
| Non-cash interest expense recognized | ||||||||
| Liability related to sale of future royalties and milestones - ending balance | $ | |||||||
6. Fair Value Measurements and Available for Sale Investments
Fair Value Measurements
Our financial instruments consist principally of cash, cash equivalents, short-term and long-term investments, receivables, and accounts payable. Certain of our financial assets and liabilities have been recorded at fair value in the consolidated balance sheet in accordance with the accounting standards for fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Accounting guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level 3 - Unobservable inputs that are supported by little or no market activities, therefore requiring an entity to develop its own assumptions.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes our assets and liabilities that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy:
| Fair Value Measurements at End of Period Using: | |||||||||||||||||||||||
| (in thousands) | Fair Value | Quoted Market Prices for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| At June 30, 2023 | |||||||||||||||||||||||
Money market funds(1) | $ | $ | $ | $ | |||||||||||||||||||
Mutual funds(1) | |||||||||||||||||||||||
U.S. Treasury securities(2) | |||||||||||||||||||||||
Certificates of deposit(2) | |||||||||||||||||||||||
Agency securities(2) | |||||||||||||||||||||||
Commercial and corporate obligations(2) | |||||||||||||||||||||||
| At December 31, 2022 | |||||||||||||||||||||||
Money market funds(1) | $ | $ | $ | $ | |||||||||||||||||||
Mutual funds(1) | |||||||||||||||||||||||
U.S. Treasury securities(2) | |||||||||||||||||||||||
Certificates of deposit(2) | |||||||||||||||||||||||
Agency securities(2) | |||||||||||||||||||||||
Commercial and corporate obligations(2) | |||||||||||||||||||||||
(1) Included in cash and cash equivalents in the accompanying consolidated balance sheets.
(2) Included in short-term or long-term investments in the accompanying consolidated balance sheets depending on the respective maturity date.
The following methods and assumptions were used to estimate the fair value of our financial instruments for which it is practicable to estimate that value:
Marketable Securities. For fair values determined by Level 1 inputs, which utilize quoted prices in active markets for identical assets, the level of judgment required to estimate fair value is relatively low. For fair values determined by Level 2 inputs, which utilize quoted prices in less active markets for similar assets, the level of judgment required to estimate fair value is also considered relatively low.
Fair Value of Other Financial Instruments
The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts payable, and accrued expenses approximate fair value due to their short-term nature.
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Available for Sale Investments
We invest our excess cash in agency securities, debt instruments of financial institutions and corporations, commercial obligations, and U.S. Treasury securities, which we classify as available for sale investments. These investments are carried at fair value and are included in the tables above. The aggregate market value, cost basis, and gross unrealized gains and losses of available for sale investments by security type, classified in cash equivalents, short-term and long-term investments as of June 30, 2023 are as follows:
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Total Fair Value | |||||||||||||||||||
Agency securities(1) | $ | $ | $ | ( | $ | ||||||||||||||||||
Certificates of deposit(2) | ( | ||||||||||||||||||||||
Commercial and corporate obligations(3) | ( | ||||||||||||||||||||||
U.S. Treasury securities(4) | ( | ||||||||||||||||||||||
| Total available for sale investments | $ | $ | $ | ( | $ | ||||||||||||||||||
(1) Of our outstanding agency securities, $57.6 million have maturity dates of less than one year and $5.0 million have maturity dates between to two years as of June 30, 2023.
(2) Of our outstanding certificates of deposit, $1.9 million have maturity dates of less than one year and $0.0 million have a maturity date of between to two years as of June 30, 2023.
(3) Of our outstanding commercial and corporate obligations, $36.2 million have maturity dates of less than one year and $3.7 million have a maturity date of between to two years as of June 30, 2023.
(4) Of our outstanding U.S. Treasury securities, $298.5 million have maturity dates of less than one year and $50.6 million have a maturity date of between to two years as of June 30, 2023.
The aggregate market value, cost basis, and gross unrealized gains and losses of available for sale investments by security type, classified in short-term and long-term investments as of December 31, 2022 are as follows:
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Total Fair Value | |||||||||||||||||||
Agency securities(1) | $ | $ | $ | ( | $ | ||||||||||||||||||
Certificates of deposit(2) | ( | ||||||||||||||||||||||
Commercial and corporate obligations(3) | ( | ||||||||||||||||||||||
US Treasury securities(4) | ( | ||||||||||||||||||||||
| Total available for sale investments | $ | $ | $ | ( | $ | ||||||||||||||||||
(1) Of our outstanding agency securities, $57.1 million have maturity dates of less than one year and $17.5 million have a maturity date of between to two years as of December 31, 2022.
(2) Of our outstanding certificates of deposit, $2.6 million have a maturity date of less than one year and $0.3 million have a maturity date of between to two years as of December 31, 2022.
(3) Of our outstanding commercial and corporate obligations, $44.0 million have maturity dates of less than one year and $16.9 million have a maturity date of between to two years as of December 31, 2022.
(4) Of our outstanding U.S. Treasury securities, $266.2 million have maturity dates of less than one year and $108.3 million have a maturity date of between to two years as of December 31, 2022.
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| June 30, 2023 | |||||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||||||||||||||
| (in thousands) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||
| Agency securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| Commercial and corporate obligations | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Certificates of deposit | ( | ( | |||||||||||||||||||||||||||||||||
| US Treasury Securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||||||||||||||
| (in thousands) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||
| Agency securities | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| Certificates of Deposit | ( | ( | ( | ||||||||||||||||||||||||||||||||
| Commercial and corporate obligations | ( | ( | ( | ||||||||||||||||||||||||||||||||
| US Treasury Securities | ( | ( | ( | ||||||||||||||||||||||||||||||||
Total | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
As of June 30, 2023 and December 31, 2022, unrealized losses on available-for-sale investments were $3.4 million and $5.1 million, respectively, with unrealized losses of $1.5 million, on available for sale investments that were in an unrealized loss position for greater than 12 months as of June 30, 2023. We do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost basis, accordingly, no allowance for credit losses was recorded.
7. Stockholders’ Equity
Common Stock
Of the 500,000,000 shares of common stock authorized, 26,530,695
Stock Repurchase Program
In January 2023, our Board of Directors authorized a stock repurchase program (the “Repurchase Program”) to repurchase up to $50.0 million of our outstanding common stock, par value $0.001 per share. The Repurchase Program was completed in May 2023.
The following table presents the Repurchase Program activity through May 5, 2023, the end date of the Repurchase Program:
| Total number of shares purchased | Average price paid per share | Approximate dollar value of shares purchased (in thousands) | |||||||||||||||
| First Quarter 2023 | $ | $ | |||||||||||||||
| Second Quarter 2023 | |||||||||||||||||
| Total | $ | ||||||||||||||||
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The repurchased common stock was subsequently retired after the repurchase and the par value of the shares was charged to common stock. The excess of the repurchase price over the par value was applied against additional paid in capital.
Open Market Sales Agreement
In November 2022, we entered into the Cowen Sales Agreement with Cowen and Company, LLC, through which we may offer and sell shares of our common stock, having an aggregate offering of up to $150.0 million through Cowen and Company, LLC as our sales agent. As of June 30, 2023, we had sold no shares under this agreement.
8. Equity Incentive Plans
2017 Equity Incentive Plan
In January 2017, our Board of Directors and stockholders approved and adopted the 2017 Equity Incentive Plan (the “2017 Plan”). Under the 2017 Plan, we may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then our employees, officers, directors or consultants. In addition, the number of shares of stock available for issuance under the 2017 Plan will be automatically increased each January 1, beginning on January 1, 2018, by 4 % of the aggregate number of outstanding shares of our common stock as of the immediately preceding December 31 or such lesser number as determined by our Board of Directors. The 2017 Plan automatically increased by 1,140,527 shares as of January 1, 2023. As of June 30, 2023, 2,506,788 shares were available for future issuance.
Employee Stock Purchase Plan
In January 2017, our Board of Directors and stockholders approved and adopted the 2017 Employee Stock Purchase Plan or the ESPP. In addition, the number shares of stock available for issuance under the ESPP will be automatically increased each January 1, beginning on January 1, 2018, by 1 % of the aggregate number of outstanding shares of our common stock as of the immediately preceding December 31 or such lesser number as determined by our Board of Directors. The ESPP automatically increased by 285,131 shares as of January 1, 2023. As of June 30, 2023, 76,413 shares have been issued under the ESPP. As of June 30, 2023, 1,756,427 shares were available for future issuance under the ESPP.
Stock Options
Stock options granted to employees and non-employees generally vest over a four-year period while stock options granted to directors vest over a one year period. Each stock option award has a maximum term of 10 years from the date of grant, subject to earlier cancellation prior to vesting upon cessation of service to us. A summary of the activity related to stock option awards during the six months ended June 30, 2023 is as follows:
Shares Subject to Options | Weighted-Average Exercise Price per Share | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding at January 1, 2023 | $ | $ | |||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Exercised | ( | $ | |||||||||||||||||||||
| Forfeitures and cancellations | ( | $ | |||||||||||||||||||||
| Outstanding at June 30, 2023 | $ | $ | |||||||||||||||||||||
| Exercisable at June 30, 2023 | $ | $ | |||||||||||||||||||||
Total cash received from the exercise of stock options was approximately $1.6 million during the six months ended June 30, 2023.
Time-based Restricted Stock Units
Each Restricted Stock Unit (“RSU”) represents one equivalent share of our common stock to be issued after satisfying the applicable continued service-based vesting criteria over a specified period. The fair value of these RSUs is based on the closing price of our common stock on the date of the grant. We measure compensation expense over the expected vesting period on a
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straight-line basis. The RSUs do not entitle the participants to the rights of holders of common stock, such as voting rights, until the shares are issued.
| Number of Restricted Stock Units | Weighted-Average Grant Date Fair Value | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding at January 1, 2023 | $ | $ | |||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Released | ( | $ | |||||||||||||||||||||
| Forfeitures and cancellations | ( | $ | |||||||||||||||||||||
| Outstanding at June 30, 2023 | $ | $ | |||||||||||||||||||||
| RSU expected to vest at June 30, 2023 | $ | $ | |||||||||||||||||||||
Stock-Based Compensation Expense
We recognize stock-based compensation expense for awards issued to employees and non-employees over the requisite service period based on the estimated grant-date fair value of such awards. We record the expense for stock-based compensation awards subject to performance-based milestone vesting over the requisite service period when management determines that achievement of the milestone is probable. Management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions at each reporting date. The estimated fair values of stock option awards granted were determined on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | ||||||||||||||||||||||
| Risk-free interest rate | % | % | |||||||||||||||||||||
| Expected volatility | % | % | |||||||||||||||||||||
| Expected dividend yield | % | % | |||||||||||||||||||||
| Expected term (in years) | |||||||||||||||||||||||
| Weighted-average grant date fair value per share | $ | $ | |||||||||||||||||||||
We determine the appropriate risk-free interest rate, expected term for employee stock-based awards, contractual term for non-employee stock-based awards, and volatility assumptions. The weighted-average expected option term for employee and non-employee stock-based awards reflects the historical option term for 2023 and the simplified life method for 2022, which defines the life as the average of the contractual term of the options and the weighted-average vesting period for all option tranches. Expected volatility incorporates the historical volatility of our stock price. The risk-free interest rate is based upon U.S. Treasury securities with remaining terms similar to the expected or contractual term of the stock-based payment awards. The assumed dividend yield is based on our expectation of not paying dividends in the foreseeable future.
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Total non-cash stock-based compensation expense for all stock awards that was recognized in the consolidated statements of operations and comprehensive loss is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Research and development | $ | $ | $ | $ | |||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
On March 20, 2022, our then Chief Executive Officer (“former CEO”), resigned by mutual agreement with the Board of Directors. In connection with his separation agreement, we modified certain equity awards and recognized approximately $3.2 million in non-cash stock-based compensation expense. Given the former CEO had substantially rendered the required services per his separation agreement, we recorded the full expense related to the modification in the period ending March 31, 2022. Additionally, on March 21, 2022, we awarded our newly appointed Interim President and Chief Executive Officer RSUs for 887,043 shares of the Company’s common stock. The fair value of the award will be recognized as part of compensation cost, occurring ratably over the stated 24-month requisite service period. During the three and six months ended June 30, 2023, we recognized $2.9 million and $5.8 million, respectively, and $2.9 million and $3.2 million during the three and six months ended June 30, 2022, respectively, of non-cash stock-based compensation cost related to the award.
At June 30, 2023, there was $36.5 million of unrecognized compensation cost related to unvested stock option awards, which is expected to be recognized over a remaining weighted-average vesting period of 2.87 years, $19.0 million of unrecognized cost related to unvested RSU awards, which is expected to be recognized over a period of 1.59 years and $0.1 million of unrecognized compensation cost related to the ESPP, which is expected to be recognized over a remaining weighted-average vesting period of 0.38 years.
9. Commitments and Contingencies
Operating Leases
On May 4, 2020, we entered into a lease agreement with Wateridge Property Owner, LP, with respect to facilities in the building at 10770 Wateridge Circle, San Diego, California 92121 (the “Lease Agreement”). Under the Lease Agreement, we agreed to lease approximately 45,000 square feet of space for a term of 124 months, beginning on April 5, 2021. The terms of the Lease Agreement provide us with an option to extend the term of the lease for an additional five years , as well as a one-time option to terminate the lease after seven years with the payment of a termination fee. The exercise of the lease option is at our sole discretion, which we currently do not anticipate exercising and as such was not recognized as part of the ROU asset and lease liability. The monthly base rent was initially $4.20 per rentable square foot and is increased by 3 % annually. Under the Lease Agreement, we are also responsible for our pro rata share of real estate taxes, building insurance, maintenance, direct expenses, and utilities. Upon lease commencement, on April 5, 2021, we recognized an ROU asset of $20.6 million, with a corresponding lease liability of $20.7 million on the consolidated balance sheets. The ROU asset includes adjustments for prepayments, initial direct costs, and lease incentives. As of June 30, 2023, we have recorded $0.3 million as a security deposit in accordance with the terms of the Lease Agreement.
Our lease payments are fixed, and we recognize lease expense for leases on a straight-line basis over the lease term. Operating lease ROU assets and lease liabilities are recorded based on the present value of the future minimum lease payments over the lease term at commencement date. As our lease does not provide an implicit rate, we used our incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments. The weighted-average discount rate used was 4.0 % and the weighted-average remaining lease term is approximately 8.2 years.
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The following non-cancellable office lease costs are included in our consolidated statements of cash flow (in thousands):
| Six Months Ended June 30, | ||||||||||||||||||||
| Leases | Classification on the Cash Flow | 2023 | 2022 | |||||||||||||||||
| Operating lease cost | Operating | $ | $ | |||||||||||||||||
| Cash paid for amounts included in the measurement of lease liabilities | Operating | |||||||||||||||||||
At June 30, 2023, the future minimum annual obligations for the Company’s operating lease liabilities are as follows (in thousands):
| Years Ending December 31, | |||||
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total minimum payments required | |||||
| Less imputed interest | ( | ||||
| Total | $ | ||||
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and section 27A of the Securities Act of 1933, as amended (the “Securities Act”). The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” and “expect,” and similar expressions that convey uncertainty of future events or outcomes, are intended to identify forward-looking statements.
The forward-looking statements in this report include, among other things, statements about:
•the success, cost, and timing of our product candidate development activities and ongoing and planned clinical trials;
•our plans to develop and commercialize antibodies, including our two checkpoint agonists in clinical-stage development: rosnilimab and ANB032;
•the impact of political, economic or public health events, such as the coronavirus (“COVID-19”) pandemic on our business and the United States (“U.S.”) and global economies;
•the likelihood that the clinical data generated in any study we performed, are performing, or plan to perform in a non-U.S. jurisdiction will be subsequently accepted by the U.S. Food and Drug Administration (“FDA”) and/or by foreign regulatory authorities outside of the jurisdiction where the study was being performed;
•the timing and ability of our collaborators to develop and commercialize our partnered product candidates;
•the potential benefits and advantages of our product candidates and approaches versus those of our competitors;
•our ability to find a licensing partner for imsidolimab and etokimab;
•our ability to obtain funding for our operations on favorable terms or at all, including funding necessary to complete further development and commercialization of our product candidates;
•general macro-economic factors, including volatility in equity markets, and fluctuations in interest rates and foreign exchange rates;
•the timing of and the ability to obtain and maintain regulatory approvals for our product candidates, partnered product candidates and/or product candidates for which we may receive royalties;
•our ability to develop our product candidates;
•the rate and degree of market acceptance and clinical utility of any approved product candidates;
•the size and growth potential of the markets for any approved product candidates, and our ability to serve those markets;
•our commercialization, marketing, and manufacturing capabilities and strategy;
•our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;
•regulatory developments in the U.S. and foreign countries;
•the success of competing therapies that are or may become available;
•our ability to attract and retain key scientific or management personnel;
•our use of the net proceeds from our public offerings and other financing transactions;
•our ability to generate potentially best-in-class antibodies through our antibody research platform that are consistent with our commercial objectives; and
•our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing.
These forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including those described in Part II, Item 1A, “Risk Factors,” and elsewhere in this Quarterly Report. Moreover, we operate in a competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all
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risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements to conform these statements to actual results or to changes in our expectations, except as required by law.
You should read this Quarterly Report with the understanding that our actual future results, levels of activity, performance, and events and circumstances may be materially different from what we expect.
Unless the context indicates otherwise, as used in this Quarterly Report, the terms “AnaptysBio,” “company,” “we,” “us” and “our” refer to AnaptysBio, Inc., a Delaware corporation, and its subsidiaries taken as a whole, unless otherwise noted. AnaptysBio is our common law trademark. This Quarterly Report contains additional trade names, trademarks, and service marks of other companies, which are the property of their respective owners. We do not intend our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
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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 together with our unaudited consolidated financial statements and related notes for the six months ended June 30, 2023, included in Part I, Item 1 of this report and with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2022 included in our Annual Report on Form 10-K. This discussion and other sections of this Quarterly Report contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions, and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors” included in Part II, Item 1A of this Quarterly Report. You should also carefully read “Special Note Regarding Forward-Looking Statements.”
Overview
We are a clinical-stage biotechnology company focused on delivering innovative immunology therapeutics. We are developing immune cell modulating antibodies, including two wholly owned checkpoint agonists in clinical-stage development, for autoimmune and inflammatory disease: rosnilimab, our PD-1 agonist, previously referred to as ANB030, in a planned Phase 2b trial for the treatment of moderate-to-severe rheumatoid arthritis (“RA”); and ANB032, our BTLA agonist, currently in a Phase 2b trial for the treatment of moderate-to-severe atopic dermatitis (“AD”). We also have other preclinical immune cell modulator candidates in our portfolio, including ANB033, an anti-CD122 antagonist antibody for the treatment of autoimmune and inflammatory diseases. In addition, we have developed two cytokine antagonists that we are exploring options for out-licensing: imsidolimab, our anti-IL-36R antibody, in a Phase 3 trial for the treatment of generalized pustular psoriasis (“GPP”), and etokimab, our anti-IL-33 antagonist that is Phase 2/3 ready. We have also discovered multiple therapeutic antibodies licensed to GlaxoSmithKline, Inc. (“GSK”) in a financial collaboration for immune-oncology, including an anti-PD-1 antagonist antibody (Jemperli (dostarlimab-gxly)), an anti-TIM-3 antagonist antibody (cobolimab, GSK4069889) and an anti-LAG-3 antagonist antibody (GSK4074386). We currently recognize revenue from milestones and royalties achieved under our immuno-oncology collaboration with GSK.
Our Wholly Owned Product Candidate Pipeline
Our immune cell modulating antibodies, including anti-inflammatory checkpoint agonists for PD-1 and BTLA, treat inflammatory disorders by down regulating immune responses mediated by multiple immune cell types including T cells, B cells, and dendritic cells. T cells require both antigen presentation to the T cell receptor and co-stimulation to be activated. When these interactions are inhibited, T cells can’t be effectively primed to expand and differentiate into inflammatory T cells. Inhibition of these signals is the basis of checkpoint agonism.
We believe these molecules have potential applicability across a broad range of autoimmune and inflammatory disorders including dermatology, rheumatology, gastroenterology, respiratory, and neurology therapeutic areas.
Rosnilimab
Rosnilimab is designed to inhibit aberrant T cell driven inflammation by augmenting signaling through PD-1 or targeted depletion of PD-1+ T cells.
Rosnilimab binds to PD-1 on a membrane proximal epitope that is on the opposite side of the receptor to that utilized by PD-L1 for binding, and thus preserves the ability of PD-L1 to agonize PD-1. In the setting of T cell activation, rosnilimab binding has been shown to induce agonistic signaling and the recruitment of SHP2 to PD-1, in a manner similar to that by PD-L1. In preclinical assays, rosnilimab prevented T cell expansion in antigen-specific response assays to numerous antigens, demonstrating prevention of T cell expansion and reduction in the secretion of inflammatory cytokines associated with multiple T cell types implicated in inflammatory pathology when dysregulated. In addition to direct agonistic activity, rosnilimab is an IgG1k antibody with effector function that can drive targeted depletion of PD-1+ T cells via the induction of antibody-dependent cellular cytotoxicity (ADCC). We believe this component of the mechanism of rosnilimab may provide more durable immune modulation by effectively eliminating the most pathogenic antigen-specific T cells in the setting of autoimmunity and inflammation. Genetic mutations in the PD-1 pathway are known to be associated with increased susceptibility to human inflammatory diseases, and hence we believe that rosnilimab is applicable to diseases where PD-1 checkpoint receptor function may be insufficient to maintain immune homeostasis.
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We announced positive top-line data from a healthy volunteer Phase 1 trial of rosnilimab in November 2021. A total of 144 subjects were enrolled in the randomized, double-blind, placebo-controlled healthy volunteer Phase 1 trial, where single ascending dose (SAD) cohorts were administered single subcutaneous or intravenous (“IV”) doses of rosnilimab up to 600mg or placebo, while multiple ascending dose (MAD) cohorts received four weekly subcutaneous doses of rosnilimab ranging up to 400mg or placebo. Rosnilimab was generally well-tolerated and no dose limiting toxicities were observed. Two serious adverse events were reported in single dose cohorts, including obstructive pancreatitis in a placebo-dosed subject and COVID-19 infection in a rosnilimab-dosed subject leading to discontinuation. The COVID-19 infection was deemed unrelated to treatment. No serious adverse events were reported in subjects receiving multiple doses of rosnilimab or placebo.
Rosnilimab demonstrated a favorable pharmacokinetic profile with an estimated two-week half-life for subcutaneous and IV routes of administration. Full PD-1 receptor occupancy was observed rapidly and was maintained for at least 30 days at or above 200mg following single subcutaneous rosnilimab doses. Rosnilimab pharmacodynamic activity demonstrated rapid and sustained reduction in the quantity and functional activity of PD-1+ T cells, which are known to be pathogenic drivers of inflammatory diseases. Conventional T (Tcon) cells (CD3+, CD25 low) PD-1+, which represented approximately 25% of peripheral T cells at baseline, were reduced by 50%, including in both CD4+ and CD8+ subsets, in a dose-dependent manner and in correlation with receptor occupancy. This effect was maximized on high-PD-1+ Tcon cells, which represented approximately 5% of peripheral T cells, with 90% reduction relative to baseline. Conversely, total T cells (CD3+), total Tcon cells (CD3+, CD25low) and total regulatory T (Treg) cells (CD3+, CD4+, CD25 bright, CD127-) were unchanged (<5% change from baseline), resulting in a consistent ratio of PD-1+ Tcon cells to total Treg cells post-treatment in healthy volunteers. No effect (<5% reduction from baseline) was observed on any of the aforementioned cell types in placebo-dosed subjects.
We plan to conduct a randomized placebo-controlled multi-hundred patient global Phase 2b trial assessing three dose levels of subcutaneously administrated rosnilimab in moderate-to-severe RA for up to six months on well-established endpoints including ACR20/50/70 and DAS28. We expect to initiate this trial in the third quarter of 2023 with top-line interim data anticipated by mid-year 2025. We also plan to conduct a second global Phase 2 trial, in an indication to be announced, with trial initiation anticipated by the end of 2023.
During the fourth quarter of 2021, we initiated AZURE, a randomized placebo-controlled 45-patient Phase 2 trial of rosnilimab in moderate-to-severe alopecia areata patients. We conducted an interim review of blinded data in December 2022 which demonstrated robust reductions in peripheral PD-1+ T cells, including PD-1 high T cells reduction of >80%, across blinded pooled rosnilimab patients and placebo patients, which is consistent with observations in the healthy volunteer Phase 1 trial of >90% in rosnilimab treated patients. The blinded data suggest rosnilimab administration was generally safe and well tolerated. Interim results suggest that target improvement in severity of alopecia tool (SALT) was not achieved potentially due to an inadequate tested dose level, limited duration of treatment, and/or complexity of disease biology including the hair growth cycle. Further development in alopecia areata will not be pursued. The unblinded final results will be available in the second half of 2023.
ANB032
BTLA, or B and T lymphocyte attenuator, is an inhibitory checkpoint receptor that regulates T cells, B cells, and dendritic cell (DC) function. It’s expressed only on immune cells and preferentially on activated immune cells, avoiding off-target activity.
BTLA signaling has proven to be a highly potent modality in preclinical models for reducing inflammatory disease, by reducing T cell expansion, inflammatory cytokine secretion and migration into tissues.
ANB032 is a non-depleting antibody that binds to the BTLA checkpoint receptor and inhibits activated T cell proliferation, reduces inflammatory cytokine secretion and modulates dendritic cell (DC) function, including inducing Tregs, both in inflamed tissue and the periphery. In addition, by acting in the periphery, ANB032 prevents further migration of pathogenic T cells into the inflamed tissue.
ANB032 is anticipated to down-modulate the activity of T cells, B cells and dendritic cells via several potential mechanisms: BTLA agonistic activity (resulting in inhibition of T cell expansion, broad reduction of inflammatory Th1, Th2, Th17 and Th22 cytokines, inhibition of dendritic cell maturation, reduction in costimulatory molecule expression, and enhanced generation of Tregs), stabilization of the interaction of BTLA and HVEM in cis which prevents pro-inflammatory signaling mediated by HVEM ligands, and abrogation of pro-inflammatory HVEM signaling mediated by BTLA in trans.
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In in vitro studies, ANB032 demonstrated inhibition of T cell proliferation and reduction of inflammatory cytokine secretion (Th1, Th2, Th17 and Th22). While Th2 targeted therapies provide benefit to patients with chronic moderate-to-severe atopic dermatitis (AD), there is compelling evidence that AD is broader than a Th2 driven disease, as Th1, Th17, Th22 and other cell types, including dendritic cells, contribute significantly to the pathogenesis. ANB032 inhibition of inflammatory Th1, Th2, Th17 and Th22 activity, and modulation of additional cell types such as B cells and dendritic cells, creates the potential for broader, deeper and more durable responses than more narrowly targeted interventions.
We announced positive top-line data from a healthy volunteer Phase 1 trial of ANB032, under a CTN, in April 2022. A total of 96 subjects were enrolled in the randomized, double-blind, placebo-controlled healthy volunteer Phase 1 trial, where single ascending dose (SAD) cohorts received subcutaneous or IV single doses of ANB032 or placebo, while multiple ascending dose (MAD) cohorts received four weekly subcutaneous doses of ANB032 or placebo. ANB032 was generally well-tolerated and no dose limiting toxicities were observed. No serious adverse events were reported. ANB032 demonstrated a favorable pharmacokinetic profile with an estimated two-week half-life for subcutaneous and IV routes of administration. Full BTLA receptor occupancy was observed rapidly and was maintained for at least 30 days.
We are currently in a randomized placebo-controlled 160 patient Phase 2b trial assessing three dose levels of subcutaneously administrated ANB032 in moderate-to-severe AD for 12 weeks on well-established endpoints including EASI75 and IGA 0/1 at week 14. Patients will then be followed for an additional 24 weeks after treatment to understand longer term safety as well as the potential for prolonged and sustained efficacy. We anticipate reporting top-line week 14 data from this trial by the end of 2024.
ANB033
ANB033 targets CD122, the common beta subunit shared by the IL-15 and IL-2 receptors. IL-15 and IL-2 signaling mediate the proliferation and survival of NK cells and subsets of T cells, including tissue resident memory T cells (TRM), as well as inflammatory cytokine secretion (IFNγ) during T cell activation. ANB033 is designed with an affinity to CD122 that inhibits IL-15 and IL-2 signaling through the low affinity IL-2 receptor (comprised of CD122 and the common gamma subunit, CD132) while sparing IL-2 signaling through the high affinity IL-2 receptor (comprised of CD122, CD132 and the alpha receptor subunit for IL-2, CD25) expressed by regulatory T cells. This leads to reduced pathogenic TRM cell numbers in diseased tissue, as well as reduced numbers of cell types that are particularly dependent on IL-15 and/or IL-2 signaling, such as NK cells and certain CD8 T cell subsets, with the potential to achieve and maintain remission of inflammation through the elimination of these disease-causing cells, while sparing regulatory T cells. By preventing the consumption of IL-2 by pathogenic cells that express the low affinity IL-2 receptor, circulating levels of IL-2 may increase, potentially enhancing regulatory T cell numbers that express the high affinity IL-2 receptor in the setting of inflammation. We anticipate submitting an IND for a Phase 1 clinical trial with ANB033 during the first half of 2024.
Imsidolimab
Imsidolimab inhibits the interleukin-36 receptor (IL-36R) and is being developed for the treatment of GPP. We completed a Phase 1 clinical trial in healthy volunteers, which was presented at the European Academy of Allergy and Clinical Immunology in 2018, where imsidolimab was well-tolerated, no dose-limiting toxicities were observed, and no serious adverse events were reported. In July 2020, the FDA granted Orphan Drug Designation for imsidolimab for the treatment of patients with GPP. We completed an open-label, multi-dose, single-arm Phase 2 clinical trial of imsidolimab in 8 GPP patients, also referred to as the GALLOP clinical trial, where top-line data through week 16 was presented at the European Academy of Dermatology and Venerology (EADV) Congress in October 2021.
We have initiated two Phase 3 trials for imsidolimab for GPP. The first, called GEMINI-1, has completed enrollment of the initial target enrollment of approximately 45 moderate-to-severe GPP patients, each undergoing an active flare at baseline, which will be randomized equally to receive a single dose of 750mg IV imsidolimab, 300mg IV imsidolimab, or placebo. The primary endpoint of the Phase 3 program is the proportion of patients achieving clear or almost clear skin as determined by a GPPPGA score of zero or 1 at week 4 of GEMINI-1. Patients completing the GEMINI-1 trial will subsequently be enrolled in GEMINI-2, our second Phase 3 trial for imsidolimab in GPP, where they will receive monthly doses of 200mg subcutaneous imsidolimab or placebo depending upon whether they are responders, partial responders or non-responders to treatment under GEMINI-1. The objective of GEMINI-2 is to assess the efficacy and safety of imsidolimab after 3 years of monthly dosing. Top-line data from an interim analysis of GEMINI-1 is anticipated in the fourth quarter of 2023.
We announced in August 2022 that we intend to complete execution of our Phase 3 program in GPP and out-license imsidolimab prior to potential FDA approval.
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Etokimab
Etokimab inhibits IL-33 function and acts upstream of key cell types involved in atopy and the subsequent release of Th2 cytokines. IL-33 is a pro-inflammatory cytokine that signals through the ST2 receptor, which multiple studies suggest serves as a central mediator of various immune responses leading to Th2-type inflammatory disorders, including asthma, COPD, atopic and epithelial diseases. Individuals with asthma symptoms express higher levels of IL-33 than healthy control subjects. IL-33 initiates a diverse array of cellular immune responses, including the activation of mast cells, basophils and eosinophils, leading to production of downstream cytokines, such as IL-4, IL-5 and IL-13, which are associated with atopic diseases. IL-33 also acts on Th2 effector cells and Innate Lymphoid Cell Type 2 (ILC2), two types of white blood cells that initiate and orchestrate atopic responses. We have no ongoing clinical trials of etokimab and announced in January 2023 that etokimab is available to out-license.
The following table summarizes certain key information about our wholly owned product candidates:
Collaborative Programs
Multiple Company-discovered antibody programs have been advanced to preclinical and clinical milestones under our collaborations. Our collaborations include an immuno-oncology-focused collaboration with GSK.
Under the GSK Agreement, a Biologics License Application (BLA) for our most advanced partnered program, which is an anti-PD-1 antagonist antibody called Jemperli (dostarlimab), was approved by the FDA in April 2021 for the treatment of advanced or recurrent deficient mismatch repair endometrial cancer (dMMREC). In February 2023, the FDA granted full approval for this indication (from an accelerated approval). In addition, in April 2021 the European Medicines Agency (“EMA”) granted conditional marketing authorization in the European Union (EU) for Jemperli for use in women with mismatch repair deficient (dMMR)/microsatellite instability-high (MSI-H) recurrent or advanced endometrial cancer who have progressed on or following prior treatment with a platinum containing regimen. A second FDA approval was received in August 2021 for Jemperli in pan-deficient mismatch repair tumors (PdMMRT). In July 2023, the FDA approved Jemperli in combination with chemotherapy for the treatment of adult patients with mismatch repair deficient (dMMR)/microsatellite instability-high (MSI-H) primary advanced or recurrent endometrial cancer. A marketing authorization application is also under review by the European Medicines Agency.
Jemperli is currently in Phase 3 trials for various solid tumor indications, including a Phase 3 trial in first-line ovarian cancer with top-line results expected in the first half of 2024.
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In addition, under the collaboration, GSK is developing dostarlimab in combination with two other development programs from the GSK Agreement: cobolimab, an anti-TIM-3 antibody, and GSK40974386, an anti-LAG-3 antibody for multiple solid tumor indications. GSK is conducting a Phase 3 trial, COSTAR Lung, which is a randomized, open label 3-arm trial comparing cobolimab plus dostarlimab plus docetaxel to dostarlimab plus docetaxel to docetaxel alone in patients with advanced non-small-cell lung cancer (“NSCLC”) who have progressed on prior anti-PD-(L)1 therapy and chemotherapy with top-line results expected in the second half of 2024.
In June 2021, GSK estimated potential peak annual global Jemperli sales on a non-risk adjusted basis of £1-£2 billion for currently approved indications and first-line use in endometrial and ovarian cancer only. For more information about these collaborations, see Note 4 — Collaborative Research and Development Agreements in the accompanying notes to the consolidated financial statements.
Components of Operating Results
Collaboration Revenue
We have not generated any revenue from product sales. Our revenue has been derived from amortization of upfront license payments, research and development funding, milestone and royalty payments under collaboration and license agreements with our collaborators. From inception through June 30, 2023, we have recognized $242.9 million in revenue from our collaborators.
Research and Development Expense
Research and development expenses consist of costs associated with our research and development activities, including drug discovery efforts, preclinical and clinical development of our programs, and manufacturing. Our research and development expenses include:
•External research and development expenses incurred under arrangements with third parties, such as contract research organizations (“CROs”), consultants, members of our scientific and therapeutic advisory boards, and contract manufacturing organizations (“CMOs”);
•Employee-related expenses, including salaries, benefits, travel, and stock-based compensation;
•Facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and laboratory supplies; and
•License and sub-license fees.
We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expense when the service has been performed or when the goods have been received.
We are conducting research and development activities primarily on inflammation programs. We have a research and development team that conducts antibody discovery, characterization, translational studies, IND-enabling preclinical studies, and clinical development. We conduct some of our early research and preclinical activities internally and plan to rely on third parties, such as CROs and CMOs, for the execution of certain of our research and development activities, such as in vivo toxicology and pharmacology studies, drug product manufacturing, and clinical trials.
We expect our research and development expenses to be higher for the foreseeable future as we continue to advance our product candidates.
General and Administrative Expense
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation for our executive, finance, legal, business development, human resource, and support functions. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses, travel expenses, and professional fees for auditing, tax, and legal services.
Non-cash Interest Expense for the Sale of Future Royalties
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Non-cash interest expense for the sale of future royalties consists of interest related to the liability for the sale of future royalties, as well as the amortization of debt issuance costs. We impute interest on the unamortized portion of the liability for the sale of future royalties using the effective interest method and record interest expense based on timing of the payments over the term of the Royalty Monetization Agreements. Our estimate of the interest rate under the arrangements is based on forecasted royalty and milestone payments expected to be made over the life of the agreements.
Interest Income
Interest income consists primarily of interest earned on our short-term and long-term investments and is recognized when earned.
Critical Accounting Policies and Use of Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of these financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts, and experience. We believe there have been no significant changes in our critical accounting policies as discussed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2023.
Results of Operations - Comparison of the Three and Six Months Ended June 30, 2023 and 2022
Collaboration Revenue
Collaboration revenue consists of both milestone payments under the collaborations, and royalty payments. We recognized $0 in milestone revenue during each of the three and six months ended June 30, 2023 and 2022. We expect that any collaboration revenue we generate will continue to fluctuate from period to period as a result of the timing and amount of milestones from our existing collaborations.
Royalty revenue is a function of our partners' product sales and the applicable royalty rate. During the three months ended June 30, 2023 and 2022, we recognized $3.5 million and $1.2 million, respectively, related to the net sales of GSK’s Zejula and Jemperli, which we estimate based on either GSK’s prior sales experience or actuals. During the six months ended June 30, 2023 and 2022, we recognized $4.8 million and $2.2 million, respectively, of royalty revenue related to the net sales of
GSK’s Zejula and Jemperli. All royalty revenue related to Zejula global net sales starting July 2022 are paid directly to a wholly owned subsidiary of DRI Healthcare Trust pursuant to the Zejula Royalty Monetization Agreement. For more information see Note 5 — Sale of Future Royalties in the accompanying notes to the consolidated financial statements.
GSK’s Zejula and Jemperli. All royalty revenue related to Zejula global net sales starting July 2022 are paid directly to a wholly owned subsidiary of DRI Healthcare Trust pursuant to the Zejula Royalty Monetization Agreement. For more information see Note 5 — Sale of Future Royalties in the accompanying notes to the consolidated financial statements.
Research and Development Expenses
Research and development expenses were $32.9 million during the three months ended June 30, 2023 compared to $20.8 million during the three months ended June 30, 2022 for an increase of $12.1 million, primarily due to a $8.5 million increase in outside services for manufacturing expenses, $1.1 million increase in clinical expenses, and $2.5 million increase in salaries and related expenses, including stock compensation expense.
Research and development expenses were $67.9 million during the six months ended June 30, 2023 compared to $43.4 million during the six months ended June 30, 2022 for an increase of $24.5 million, primarily due to a $17.0 million increase in outside services for manufacturing expenses, $2.7 million increase in clinical expenses, $4.0 million increase in salaries and related expenses, including stock compensation expense, and $0.8 million increase in other research and development expenses.
We do not track fully burdened research and development costs separately for each of our product candidates. We review our research and development expenses by focusing on external development and internal development costs. External development expenses consist of costs associated with our external preclinical and clinical trials, including pharmaceutical development and manufacturing. Included in preclinical and other unallocated costs are external corporate overhead costs that are not specific to any one program. Internal costs consist of salaries and wages, share-based compensation and benefits, which
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are not tracked by product candidate as several of our departments support multiple product candidate research and development programs. The following table summarizes the external costs attributable to each program and internal costs:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | Increase/(Decrease) | 2023 | 2022 | Increase/(Decrease) | |||||||||||||||||||||||||||||
| External Costs | |||||||||||||||||||||||||||||||||||
| Imsidolimab | $ | 8,833 | $ | 10,049 | $ | (1,216) | $ | 24,298 | $ | 20,539 | $ | 3,759 | |||||||||||||||||||||||
| Rosnilimab | 5,780 | 2,148 | 3,632 | 8,385 | 3,692 | 4,693 | |||||||||||||||||||||||||||||
| ANB032 | 4,023 | 707 | 3,316 | 6,559 | 1,140 | 5,419 | |||||||||||||||||||||||||||||
| Preclinical and other unallocated costs | 6,142 | 1,856 | 4,286 | 12,378 | 4,830 | 7,548 | |||||||||||||||||||||||||||||
| Total External Costs | 24,778 | 14,760 | 10,018 | 51,620 | 30,201 | 21,419 | |||||||||||||||||||||||||||||
| Internal Costs | 8,145 | 6,084 | 2,061 | 16,260 | 13,159 | 3,101 | |||||||||||||||||||||||||||||
| Total Costs | $ | 32,923 | $ | 20,844 | $ | 12,079 | $ | 67,880 | $ | 43,360 | $ | 24,520 | |||||||||||||||||||||||
General and Administrative Expenses
General and administrative expenses were $10.7 million during the three months ended June 30, 2023 compared to $8.2 million during the three months ended June 30, 2022 for an increase of $2.5 million, primarily due to a $1.6 million increase in personnel costs, including stock compensation expense, $0.6 million increase in market research cost, $0.3 million increase in other general and administrative expenses, and $0.1 increase in legal cost offset by a $0.1 million decrease in insurance expense.
General and administrative expenses were $21.5 million during the six months ended June 30, 2023 compared to $18.4 million during the six months ended June 30, 2022 for an increase of $3.1 million, primarily due to a $1.7 million increase in personnel costs, including stock compensation expense, $1.0 million increase in market research cost, $0.5 million increase in other general and administrative expenses, and $0.1 increase in legal cost offset by a $0.2 million decrease in insurance expense.
We expect that our general and administrative expenses will increase for the foreseeable future as we incur costs associated with being a publicly traded company, including stock compensation expense, legal, auditing and filing fees, additional insurance premiums, investor relations expenses and general compliance and consulting expenses. We also expect our intellectual property related legal expenses, including those related to preparing, filing, prosecuting and maintaining patent applications, to increase as our intellectual property portfolio expands.
Non-cash Interest Expense for the Sale of Future Royalties
Non-cash interest expense was $4.4 million and $5.9 million during the three months ended June 30, 2023 and 2022, respectively. The decrease of $1.5 million in non-cash interest expense is due to a change in the expected timing for Sagard to be paid per the Jemperli Royalty Monetization Agreement, partially offset by interest recognized on the liabili