You should read the following discussion and analysis together with our
consolidated financial statements and related notes included elsewhere in this
Annual Report on Form 10-K.
Forward-Looking Statements The following discussion contains forward-looking statements that involve risks and uncertainties. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, "Risk Factors" in this Annual Report on Form 10-K. See "Special Note Regarding Forward-Looking Statements."
Overview
We are a biotechnology company focused on the discovery, development and commercialization of long-acting therapeutics designed to transform the standard of care for patients facing serious diseases. We are focused on infectious diseases and oncology. Our lead product candidate is rezafungin (trade name REZZAYOTM), an intravenous formulation of a novel echinocandin antifungal. Rezafungin is being developed as a once-weekly, high-exposure therapy for the treatment and prevention of serious, invasive fungal infections. Our primary focus now is using our Cloudbreak® platform to develop a potential new class of drugs called drug-Fc conjugates, or DFCs, for the prevention and treatment of serious diseases. This technology couples potent inhibitors to a human antibody fragment to create long-acting DFCs designed to inhibit multiple disease targets. Our most advanced DFC program is CD388, a highly potent, long-acting antiviral designed to deliver universal prevention and treatment of 65 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC.
seasonal and pandemic influenza, which is in Phase 1 and Phase 2a clinical
trials. Additional programs are targeting the SARS-CoV-2 strains causing
COVID-19 and multiple solid tumor oncology indications.
Our business is subject to various trends, events or uncertainties that are reasonably likely to cause our reported financial information not to be necessarily indicative of future operating results or of future financial condition. As discussed below, the COVID-19 pandemic has delayed our conduct of clinical trials and other key activities and there is uncertainty regarding the emergence of potential new COVID-19 strains. We may also be impacted by broader macroeconomic conditions, including high inflation, bank failures, labor shortages, supply chain disruptions, recession risks and potential disruptions from the ongoing Russia-Ukraine conflict and related sanctions. For example, on March 10, 2023, the Federal Deposit Insurance Corporation, took control and was appointed receiver of Silicon Valley Bank. While Cidara does not have deposits at Silicon Valley Bank, if other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our existing cash, cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition. The stock market, and in particular the market for pharmaceutical and biotechnology company stocks, has recently experienced significant decreases in value. This volatility and valuation decline have affected the market prices of securities issued by many companies, often for reasons unrelated to their operating performance. These and other uncertainties are discussed in greater detail below. Recent Developments
Cloudbreak Oncology Program
Immune checkpoint antagonists have generated durable responses in cancers with improved side effect profiles compared to conventional chemotherapy. However, to date, improved outcomes from existing therapies have been limited to a relatively small subset of patients. To broaden the response rate to more patients, targeting additional mechanisms of tumor immune evasion will be critical. Using our DFC approach, we are seeking to generate a best-in-class CD73 inhibitor that combines the attributes of small molecule inhibitors and monoclonal antibody, or mAb, inhibitors that are currently in clinical trials. In January 2023, we nominated CBO-212 as our first oncology DFC candidate. With our Cloudbreak oncology program we seek to develop a new generation of immunotherapies, and our lead oncology DFC candidate, CD421 (which is an enhanced version of CBO-212), is a first-in-class CD73 inhibitor that combines the strengths of small molecules and monoclonal antibodies targeting CD73. We are currently advancing CD421 that confers reduced immunogenic properties through investigational new drug application, or IND, -enabling studies.
In February 2023, we expanded our existing collaboration with WuXi XDC, a
leading global contract manufacturing organization, or CMO, dedicated to
end-to-end bioconjugates services, under which WuXi XDC will provide
IND-enabling chemistry and manufacturing and controls, or CMC, development
services for our Cloudbreak oncology program.
FDA Advisory Committee Recommendation and FDA Approval of Rezafungin for the
Treatment of Candidemia and Invasive Candidiasis
On January 24, 2023, the U.S. Food and Drug Administration, or FDA, Antimicrobial Drugs Advisory Committee voted favorably 14 to 1 that we, as part of our New Drug Application, or NDA, provided sufficient evidence supporting a favorable benefit-risk assessment for a limited use indication for rezafungin for the treatment of candidemia and invasive candidiasis in adult patients with limited or no alternative treatment options. On March 22, 2023, the FDA approved REZZAYO (rezafungin for injection) for the treatment of candidemia and invasive candidiasis in adults with limited or no alternative treatment options. REZZAYO is the first new treatment option approved for patients with candidemia and invasive candidiasis in over a decade, and is the only available once-weekly echinocandin.
Compliance with Nasdaq Listing Requirements
On February 9, 2023, we received formal notice from The Nasdaq Stock Market, LLC, or Nasdaq, Hearings Panel, or the Panel, stating that we have regained compliance with the minimum bid price requirement set forth in Nasdaq Listing Rule 5550(a)(2), subject to a discretionary Panel Monitor until November 9, 2023.
Phase 2a Interim Results
On March 1, 2023, we announced efficacy and safety data from a planned interim analysis of our ongoing Phase 2a trial evaluating the pre-exposure prophylactic activity of CD388 against the H3N2 influenza A virus strain, as of a February 13, 2023 data cut-off. The Phase 2a trial is a single-center, randomized, double-blind influenza challenge study in healthy volunteers designed to assess the prophylactic antiviral activity, safety, tolerability and pharmacokinetics of CD388 in 66 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC.
healthy volunteers. The interim analysis is based on 56 subjects enrolled in the
trial, with 28 subjects receiving a single dose of CD388 (150 mg) and 28
subjects receiving a placebo.
The interim data for the primary efficacy endpoint of Area Under the Viral
Load-Time Curve (a measure of a drug’s ability to attenuate viral replication),
or VL-AUC, and for the secondary efficacy endpoint of influenza infection
incidence for 150 mg CD388 versus placebo are shown below.
Placebo (n=28) CD388 150 mg (n=28) Area Under the Viral Load-time Curve (VL-AUC)- Mean (SD) 16.1 (11.9) 10.7 (8.0) PCR confirmed influenza infection- n (%) 14 (50%) 6 (21.4%) As shown above, despite the small sample size in this planned interim analysis, a decrease in viral replication in the upper respiratory tract and influenza infection was observed in participants receiving a single dose of CD388 when compared to placebo. No treatment emergent adverse events leading to study discontinuation or serious adverse events were reported in the interim analysis. All participants included in the interim analysis received either CD388 or placebo and were then challenged with influenza five days later.
Cloudbreak Platform
We believe our Cloudbreak platform has the potential to offer a fundamentally new approach to prevent and treat serious diseases, by developing product candidates designed to provide potent disease targeting activity and immune system engagement in a single long-acting molecule. Because serious disease often results when a pathogen or cancer cell evades or overcomes the host immune system, our Cloudbreak DFC candidates are designed to counter diseases in two ways: prevention of disease proliferation or immune evasion by directly targeting and, where applicable, by focusing the immune system on a pathogen or infected cell. We believe this is a potentially transformative approach, distinct from current therapies, monoclonal antibodies and vaccines. In addition, DFCs are designed to have several advantages, including:
•Multivalent binding which has the potential to increase potency;
•Ability to engage different targets on the same target cell to decrease
resistance or, in the case of a cancerous cell, to serve as a “drug cocktail” in
a single molecule, which may improve response to treatment;
•Potential to target multiple viral pathogens or oncological targets with a
single DFC; and
•Potential for universal coverage against all viral variants and all people
irrespective of immune status.
In contrast to monoclonal antibodies, our DFCs are smaller, have the potential for better tissue penetration and are designed to target multiple sites. Unlike small molecules, we believe DFC optimization can be focused primarily on potency.
Our lead Cloudbreak candidates are CD388, a DFC for the prevention and treatment
of influenza, or influenza DFC, and CD421, a CD73-targeting DFC for the
treatment of solid tumors.
In September 2020, we nominated CD388, our influenza DFC, as a development candidate. We submitted an IND for CD388 in December 2021 and initiated a Phase 1 trial (NCT05285137) in March 2022. The Phase 1 trial is a randomized, double-blind, dose-escalation study to determine the safety, tolerability and pharmacokinetics of intramuscular and subcutaneous administration of CD388 in healthy subjects. Dosing of all six planned cohorts has been initiated as planned. In addition, a separate Phase 1 Japanese bridging study has been initiated. In September 2022, we initiated a Phase 2a trial (NCT05523089) to evaluate the pre-exposure prophylactic activity of CD388 against influenza virus. The Phase 2a trial, which dosed its first healthy volunteer in September 2022, is a single-center, randomized, double-blind, placebo-controlled, proof-of-concept study to assess the prophylactic antiviral activity, safety, tolerability and pharmacokinetics of CD388 against influenza via a human viral challenge (influenza) model. Multiple dose levels of CD388 will be evaluated in volunteers who will receive a single administration of CD388 or placebo prior to influenza viral challenge. Interim results in February 2023 demonstrated a reduction in the viral load (area under the curve) for 150 mg of CD388 compared to placebo and a reduction in the incidence of subjects infected following influenza challenge for 150 mg of CD388 compared to placebo. Final results are expected later in 2023.
All Phase 1 and Phase 2a trials are being conducted under the Janssen
Collaboration Agreement (as defined below).
In December 2022, we received the first U.S. patent for CD388. The patent
includes claims directed to the composition of matter of CD388. The patent is
projected to expire in 2039 plus any available patent term extension.
The Cloudbreak platform has also enabled us to expand the development of DFCs to target other life-threatening viral diseases including the SARS-CoV-2 strains causing COVID-19. 67 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC. In addition, we have expanded the Cloudbreak platform beyond infectious diseases, to discover and develop highly potent DFCs that can target multiple immune checkpoint pathways with a single DFC for oncologic diseases. Cidara's lead oncology development candidate, CD421, targets CD73 in the adenosine pathway, which contributes to immune evasion in solid cancers by flooding the tumor microenvironment with adenosine, a potent immune cell suppressor. CD73 is highly expressed on a variety of tumor and stromal cells as well as immunosuppressive cell populations, such as regulatory T cells and myeloid-derived suppressor cells. CD421 is designed to address the potency, efficacy, pharmacokinetic and safety limitations of small molecule and monoclonal antibody candidates targeting CD73.
Janssen Collaboration Agreement
On March 31, 2021, we entered into the exclusive, worldwide license and collaboration agreement, or the Janssen Collaboration Agreement, with Janssen Pharmaceuticals, Inc., or Janssen, one of the Janssen Pharmaceutical Companies of Johnson & Johnson, to develop and commercialize one or more DFCs based on our Cloudbreak platform for the prevention and treatment of influenza. Under the terms of the Janssen Collaboration Agreement, we are collaborating in the research, preclinical and early clinical development of CD388, under a mutually-agreed research plan with the objective of advancing development through Phase 1 clinical trials and the first Phase 2a clinical trial. We are responsible for performing all IND-enabling nonclinical studies and early-stage clinical trials under the research plan. Both parties are responsible for conducting certain specified chemistry, manufacturing and controls development activities under the research plan. Janssen is solely responsible, and reimburses us for internal personnel and out-of-pocket costs incurred in performing the research plan activities in accordance with an agreed budget. After completion of the research plan and upon its election to proceed with development, Janssen will be solely responsible for late-stage development, manufacturing, licensure and commercialization. Upon the effectiveness of the Janssen Collaboration Agreement, Janssen paid us an upfront payment of $27.0 million. As of the execution of the Janssen Collaboration Agreement, we are eligible for reimbursement by Janssen of up to $58.2 million in research and development costs incurred in conducting research plan activities. As of December 31, 2022, we have received the $27.0 million up-front payment, $25.1 million in research and development reimbursements, and $3.0 million in milestone payments. We are eligible to receive up to an additional $237.0 million in development and regulatory milestone payments from Janssen for successful completion of certain activities over the next several years, including but not limited to Janssen's decision to proceed with clinical development and initiation of a pivotal trial. In addition, we may be eligible to receive approximately $455.0 million in commercial milestones as well as royalties on tiers of annual net sales at rates from the mid-single digits to the high-single digits.
Rezafungin
Rezafungin is a novel molecule in the echinocandin class of antifungals. We are
developing rezafungin for the treatment and prevention of serious, invasive
fungal infections which are associated with high mortality rates.
ReSTORE Phase 3 clinical trial
In December 2021, we reported positive topline results from ReSTORE, our Phase 3 pivotal clinical trial in patients with candidemia and/or invasive candidiasis (NCT03667690). ReSTORE was a global, randomized, double-blind, controlled trial evaluating the efficacy and safety of rezafungin as a potential first-line treatment for candidemia and invasive candidiasis. ReSTORE enrolled 187 patients and evaluated one 400 milligram, or mg, loading dose of rezafungin for the first week followed by 200 mg of rezafungin dosed once-weekly for up to four weeks in total. The treatment arm was compared to approved daily dosing of caspofungin in a 1:1 randomization. Results from the ReSTORE trial showed that rezafungin met the primary endpoint for the FDA of all-cause mortality at Day 30, and also met the primary endpoint for the European Medicines Agency, or EMA, of global cure at Day 14. Both results demonstrated statistical non-inferiority of rezafungin dosed once-weekly, versus caspofungin dosed once-daily, the current standard of care.
ReSPECT Phase 3 clinical trial
We are currently conducting the ReSPECT, single, global, randomized, double-blind, controlled Phase 3 pivotal clinical trial (NCT04368559) in patients undergoing allogeneic blood and marrow transplant to assess rezafungin in a 90-day prophylaxis regimen to prevent infections due to Candida, Aspergillus and Pneumocystis. Rezafungin, dosed at 400 mg for the first week followed by 200 mg once weekly out to 90 days, is being compared to a regimen containing two drugs (an azole and Bactrim) dosed once daily for 90 days. The primary efficacy outcome for this trial for the FDA and EMA is fungal-free survival at Day 90. We expect this trial to enroll approximately 462 patients, and over 50% of patients have been enrolled thus far. While the ReSPECT trial remains open for enrollment, we continue to monitor the near- and long- 68 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC.
term impact of COVID-19 on the ability of our clinical investigators to recruit
patients at each of our global clinical trial sites. The study is currently
enrolling in the European Union, or EU, Canada and the U.S.
Melinta License Agreement
On July 26, 2022, we entered into a License Agreement, or the Melinta License Agreement, with Melinta Therapeutics, LLC, or Melinta, under which we granted Melinta an exclusive license to develop and commercialize products that contain or incorporate rezafungin in the U.S. Melinta will be solely responsible for the commercialization of rezafungin in the U.S., at its sole expense. We are responsible for conducting an agreed upon development plan that includes, among other activities, completion of the ongoing ReSPECT Phase 3 pivotal clinical trial for the prevention of invasive fungal infections in adult allogeneic blood and marrow transplant recipients. We will initially remain the holder of the rezafungin IND and NDA. Both applications will transfer to Melinta on a transfer date determined based on the status of the ReSPECT trial and the associated supplemental NDA for the prophylaxis indication. Following the transfer date, we will remain financially responsible for post-marketing commitments and other remaining development obligations and the costs for those will be deducted from royalties owed to us by Melinta. The total potential transaction value of the Melinta License Agreement is $460.0 million, including a $30.0 million upfront payment and up to $430.0 million in regulatory and commercial milestones. In addition, we are eligible to receive tiered royalties on U.S. sales in the low double digits to mid-teens. As of December 31, 2022, we have received the $30.0 million up-front payment.
Mundipharma Collaboration Agreement
On September 3, 2019, we announced a strategic partnership with Mundipharma to develop and commercialize rezafungin in an intravenous formulation for the treatment and prevention of invasive fungal infections. Under the terms of the Collaboration and License Agreement, or the Mundipharma Collaboration Agreement, with Mundipharma Medical Company, or Mundipharma, we granted Mundipharma an exclusive, royalty-bearing license to develop, register and commercialize rezafungin outside the U.S. and Japan. The total potential transaction value is $568.4 million, including an equity investment, an up-front payment, global development funding, and certain development, regulatory, and commercial milestones. The Company is also eligible to receive double-digit royalties in the teens on tiers of annual net sales. As of December 31, 2022, we have received $9.0 million from the sale of our equity to Mundipharma, a $30.0 million up-front payment, $31.2 million in global development funding, and $25.1 million in milestone payments (including an $11.1 million milestone payment creditable against future royalties payable to us). COVID-19 Update
We continue to monitor the potential impact of the COVID-19 global pandemic on
our business.
We are reliant on our information technology systems, infrastructure and data to conduct our business. Adopting a work-from-home policy during this pandemic has increased the complexity of our computer systems, making them inherently more vulnerable to service interruption or destruction, malicious intrusion and random attack.
While we have not experienced significant disruptions to our manufacturing
supply chain or distribution to date, we are unable to fully assess the
potential impact that an extended duration of this pandemic may have on our
manufacturing or distribution processes in the future.
As we continue to actively advance our rezafungin Phase 3 clinical development program, we remain in close contact with our principal investigators and clinical sites and continue to monitor the impact of COVID-19 on our trials, expected timelines and costs on an ongoing basis. While the ReSPECT Phase 3 clinical trial for prophylaxis remains open for enrollment, we continue to monitor the near- and long-term impact of COVID-19 on the ability of our clinical investigators to recruit patients at each of our global clinical trial sites. The extent of the impact of COVID-19 on our operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on our clinical trials, employees and vendors, all of which are uncertain and cannot be predicted. Given these uncertainties and new information that may continue to emerge about COVID-19 strains, the full extent of the impact of the COVID-19 pandemic cannot be accurately predicted at this time, and we remain unable to reasonably estimate the related impact to our business, operating results and financial condition, if any. We will continue to evaluate and actively monitor the impact of the COVID-19 pandemic on our business. 69 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC.
Liquidity Overview
Since our inception, we have devoted substantially all of our financial resources and efforts to research and development and have incurred significant operating losses. As of December 31, 2022, we had an accumulated deficit of $407.0 million. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. In connection with the preparation of our financial statements for the year ended December 31, 2022, we performed an analysis of our ability to continue as a going concern. We believe, based on our current business plan, that our existing cash and cash equivalents will not be sufficient to fund our obligations for twelve months from the issuance of these financial statements. Our ability to execute our current business plan depends on our ability to obtain additional funding through equity offerings, debt financings or potential licensing and collaboration arrangements. We may not be able to raise additional funding on terms acceptable to us, or at all, and any failure to raise funds as and when needed will compromise our ability to execute on our business plan.
FINANCIAL OPERATIONS OVERVIEW
Revenues
To date, we have generated all of our revenues from our strategic partnerships with Mundipharma and Janssen, and our license agreement with Melinta. In the future, we may generate revenue from a combination of license fees and other upfront payments, other funded research and development agreements, milestone payments, product sales, government and other third-party funding and royalties in connection with strategic alliances. We expect that any revenue we generate will fluctuate from quarter-to-quarter as a result of the timing of our achievement of nonclinical, clinical, regulatory and commercialization milestones, the timing and amount of payments relating to such milestones and the extent to which any of our products are approved and successfully commercialized. If we are unable to fund our development costs or we are unable to develop product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenues and our results of operations and financial position would be adversely affected.
Research and development expenses
To date, our research and development expenses have related primarily to nonclinical development of our rezafungin acetate and our Cloudbreak platform, as well as clinical development of rezafungin acetate. Research and development expenses consist of wages, benefits and stock-based compensation for research and development employees, as well as the cost of scientific consultants, facilities and overhead expenses, laboratory supplies, manufacturing expenses, and nonclinical and clinical trial costs. We accrue clinical trial expenses based on work performed, which relies on estimates of total costs incurred based on patient enrollment, completion of studies or other activities within studies and other events. Research and development costs are expensed as incurred and costs incurred by third parties are expensed as the contracted work is performed. We accrue for costs incurred as the services are being provided by monitoring the status of the study or project and the invoices received from our external service providers. We adjust our accruals as actual costs become known. We may receive potential research and development funding through a partnership from the National Institute of Allergy and Infectious Diseases. We have evaluated the terms of the grants to assess our obligations and the classification of funding received. Amounts received for funded research and development are recognized in the statement of operations as a reduction to research and development expense over the grant period as the related costs are incurred to meet our obligations. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expenses to increase over the next several years as we continue to conduct nonclinical and clinical studies, expand our research and development pipeline and progress our product candidates through clinical trials. However, it is difficult to determine with certainty the duration, costs and timing to complete our current or future nonclinical programs and clinical trials of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include, but are not limited to, the following:
•the impact of the COVID-19 pandemic and other similar health crises;
•per patient trial costs;
•the number of patients that participate in the trials;
•the number of sites included in the trials;
70 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC.
•the countries in which the trials are conducted;
•the length of time required to enroll eligible patients;
•the number of doses that patients receive;
•the drop-out or discontinuation rates of patients;
•potential additional safety monitoring or other studies requested by regulatory
authorities;
•the duration of patient follow-up;
•the phase of development of the product candidate; and
•the efficacy and safety profile of the product candidates.
Research and development expenses by major program or category were as follows (in thousands): Year ended December 31, 2022 2021 2020 Rezafungin $ 36,322 $ 43,175 $ 43,011 Cloudbreak platform 20,271 10,497 7,574 Personnel costs 16,705 17,135 15,151
Other research and development expenses 2,222 2,280 2,281
Total research and development expenses $ 75,520 $ 73,087 $ 68,017
We typically deploy our employees, consultants and infrastructure resources across our programs. Thus, some of our research and development expenses are not attributable to an individual program but are included in other research and development expenses as shown above. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate's commercial potential.
General and administrative expenses
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, legal, business development, commercial planning and support functions. Other general and administrative expenses include facility and overhead costs not otherwise included in research and development expenses, consultant expenses, travel expenses and professional fees for auditing, tax, legal, and other services. We expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with operating as a publicly traded company. These increases will likely include legal fees, accounting fees, directors' and officers' liability insurance premiums and costs associated with investor relations.
Other income (expense), net
Other income and expense consist primarily of interest income and expense, and various income or expense items of a non-recurring nature. We earn interest income from interest-bearing accounts and money market funds for cash and cash equivalents. Interest expense represents interest payable related to term loans and the amortization of debt issuance costs.
Beneficial conversion feature
In February 2020, we completed a rights offering, pursuant to which we sold 6,639,307 shares of common stock and 531,288 shares of Series X Convertible Preferred Stock for gross proceeds of $30.0 million. Because the effective conversion price of the Series X Convertible Preferred Stock on the commitment date was below the fair value of the common stock at the date of issuance, a beneficial conversion feature with a calculated fair value of $2.8 million existed at the issuance date. As the Series X Convertible Preferred Stock was fully convertible at issuance, the full $2.8 million was recorded at issuance as a one-time deemed dividend on February 12, 2020. This one-time, non-cash deemed dividend impacted accumulated deficit and additional paid in capital at December 31, 2020 and net loss attributable to common stockholders and net loss attributable to common stockholders per share for the year ended December 31, 2020. 71 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC.
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of our financial condition and results of operations is based upon financial statements that we have prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities as of the date of the financial statements, and the revenues and expenses incurred during the reporting periods. We believe that the estimates, judgments and assumptions are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. Historically, revisions to our estimates have not resulted in a material change to our financial statements. While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, the significant accounting estimates that we believe are important to aid in fully understanding and evaluating our reported financial results include the following:
Revenue Recognition
We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, or Topic 606, which applies to all contracts with customers, except for elements of certain contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Topic 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or service we transfer to a customer. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and identify those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. In a contract with multiple performance obligations, we must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligation. The estimation of the stand-alone selling price(s) may include estimates regarding forecasted revenues or costs, development timelines, discount rates, and probabilities of technical and regulatory success. We evaluate each performance obligation to determine if it can be satisfied at a point in time or over time. Any change made to estimated progress towards completion of a performance obligation and, therefore, revenue recognized will be recorded as a change in estimate. In addition, variable consideration must be evaluated to determine if it is constrained and, therefore, excluded from the transaction price. If a license to our intellectual property is determined to be distinct from the other performance obligations identified in a contract, we recognize revenues from the transaction price allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from the allocated transaction price. We evaluate the measure of progress at each reporting period and, if necessary, adjust the measure of performance and related revenue or expense recognition as a change in estimate. At the inception of each arrangement that includes milestone payments, we evaluate whether the milestones are considered probable of being reached. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our or a collaboration partner's control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received. At the end of each reporting period, we re-evaluate the probability of achievement of milestones that are within our or a collaboration partner's control, such as operational development milestones and any related constraint, and, if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which will affect collaboration revenues and earnings in the period of adjustment. Revisions to our estimate of the transaction price may also result in negative collaboration revenues and earnings in the period of adjustment. For arrangements that include sales-based royalties, including commercial milestone payments based on the level of sales, and a license is deemed to be the predominant item to which the royalties relate, we will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied, or partially satisfied. To date, we have not recognized any royalty revenue from collaborative arrangements. 72 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC. In September 2019, we entered into the Mundipharma Collaboration Agreement with Mundipharma. We concluded that there were three performance obligations under the Mundipharma Collaboration Agreement: the license, the research and development services, and the clinical supply services, and that the obligations are distinct from each other. Revenue associated with the license was recognized upon delivery in September 2019. In March 2021, we entered into the Janssen Collaboration Agreement with Janssen. We concluded that there were three performance obligations under the Janssen Collaboration Agreement: the license, the research and development services, and the clinical supply services, and that the obligations are distinct from each other. Revenue associated with the license was recognized upon delivery in May 2021. In July 2022, we entered into the Melinta License Agreement with Melinta. We concluded that there were three performance obligations under the Melinta License Agreement: the license, the research and development services, and the clinical supply services, and that the obligations are distinct from each other. Revenue associated with the license was recognized upon delivery in August 2022. We concluded that progress towards completion of the research and development and clinical supply performance obligations related to the Mundipharma Collaboration Agreement, as well as progress towards completion of the research and development performance obligation related to the Melinta License Agreement, are best measured in an amount proportional to the collaboration expenses incurred and the total estimated collaboration expenses. We periodically review and update the estimated collaboration expenses, when appropriate, which may adjust revenue recognized for the period. While such changes to our estimates have no impact on our reported cash flows, the amount of revenue recorded in the period could be materially impacted. Revenue for the Janssen Collaboration Agreement is recognized based on actual amounts billed as the underlying services are provided and billed at market rates. The transaction prices to be recognized as revenue under both the Mundipharma Collaboration Agreement and the Janssen Collaboration Agreement consist of upfront payments, estimated reimbursable research and development and clinical supply costs, and milestones achieved to date. The transaction price to be recognized as revenue under the Melinta License Agreement consists of an upfront payment.
Potential future payments for variable consideration, such as clinical,
regulatory or commercial milestones, will be recognized when it is probable
that, if recorded, a significant reversal will not take place. Potential future
royalty payments will be recorded as revenue when the associated sales occur.
See Note 8 to the financial statements for additional information.
Research and Development Costs
Research and development expenses consist of wages, benefits and stock-based compensation charges for research and development employees, scientific consultant fees, facilities and overhead expenses, laboratory supplies, manufacturing expenses, and nonclinical and clinical trial costs. We accrue nonclinical and clinical trial expenses based on work performed, which relies on estimates of total costs incurred based on patient enrollment, completion of studies, and other events. We periodically confirm the accuracy of these estimates with our service providers and make adjustments if necessary.
Costs incurred in purchasing technology assets and intellectual property are
charged to research and development expense if the technology has not been
conclusively proven to be feasible and has no alternative future use.
Preclinical and Clinical Trial Accruals
We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on the facts and circumstances known to us at that time. Our accrued expenses for preclinical studies and clinical trials are based on estimates of costs incurred and fees that may be associated with services provided by contract research organizations, or CROs, clinical trial investigational sites and other clinical trial-related activities. Payments under certain contracts with such parties depend on factors such as successful enrollment of patients, site initiation and the completion of clinical trial milestones. In accruing for these services, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If possible, we obtain information regarding unbilled services directly from these service providers. However, we may be required to estimate these services based on other information available to us. If we underestimate or overestimate the activities or fees associated with a study or service at a given point in time, adjustments to research and development expenses may be necessary in future periods. Historically, our estimated accrued liabilities have approximated actual expense incurred. Subsequent changes in estimates may result in a material change in our accruals. 73 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC.
RESULTS OF OPERATIONS
Comparison of the years ended December 31, 2022 and 2021
The following table summarizes our results of operations for the years ended
December 31, 2022 and 2021 (in thousands):
Year ended December 31, 2022 2021 Change Collaboration revenue $ 64,288 $ 49,572 $ 14,716 Research and development 75,520 73,087 2,433 General and administrative 18,486 18,740 (254) Other income (expense), net 191 (212) 403 Income tax expense (272) - (272) Collaboration revenue Collaboration revenue was $64.3 million and $49.6 million for the years ended December 31, 2022 and 2021, respectively. Revenue for the year ended December 31, 2022 included $25.9 million of revenue recognized upon transfer of an intellectual property license to Melinta in August 2022. The remaining revenue for the year ended December 31, 2022 relates to the achievement of milestones and ongoing research and development and clinical supply services provided to Mundipharma, Janssen and Melinta of $14.3 million, $23.3 million and $0.8 million, respectively. Revenue for the year ended December 31, 2021 included $27.0 million of revenue recognized upon transfer of an intellectual property license to Janssen in May 2021. The remaining revenue for the year ended December 31, 2021 relates to the achievement of milestones and ongoing research and development and clinical supply services provided to Mundipharma and Janssen of $13.2 million and $9.4 million, respectively.
Research and development expenses
Research and development expenses were $75.5 million for the year ended December 31, 2022 compared to $73.1 million for the year ended December 31, 2021. The increase in research and development expenses is primarily due to increased expense associated with our Cloudbreak antiviral platform, offset by lower clinical expenses associated with the rezafungin clinical trials and lower personnel costs.
General and administrative expenses
General and administrative expenses were $18.5 million for the year ended
December 31, 2022 compared to $18.7 million for the year ended December 31,
2021. The decrease in general and administrative expenses is primarily due to
lower consulting and personnel costs.
Other income (expense), net
Other income for the year ended December 31, 2022 related primarily to interest income generated from cash held in interest-bearing investments, offset by interest expense in connection with our loan from Pacific Western Bank. Other expense for the year ended December 31, 2021 related primarily to interest expense in connection with our loan from Pacific Western Bank, offset by interest income generated from cash held in interest-bearing investments.
Income tax expense
Income tax expense for the year ended December 31, 2022 is primarily the result of capitalized Internal Revenue Code, or IRC, Section 174 research and development expenditures, effective January 1, 2022, creating taxable income which can be offset with net operating losses and credits that are limited in use by IRC Sections 382 and 383.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are our cash and cash equivalents, as well as the cash flows generated from our partnerships with Mundipharma and Janssen, our license to Melinta, and equity and debt financings. We have devoted our resources to funding research and development programs, including research, preclinical and clinical development activities. 74 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC. Our ability to fund future operating needs will depend on a combination of equity, debt or other financing structures, receipt of payments under the Mundipharma Collaboration Agreement, the Janssen Collaboration Agreement and the Melinta License Agreement, as well as potentially entering into other collaborations, strategic alliances or licensing arrangements with third parties or receiving government and/or charitable grants or contracts. Our ability to raise additional capital may also be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the U.S. and worldwide from geopolitical and macroeconomic events, including the COVID-19 pandemic, the ongoing Russia-Ukraine conflict and related sanctions, and bank failures.
We are eligible to receive up to $484.3 million in development, regulatory and
commercial milestone payments from Mundipharma for successful completion of
certain activities over the next several years, as well as double-digit
royalties in the teens on tiers of annual net sales.
We are eligible to receive up to $237.0 million in development and regulatory milestone payments from Janssen for successful completion of certain activities over the next several years, including but not limited to Janssen's decision to proceed with clinical development and initiation of a pivotal trial. In addition, we may be eligible to receive approximately $455.0 million in commercial milestones as well as royalties on tiers of annual net sales at rates from the mid-single digits to the high-single digits. We are eligible to receive up to $430.0 million in regulatory and commercial milestone payments from Melinta for successful completion of certain activities over the next several years, as well as tiered royalties on U.S. sales in the low double digits to mid-teens. On November 8, 2018, we entered into the controlled equity offering sales agreement with Cantor Fitzgerald & Co., or the Sales Agreement, pursuant to which we may offer and sell, from time to time at our sole discretion, shares of our common stock having an aggregate offering price of up to $50.0 million. As of December 31, 2022, the aggregate offering price remaining under the Sales Agreement was $46.1 million. In March 2023, we issued shares of our common stock and Series X Convertible Preferred Stock upon the closing of concurrent but separate public offerings, for gross proceeds of $19.5 million. Our lease with Nancy Ridge Technology Center, L.P. expires on December 31, 2023 with options for two individual two-year extensions, which have not been exercised, and remain in effect and available to the Company. As of December 31, 2022, the Company was not reasonably certain that it would exercise the extension options, and therefore did not include these options in the determination of the total lease term for accounting purposes. Total undiscounted operating lease payments are $1.4 million as of December 31, 2022. As discussed further below, we believe that our existing cash and cash equivalents will not be sufficient to fund our obligations for the next twelve months. There are many factors that could impact our operating cash flow, most notably achievement of milestones under our Mundipharma Collaboration Agreement, Janssen Collaboration Agreement and Melinta License Agreement. We are mindful that conditions in the current macroeconomic environment could affect our ability to achieve our goals. We operate and conduct clinical trials in countries that face economic volatility and weakness. Sustained weakness or further deterioration of the local economies and currencies and adverse effects of the impact of the ongoing COVID-19 pandemic may pose operational challenges in those countries. We will continue to monitor these conditions and will attempt to adjust our business plans, as appropriate, to mitigate macroeconomic risks. We enter into contracts in the normal course of business with vendors for research and development activities, manufacturing, and professional services that generally provide for termination either on notice or after a notice period. Our material cash requirements include costs to complete agreed-upon activities under our Mundipharma Collaboration Agreement, Janssen Collaboration Agreement and Melinta License Agreement, as well as personnel and general and administrative support costs.
As of December 31, 2022, we had $32.7 million in cash and cash equivalents. The
following table shows a summary of our cash flows for the years ended
December 31, 2022, 2021 and 2020 (in thousands):
Year ended
December 31,
2022 2021 2020 Net cash provided by (used in): Operating activities $ (28,473) $ (25,232) $ (54,411) Investing activities (118) (41) (186) Financing activities (951)
44,597 37,278
Net increase (decrease) in cash and cash equivalents $ (29,542) $ 19,324 $ (17,319)
75 -------------------------------------------------------------------------------- CIDARA THERAPEUTICS, INC.
Operating activities
Net cash used in operating activities was $28.5 million for the year ended December 31, 2022, compared to $25.2 million and $54.4 million for the years ended December 31, 2021 and 2020, respectively. Cash used in operating activities for the year ended December 31, 2022 was primarily attributable to a net loss of $29.8 million, and included $2.8 million for a milestone achieved in December 2021 under the Mundipharma Collaboration Agreement, which was received in January 2022, $3.0 million for a milestone achieved in March 2022 under the Janssen Collaboration Agreement, which was received in May 2022, $11.1 million for a milestone achieved in August 2022 under the Mundipharma Collaboration Agreement, which was received in September 2022, and the $30.0 million upfront payment received in August 2022 pursuant to the Melinta License Agreement. Cash used in operating activities for the year ended December 31, 2021 was primarily attributable to a net loss of $42.5 million and included $11.1 million for a milestone achieved in November 2020 under the Mundipharma Collaboration Agreement, which was received in January 2021, and the $27.0 million upfront payment received in May 2021 pursuant to the Janssen Collaboration Agreement.
Cash used in operating activities for the year ended December 31, 2020 was
primarily attributable to a net loss of $72.1 million.
For all periods presented, the primary use of cash was to fund research and
development activities for our product candidates, which activities and uses of
cash we expect to continue to increase for the foreseeable future.
Investing activities
Our investing activities during the years ended December 31, 2022, 2021 and 2020
consists of purchases of property and equipment.
Financing activities
Net cash used in financing activities during the year ended December 31, 2022 consisted primarily of net proceeds of $2.4 million, after deducting placement agent fees, from the sale of 3,402,926 shares of common stock under our Sales Agreement, offset by principal payments of $2.6 million made in connection with our loan from Pacific Western Bank and $0.7 million related to issuance costs for our 2021 underwritten public offering. Net cash provided by financing activities during the year ended December 31, 2021 consisted primarily of (i) net proceeds of $36.5 million from the sale of 17,064,511 shares of common stock and 774,194 shares of Series X Convertible Preferred Stock pursuant to concurrent underwritten public offerings and (ii) $12.5 million, after deducting placement agent fees, from the sale of 5,608,510 shares of common stock under our Sales Agreement, offset by principal payments of $4.4 million made in connection with our loan from Pacific Western Bank. Net cash provided by financing activities during the year ended December 31, 2020 consisted primarily of (i) net proceeds of $29.2 million from the sale of 6,639,307 shares of common stock and 531,288 shares of Series X Convertible Preferred Stock pursuant to the exercise of subscription rights issued in our rights offering and (ii) $11.0 million, after deducting placement agent fees, from the sale of 3,430,790 shares of common stock under our Sales Agreement, offset by principal payments of $3.0 million made in connection with our loan from Pacific Western Bank.
Operating Capital Requirements
We performed an analysis of our ability to continue as a going concern. We believe, based on our current business plan, that our existing cash and cash equivalents will not be sufficient to fund our obligations for the next twelve months. Our ability to execute our operating plan depends on our ability to obtain additional funding through equity offerings, debt financings or potential licensing and collaboration arrangements. We plan to continue to fund our losses from operations through cash and cash equivalents on hand, as well as through future equity offerings, debt financings, other third party funding, and potential licensing or collaboration arrangements. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. Even if we raise additional capital, we may also be required to modify, delay or abandon some of our plans which could have a material adverse effect on our business, operating results and financial condition and our ability to achieve our intended business objectives. Any of these actions could materially harm our business, results of operations and future prospects.
© Edgar Online, source Glimpses
Credit: Source link