Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our management’s discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q, which have been prepared by us in accordance with accounting principles generally accepted in the United States, or GAAP, and with Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. This discussion and analysis should be read in conjunction with these condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on March 1, 2022 and in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Note on the COVID-19 Pandemic
The ongoing COVID-19 pandemic continues to have widespread, evolving, and unpredictable impacts on global economies, supply chains, financial markets, business practices and societies. The complex challenges created by the COVID-19 pandemic have had an adverse impact on our business, operations, and financial performance, and as such we continue to take steps to respond to these challenges and adjust our commercial strategy and operating plans accordingly.
We believe that the COVID-19 pandemic has had an adverse impact on sales of TAZVERIK since the June 2020 FDA approval of TAZVERIK for FL. Our commercial and medical affairs field teams continue to use virtual formats as well as in-person interactions, where possible, to allow us to serve the needs of healthcare providers, patients and other stakeholders. However, access to prescribers remains restrictive, and we expect these challenges to continue.
In response, we have taken steps to adjust our commercial strategy and continue to further refine our commercial strategy, recognizing that some of the changes brought about by the COVID-19 pandemic, such as ongoing restrictions to access prescribers by traditional sales personnel, will likely persist after the resolution of the pandemic. We are evolving our commercial strategies and deployment of resources to address these changes in market dynamics as we seek to increase awareness of TAZVERIK in ES and FL.
Although the initiation, enrollment and completion of our ongoing and planned clinical trials have not been materially disrupted, we have experienced some delays in clinical trial startup activities due to what we believe to be mostly COVID-19 related capacity constraints and resulting delays in the packaging and labeling of clinical drug supply at a third-party manufacturer. We are aware of the impact that COVID-19 continues to have on other clinical trials in our industry and there is a risk of material impact on the conduct of our clinical trials as well. We are continuing to work with our clinical trial sites as we seek to ensure study continuity, enable medical monitoring, facilitate study procedures and maintain clinical data and records, including the use of local laboratories for testing, home delivery of study drug and remote data and records monitoring.
To date, the COVID-19 pandemic has not had a material impact on our commercial supply chain, and we currently have a consistent supply of tazemetostat and TAZVERIK that we believe will cover our ongoing clinical development as well as the ongoing commercialization for ES and FL. From time to time, however, we have experienced some occasional delays in connection with our clinical supply, including delays related to packaging and labeling. As a proactive measure, we have taken certain steps to try to reduce the risk to our supply chain, such as advancing orders for long-lead items in anticipation of potential future delays or shortages. Because the ongoing COVID-19 pandemic could materially adversely impact our suppliers and result in delays or disruptions in our current or future supply chain, we are continuing to monitor and manage our supply chain accordingly.
We are implementing a multi-stage return to office plan. In October 2021 we opened our facilities to all employees who expressed interest in participating in a return-to-office pilot program, and starting in April 2022 we encouraged all Cambridge-based employees to return to the office in a hybrid model. In leveraging feedback from our pilot program, we have embraced a hybrid virtual/in-office model that will balance health, safety, and flexibility with the benefits of in-office work and collaboration as we safely welcome our team back to the office. Our hybrid approach will continue to be based primarily on guidance from federal, state and local government authorities, and we expect that some form of a hybrid model will continue to exist for us in the future.
We are closely monitoring the impact of the COVID-19 pandemic and related developments on our business, operations and financial performance. We plan to continue to assess the potential duration, scope and severity of the COVID-19 pandemic and its impacts on our business, operations and financial performance, and to continue to work closely with our third-party vendors, collaborators and other parties in order to seek to continue to advance our efforts with respect to the commercialization of TAZVERIK and to continue
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to advance the development of EZM0414 and our pipeline, while making the health and safety of our employees and their families, healthcare providers, patients and communities a top priority. Additionally, we continue to monitor the impact of conditions globally, including for example the impact of lockdowns in China, on drug supply and research activities. Due to the evolving and uncertain global impacts of the COVID-19 pandemic, however, we cannot precisely determine or quantify the impact that this pandemic has had on our business, operations and financial performance to date or the impact that this pandemic will have in 2022 and beyond.
Please refer to our risk factors set forth in Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2021 for further discussion of risks related to the COVID-19 pandemic.
Operating Expense Reductions
In addition to organizational changes and cross-functional headcount reduction that we implemented in August 2021, in March 2022, we implemented further reductions of our expenses, including a cross-functional workforce reduction of approximately 12% of our then-current employees, as well as a pipeline reprioritization. Given the breadth of our then-current tazemetostat clinical development program, we discontinued enrollment in our Phase 2 study of tazemetostat in combination with rituximab with FL in the third-line or later treatment settings (SYMPHONY-2, EZH-1401), as well as in our Phase 1/1b basket study evaluating tazemetostat combinations in patients with solid tumors (EZH-1301). We have enrolled five patients in the EZH-1401 study and one patient in the EZH-1301 study and plan to continue to follow the patients currently enrolled in each of these two studies. The decision to discontinue these studies was based on evolving market dynamics and a continued focus on optimizing our investments and eliminating potentially overlapping studies. We continue to study tazemetostat in combination with other therapies for both hematologic and solid tumor malignancies, both in ongoing Company-sponsored studies as well as investigator-initiated studies.
As part of those headcount reductions and our pipeline reprioritization, we have implemented changes to our commercial strategy, to our medical affairs and clinical development teams and to our broader organization. We remain focused on accelerating commercial adoption of TAZVERIK in appropriate patients and optimizing our investment of company resources in important clinical trials and programs, including our SYMPHONY-1 (EZH-302), CELLO-1 (EZH-1101), ARIA (EZH-1501) and SET-101 trials.
The severance and termination-related costs associated with the March 2022 workforce reduction were approximately $2.5 million. We recorded these costs in the first quarter of 2022 and expect that payments of these costs will be made through the end of the fourth quarter of 2022.
We plan to continue to implement our broader operational expense reduction effort, and to monitor and seek opportunities to further reduce our operating expenses.
Overview
We are a commercial-stage biopharmaceutical company that is committed to rewriting treatment for people with cancer through the discovery, development, and commercialization of novel epigenetic medicines. We aspire to change the standard of care for patients and physicians by developing targeted medicines with fundamentally new mechanisms of action directed at specific causes of hematological malignancies and solid tumors.
We have one approved product, TAZVERIK (tazemetostat), which was granted accelerated approval by the FDA in January 2020 for ES and in June 2020 for FL. Our focus is on maximizing our effectiveness as a commercial organization to achieve adoption of TAZVERIK among as many appropriate patients as possible, including in earlier treatment lines and in combination regimens with the data to support this expanded use; building on TAZVERIK’s pipeline-in-a-drug potential; and expanding our pipeline and evolving oncology portfolio, including with SET-101, our first-in-human Phase 1/1b trial of EZM0414, our novel, first-in-class, oral SETD2 inhibitor. We are leveraging our drug discovery platform and expertise as a leader in epigenetics, as well as our team’s deep experience across clinical development and commercialization to execute on our strategy.
In January 2020, the FDA granted accelerated approval of TAZVERIK (tazemetostat), an oral, first in class, selective small molecule inhibitor of the EZH2 histone methyltransferase, or HMT, for the treatment of adult and pediatric patients aged 16 years and older with metastatic or locally advanced ES not eligible for complete resection. This approval was based on overall response rate and duration of response data shown in the ES cohort of our Phase 2 trial in patients with INI1-negative tumors. We continue to make TAZVERIK available to eligible patients and their physicians in the United States.
As part of the accelerated approval for ES, continued approval for this indication is contingent upon verification and description of clinical benefit in a confirmatory trial. To provide this confirmatory evidence to support a full approval of TAZVERIK for this indication, we are conducting a single, randomized, controlled Phase 1b/3 confirmatory trial in the United States (EZH-301) assessing tazemetostat in combination with doxorubicin compared with doxorubicin plus placebo as a front-line treatment for ES. The trial is
32
expected to enroll approximately 152 patients. We have completed the planned enrollment in the Phase 1b safety run-in portion of the trial and the Phase 3 efficacy portion of the trial is open for accrual. We reported safety and preliminary activity data from the patients in the safety run-in portion of the EZH-301 trial at the American Society of Clinical Oncology (ASCO) Annual Meeting in June 2021.
In June 2020, the FDA approved a supplemental New Drug Application, or sNDA, for TAZVERIK for adult patients with relapsed or refractory (R/R) FL whose tumors are positive for an EZH2 mutation as detected by an FDA-approved test and who have received at least two prior systemic therapies, and adult patients with relapsed or refractory FL who have no satisfactory alternative treatment options. These indications were approved under accelerated approval with a priority review, based on overall response rate and duration of response data shown in the FL cohorts of our Phase 2 clinical trial in patients with EZH2 mutations and wild-type EZH2. We continue to make TAZVERIK available to eligible patients and their physicians in the United States.
As part of the accelerated approval for FL, continued approval for these R/R FL indications is contingent upon verification and description of clinical benefit in a confirmatory trial. To provide this confirmatory evidence to support a full approval of TAZVERIK for these indications, we are conducting a single global, randomized, adaptive Phase 1b/3 confirmatory trial (EZH-302, SYMPHONY-1) assessing the combination of tazemetostat with “R2” (lenalidomide and rituximab), an approved chemotherapy-free treatment regimen, compared with R2 plus placebo for R/R FL patients in the second-line or later treatment setting. We plan to leverage the confirmatory trial and also conduct post-marketing commitments to expand the TAZVERIK label into the second-line treatment setting.
In December 2021 we presented updated safety and activity data from the Phase 1b safety run-in portion of this confirmatory trial at the 2021 American Society of Hematology (ASH) Annual Meeting. We continue to follow the 40 patients in the Phase 1b safety run-in portion of the trial, and recently, SYMPHONY-1 was accepted for a poster presentation, which will be shared at the upcoming ASCO Annual Meeting in Chicago in June 2022 and will include updated data from the Phase 1b cohort of SYMPHONY-1. We also plan to present additional updated data from the safety run-in portion of the trial later in 2022.
We expect that the Phase 3 portion of the SYMPHONY-1 trial will be a global, randomized and adaptive confirmatory trial in 500 patients. Based on the Phase 1b safety run-in results, in December 2021 we submitted a protocol amendment to the FDA with 800 mg twice-daily as the recommended tazemetostat dose (RP3D) for the Phase 3 portion of the trial and have completed the 30-day voluntary waiting period following submission of the protocol amendment for 800 mg RP3D without any objection from the FDA. In March 2022, we dosed the first patient in the randomized Phase 3 portion of the SYMPHONY-1 trial. The SYMPHONY-1 trial is open globally and is actively screening and enrolling patients. The primary endpoint for the Phase 3 portion of the trial will be based on progression free survival as determined by investigator. Based on discussions with the FDA, this portion of the trial will include two interim analyses, the first of which is for futility only and the second of which will be conducted for futility, and if 65% of progression free survival events have occurred, the trial will also include an efficacy evaluation. In July 2021 China’s Center for Drug Evaluation, or CDE, approved the Investigational New Drug Application, or IND, we filed in China for SYMPHONY-1.
Through our planned development efforts, our intention is to eventually make TAZVERIK available in all lines of treatment for patients with FL. In collaboration with The Lymphoma Study Association, or LYSA, and based on clinical activity observed with tazemetostat in combination with R-CHOP (rituximab, cyclophosphamide, doxorubicin, vincristine and prednisolone) as a front-line treatment for patients with high risk diffuse large B-cell lymphoma, or DLBCL, LYSA is conducting a Phase 1b/2 clinical trial to evaluate this combination as a front-line treatment for high-risk patients with FL and DLBCL. The Phase 1b portion of the trial has completed, and patient enrollment in the Phase 2 portion of this trial is nearly complete, with enrollment in the FL arm complete. In collaboration with LYSA, we expect that top-line results from the Phase 2 portion of this trial will be presented at a medical conference in the second half of 2022. We are also finalizing plans for investigator-sponsored studies to evaluate tazemetostat in combination with venetoclax or BTK inhibitors for the treatment of patients with FL in the third-line or later treatment settings.
We are also developing tazemetostat for the treatment of a broad range of other cancer types in multiple treatment settings. Tazemetostat has shown meaningful clinical activity as an investigational monotherapy in multiple cancer indications and has been generally well-tolerated across clinical trials to date. We believe tazemetostat is a “pipeline in a product” opportunity and plan to explore its potential utility in additional indications and combinations.
There are four areas where we see the greatest potential for tazemetostat, all of which are based on a strong scientific hypothesis and are for patients suffering from diseases that would benefit from a new effective and safe treatment option, including:
•Lymphomas and B-cell malignancies, such as DLBCL, mantle cell lymphoma, or MCL, multiple myeloma and others;
•Molecularly defined solid tumors, such as chordoma, melanoma, mesothelioma, and tumors harboring an EZH2 or SWI/SNF alteration;
33
•PARPi-resistant tumors, such as castration-resistant prostate cancer, small cell lung cancer, and others; and
•Immuno-oncology sensitive tumors, such as small cell lung cancer, prostate cancer and others.
As part of these broader tazemetostat development efforts, we are conducting a global, multi-center, open-label randomized Phase 1b/2 trial (EZH-1101, CELLO-1). The Phase 2 efficacy portion of the CELLO-1 trial, which is evaluating tazemetostat plus enzalutamide compared to enzalutamide monotherapy in patients with metastatic castration-resistant prostate cancer, or mCRPC, is 85% enrolled toward a target of 80 patients and we expect to complete enrollment in the randomized Phase 2 portion of the trial in 2022. We plan to present updated data from the safety run-in portion of the trial as well as interim data from the Phase 2 portion of the trial in the second half of 2022.
To efficiently evaluate tazemetostat’s potential safety and efficacy across multiple types of hematological malignancies, we initiated a signal-finding Phase 1b/2 basket study (ARIA, EZH-1501) evaluating tazemetostat with multiple combinations in hematological malignancies in December 2021. We continue to screen patients for enrollment in this study, and we plan to provide updates in the second half of 2022.
We own the global development and commercialization rights to tazemetostat outside of Japan and greater China. Eisai Co. Ltd, or Eisai, holds the rights to develop and commercialize tazemetostat in Japan, and Hutchmed Limited (formerly known as Hutchison China MediTech Investment Limited), or HutchMed, holds certain rights to develop and commercialize tazemetostat in greater China.
TAZVERIK is available to eligible patients in the United States via a specialty distribution network. Through this specialty distribution network, we sell TAZVERIK principally to a limited number of specialty pharmacies, which dispense the product directly to patients, and specialty distributors, which in turn sell the product to hospital pharmacies and community practice pharmacies for the treatment of patients. To commercialize TAZVERIK for the approved ES and FL indications in the United States, we have built a focused field presence and marketing capabilities.
On August 7, 2021, we entered into a strategic collaboration pursuant to a license agreement with HutchMed through which we granted a license to HutchMed for the co-exclusive (with us) development and exclusive commercialization of tazemetostat, either as monotherapy or as a part of combinations with other therapies, including HutchMed proprietary compounds, agreed by us and HutchMed for the treatment of ES, FL and DLBCL in humans, and any additional indications agreed to by us and HutchMed in mainland China, Taiwan, Hong Kong and Macau, or the HutchMed Territory. On May 6, 2022, we agreed with HutchMed to amend the terms of the HutchMed license agreement to clarify certain development and regulatory responsibilities of the parties in the HutchMed Territory, among other things.
For other geographies outside the United States, we are evaluating the most efficient path to obtain marketing approval, commercialize and distribute TAZVERIK to reach patients, including pursuing potential strategic collaborations. Based on comparators and the regulatory landscape, we have decided not to pursue marketing approval of tazemetostat as monotherapy from the European Medicines Agency, or EMA at this time.
Beyond tazemetostat, we are utilizing our drug discovery platform to progress preclinical efforts and discover and identify additional product candidates to expand our pipeline of inhibitors against several classes of chromatin modifying proteins, or CMPs, including HMTs, histone acetyltransferases, or HATs, and helicases.
Our most advanced product candidate, EZM0414, is a novel first-in-class oral inhibitor of the SETD2 HMT.
SETD2 is an HMT that plays multiple important roles in oncogenesis. Based on the potential of SETD2 inhibition demonstrated in multiple preclinical settings, including multiple myeloma, and in particular high risk t(4;14) multiple myeloma and in other B-cell malignancies such as DLBCL, as well as in combination with existing and emerging therapies including tazemetostat, we submitted an IND for EZM0414 to the FDA in July 2021. We received “study may proceed” from the FDA with respect to our IND for EZM0414 in July 2021. In October 2021, EZM0414 was granted Fast Track designation by the FDA in adult patients with relapsed or refractory DLBCL and in January 2022 we received orphan drug designation from the FDA for EZM0414 for the treatment of multiple myeloma. In the fourth quarter of 2021, we initiated a Phase 1/1b trial (SET-101) intended to evaluate the safety and optimize the dose and schedule of EZM0414 in R/R multiple myeloma and DLBCL patients. The Phase 1 portion of our SET-101 trial is a Bayesian optimal interval dose escalation design and includes six planned dose levels ranging from 100 mg to 900 mg once daily. Once we have optimized the dose, we then expect to expand the trial to two patient cohorts in multiple myeloma: t(4;14) multiple myeloma and non t(4;14) multiple myeloma. Based on dose optimization data from the trial, we may add a third patient cohort in DLBCL. We continue to screen patients for enrollment for the Phase 1 dose escalation portion of the SET-101 trial, which we expect will enroll between 30-36 patients. We plan to provide updates on the trial in the second half of 2022.
34
To date we have entered into various strategic collaborations, including with Eisai, HutchMed, Roche and other third parties. As one of several key aspects of our strategy, we plan to continue to leverage our existing collaborations and to seek to identify new potential strategic collaborations to further support and grow our business in and outside of the United States.
Through March 31, 2022, in addition to revenues from product sales, we have raised an aggregate of $1,650.2 million to fund our operations. This includes $268.8 million of non-equity funding through our collaboration agreements, $368.1 million of funding, consisting of $150.0 million in equity funding received through agreements with RPI Finance Trust, or RPI, and $218.1 million in debt financing received through a loan agreement with BioPharma Credit Investments V (Master) LP and BPCR Limited Partnership (as transferee of BioPharma Credit Investments V (Master) LP’s interest as a lender), or the Lenders, $937.3 million from the sale of common stock and Series A Preferred Stock in our public and at-the-market offerings and $76.0 million from the sale of redeemable convertible preferred stock in private financings prior to our initial public offering in May 2013.
As of March 31, 2022, we had $199.7 million in cash, cash equivalents and marketable securities. In January 2022, the Company raised approximately $79.5 million in net proceeds (after deducting underwriting discounts and commissions and estimated offering costs) from the sale of 56,666,667 shares of its common stock in a public offering at a price of $1.50 per share.
We commenced active operations in early 2008, and since inception, have incurred significant operating losses. Our net loss was $55.5 million for the three months ended March 31, 2022. As of March 31, 2022, our accumulated deficit totaled $1,295.3 million. Notwithstanding our sales of TAZVERIK, we expect to continue to incur significant expenses and operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect our expenses to increase in connection with our ongoing activities, particularly as we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. In addition, we expect our expenses to increase as we fund our tazemetostat development program; make any milestone and royalty payments provided for and achieved under the amended and restated collaboration and license agreement with Eisai; pay interest and principal associated with our amended and restated loan agreement with BioPharma Credit Investments V (Master) LP, BPCR Limited Partnership and BioPharma Credit PLC, or the Amended and Restated Loan Agreement; and continue research and development and initiate clinical trials of, and seek regulatory approval for, any future product candidates.
Funding Agreements with BioPharma Credit Investments V (Master) LP, BPCR Limited Partnership, BioPharma Credit PLC and RPI Finance Trust
We executed the RPI Purchase Agreement on November 4, 2019. Pursuant to the RPI Purchase Agreement, we sold to RPI 6,666,667 shares of our common stock and a warrant to purchase up to 2,500,000 shares of our common stock at an exercise price of $20.00 per share, or the Common Stock Warrant. We also sold our rights to receive royalties from Eisai with respect to net sales by Eisai of tazemetostat products in Japan, or the Japan Royalty, pursuant to the amended and restated collaboration and license agreement between us and Eisai, dated as of March 12, 2015, or the Eisai License Agreement. In consideration for the sale of shares of our common stock, the Common Stock Warrant and the Japan Royalty, RPI paid us $100.0 million upon the closing of the RPI Purchase Agreement in November 2019. In addition, RPI agreed, in connection with RPI’s acquisition from Eisai of the right to receive royalties from us under the Eisai License Agreement, to reduce our royalty obligation by low single digits upon the achievement of specified annual net sales levels. We also had the option to sell to RPI $50.0 million of shares of common stock for an 18-month period beginning November 4, 2019, or the Put Option. On February 11, 2020, we sold 2,500,000 shares of common stock to RPI for an aggregate of $50.0 million in proceeds at a sale price of $20.00 per share of common stock pursuant to the Put Option.
On November 4, 2019, we also entered into a Loan Agreement with BioPharma Credit PLC, or the Collateral Agent, and the Lenders, providing for up to $70.0 million in secured term loans to be advanced in up to three tranches, or the Loan Agreement. We borrowed $70.0 million in the aggregate under the three tranches pursuant to the Loan Agreement.
On November 3, 2020, we, the Collateral Agent and the Lenders amended and restated the Loan Agreement, or, as amended and restated, the Amended and Restated Loan Agreement. The Amended and Restated Loan Agreement provides for, among other things, an additional secured term loan facility of $150.0 million, or the Tranche D Loan. On November 18, 2020, we borrowed the Tranche D Loan.
The obligations under the Amended and Restated Loan Agreement remain secured by a first priority security interest that was granted at the time of the Loan Agreement in and a lien on substantially all of our assets, subject to certain exceptions.
The Amended and Restated Loan Agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default applicable to us and our subsidiaries. If an event of default occurs and is continuing, the Collateral Agent under the Amended and Restated Loan Agreement may, among other things, accelerate the loans and foreclose on the
35
collateral. See Note 14, Long-Term Debt, of the notes to our consolidated financial statements included in this Quarterly Report on Form 10-Q for a description of the key terms of the Amended and Restated Loan Agreement.
Results of Operations
Revenues
The following is a comparison of total revenues for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
|
(In millions) |
|
Product revenues, net |
|
$ |
8.7 |
|
|
$ |
6.2 |
|
|
$ |
2.5 |
|
Collaboration and other revenue |
|
|
0.0 |
|
|
|
1.4 |
|
|
$ |
(1.4 |
) |
Total revenues |
|
$ |
8.7 |
|
|
$ |
7.6 |
|
|
$ |
1.1 |
|
Product Revenues, net
Net product revenues represent U.S. sales from our sole commercial product, TAZVERIK, which was first approved by the FDA on January 23, 2020, less allowances and accruals. During the three months ended March 31, 2022 and 2021, net product revenues were $8.7 million and $6.2 million, respectively. The $2.5 million increase reflects the increase in TAZVERIK product sales following its approval TAZVERIK for ES in January 2020 and the approval of TAZVERIK for FL in June 2020. The increase includes product revenue during the 2022 period of $0.5 million related to the sale of commercial product by one of our customers to a third-party pharmaceutical company for use in its clinical trials. Sales allowances and accruals consisted of patient financial assistance, distribution fees, discounts, and chargebacks.
Collaboration and Other Revenue
Our collaboration and other revenue during the periods included amounts recognized from deferred revenue related to upfront payments for licenses or options to obtain licenses in the future, research and development services revenue earned, milestone payments earned under collaboration and license agreements with our collaboration partners and revenue from the sale of tazemetostat active pharmaceutical ingredient (API) and drug product to our licensees and collaborators.
In the three months ended March 31, 2022 and 2021, we recognized $0.0 and $1.4 million, respectively, in collaboration and other revenue. The collaboration and other revenue in the three months ended March 31, 2022 consists of less than $0.1 million of non-cash royalties from net sales of tazemetostat in Japan. The collaboration and other revenue of $1.4 million in the three months ended March 31, 2021 was recognized as part of our supply agreement with Eisai for the manufacture and supply of tazemetostat and technical support services.
Cost of Revenue
The following is a comparison of cost of revenue for the three months ended March 31, 2022 and 2021:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
|
(In millions) |
|
Cost of product revenue |
|
$ |
2.6 |
|
|
$ |
2.1 |
|
|
$ |
0.5 |
|
Cost of other revenue |
|
|
— |
|
|
|
0.8 |
|
|
|
(0.8 |
) |
Total cost of revenue |
|
$ |
2.6 |
|
|
$ |
2.9 |
|
|
$ |
(0.3 |
) |
The cost of revenue primarily consists of costs related to our product revenue for the sales of TAZVERIK and sales of tazemetostat API and finished goods to our collaborators or licensors. These costs include materials, labor, manufacturing overhead, amortization of milestone payments, and royalties payable on net sales of TAZVERIK. During the three months ended March 31, 2022 and 2021, the cost of product revenue was $2.6 million and $2.1 million, respectively, and consisted of $0.3 million and $0.1 million, respectively, in costs associated with manufacturing TAZVERIK, $1.0 million and $1.0 million, respectively, in amortization expense related to the two $25.0 million milestone payments we paid under our agreement with Eisai upon regulatory approval of TAZVERIK
36
for ES and upon regulatory approval of TAZVERIK for FL, and $1.3 million and $0.9 million, respectively, in worldwide royalties due under the Eisai License Agreement on net sales of TAZVERIK. Cost of other revenue during the three months ended March 31, 2021 consisted of $0.8 million of costs related to sales of tazemetostat drug product to Eisai. We did not have cost of other revenues in the three months ended March 31, 2022.
Research and Development
Research and development expenses consist of expenses incurred in performing research and development activities, including clinical trials and related clinical manufacturing expenses, fees paid to external providers of research and development services, third-party clinical research organizations, or CROs, compensation and benefits for full-time research and development employees, facilities expenses, overhead expenses, and other outside expenses. Most of our research and development costs are external costs, which we track on a program-by-program basis. Our internal research and development costs are primarily compensation expenses for our full-time research and development employees, including stock-based compensation expense.
The following is a comparison of research and development expenses for the three months ended March 31, 2022 and 2021:
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|
|
|
|
|
|
|
|
|
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Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
|
(In millions) |
|
Research and development |
|
$ |
29.8 |
|
|
$ |
32.7 |
|
|
$ |
(2.9 |
) |
During the three months ended March 31, 2022, total research and development expenses decreased by $2.9 compared to the three months ended March 31, 2021. The decrease relates to increases in clinical trial expenses and discovery research activities related to tazemetostat in other indications as well as EZM0414, our SETD2 inhibitor program, which were offset by decreases in our discovery and preclinical stage product programs. Additionally, severance and termination-related costs totaling $0.8 million were recorded in the three months ended March 31, 2022 related to the March 2022 expense reductions.
The following table illustrates the components of our research and development expenses:
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|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
Product Program |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
|
(In millions) |
|
External research and development expenses: |
|
|
|
|
|
|
|
|
|
Tazemetostat and related EZH2 programs |
|
$ |
12.1 |
|
|
$ |
11.7 |
|
|
$ |
0.4 |
|
SETD2 inhibitor EZM0414 program |
|
|
1.2 |
|
|
|
- |
|
|
|
1.2 |
|
Discovery and preclinical stage product programs, collectively |
|
|
1.7 |
|
|
|
5.9 |
|
|
|
(4.2 |
) |
Unallocated personnel and other expenses |
|
|
14.8 |
|
|
|
15.1 |
|
|
|
(0.3 |
) |
Total research and development expenses |
|
$ |
29.8 |
|
|
$ |
32.7 |
|
|
$ |
(2.9 |
) |
External research and development expenses include external manufacturing costs related to the acquisition of active pharmaceutical ingredient and manufacturing of clinical drug supply, ongoing clinical trial costs, discovery and preclinical research in support of the tazemetostat, EZM0414 program, and other pipeline preclinical programs and expenses associated with our companion diagnostic program.
37
External research and development expenses for tazemetostat and related EZH2 programs increased $0.4 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase for the three months ended March 31, 2022 relates to increases in clinical trial expenses related to tazemetostat in other indications.
External research and development expenses for EZM0414 increased $1.2 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. We designated the program as a clinical development program in the third quarter of 2021. Prior to the designation of the program as a clinical development program, we allocated costs related to EZM0414 to external research and development expenses for discovery and preclinical stage product programs.
External research and development expenses for discovery and preclinical stage product programs decreased by $4.2 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The decrease in the three months ended March 31, 2022 is primarily related to a decrease in spending for discovery research activities combined with reduced preclinical costs in connection with EZM0414 as a result of the designation of EZM0414 as a clinical development program in the third quarter of 2021.
Unallocated personnel and other expenses are comprised of compensation expenses for our full-time research and development employees and other general research and development expenses. Unallocated personnel and other expenses during the three months ended March 31, 2022 decreased $0.3 million compared to the three months ended March 31, 2021. The decrease was a result of decreases in facilities and equipment related expenses and in unallocated personnel costs and an increase in the allocation of expenses to projects.
We expect that research and development expenses will decrease through 2022, as we continue to implement our operating expense reductions and re-prioritize our investment of company resources in important clinical trials and programs, including our SYMPHONY-1 (EZH-302), CELLO-1 (EZH-1101), ARIA (EZH-1501) and SET-101 trials.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, intellectual property, business development and support functions. Other selling, 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, including intellectual property and general legal services.
The following is a comparison of selling, general and administrative expenses for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
|
(In millions) |
|
Selling, general and administrative |
|
$ |
27.2 |
|
|
$ |
36.4 |
|
|
$ |
(9.2 |
) |
For the three months ended March 31, 2022, our selling, general and administrative expenses decreased $9.2 million, compared to the three months ended March 31, 2021. The decrease for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 is due to the cross-functional expense reductions starting in August of 2021 and the related decrease in external expenses and personnel related expenses across our selling, general and administrative departments. The decrease was partially offset by severance and termination-related costs totaling $1.7 million which were recorded in the three months ended March 31, 2022 related to the March 2022 cost reduction plan.
We expect that selling, general and administrative expenses will decrease through 2022, as we implement changes to our commercial strategy and organization in an effort to accelerate commercial adoption of TAZVERIK in appropriate patients as well as an operational cost reduction across general and administrative functions as part of our prioritization of our investment of company resources in what we believe to be our most important value-driving clinical trials and programs.
38
Other (Expense) Income, Net
The following is a comparison of other (expense) income, net for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
|
(In millions) |
|
Other (expense) income, net |
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
— |
|
Interest expense |
|
|
(5.6 |
) |
|
|
(5.5 |
) |
|
|
(0.1 |
) |
Other expense, net |
|
|
(0.1 |
) |
|
|
— |
|
|
|
(0.1 |
) |
Change in fair value of warrants to purchase common stock |
|
|
1.4 |
|
|
|
— |
|
|
|
1.4 |
|
Non-cash interest expense related to sale of future royalties |
|
|
(0.4 |
) |
|
|
(0.5 |
) |
|
|
0.1 |
|
Other (expense) income, net |
|
$ |
(4.6 |
) |
|
$ |
(5.9 |
) |
|
$ |
1.3 |
|
Other (expense) income, net consists of interest income earned on our cash equivalents and marketable securities, interest expense related to our long-term debt obligations, non-cash changes in the fair value of warrant liabilities and non-cash interest expense related to the sale of future royalties. There was a $1.3 million decrease in other expense for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, principally due to income recognized for the $1.4 million decrease in fair value of warrant liability. This decrease in other expense was partially offset by a $0.1 million increase in interest expense during the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
Income Tax Expense
We recorded a federal and state income tax provision for the three months ended March 31, 2022 of less than $0.1 million due to the expected and known loss before income taxes to be incurred, or incurred, as applicable, for the year ended December 31, 2022, as well as our continued maintenance of a full valuation allowance against our net deferred tax assets, with the exception of the deferred tax asset related to alternative minimum tax credit. We did not record a federal or state income tax provision or benefit for the three months ended March 31, 2021 due to the expected and known loss before income taxes to be incurred, or incurred, as applicable, for the year ended December 31, 2021, as well as our continued maintenance of a full valuation allowance against our net deferred tax assets, with the exception of the deferred tax asset related to alternative minimum tax credit.
Liquidity and Capital Resources
Through March 31, 2022, in addition to revenues from product sales, we have raised an aggregate of $1,650.2 million to fund our operations. This includes $268.8 million of non-equity funding through our collaboration agreements, including the $25.0 million upfront payment received from HutchMed in September 2021, $368.1 million of funding, consisting of $150.0 million in equity funding received through agreements with RPI and $218.1 million in debt financing received through a loan agreement with BioPharma Credit Investments V (Master) LP and BPCR Limited Partnership (as transferee of BioPharma Credit Investments V (Master) LP’s interest as a lender), $937.3 million from the sale of common stock and Series A Preferred Stock in our public offerings and at-the-market offerings and $76.0 million from the sale of redeemable convertible preferred stock in private financings prior to our initial public offering in May 2013. As of March 31, 2022, we had $199.7 million in cash, cash equivalents and marketable securities.
In January 2022, we raised approximately $79.5 million in net proceeds (after deducting underwriting discounts and commissions and estimated offering costs, but excluding any expenses and other costs reimbursed by the underwriters) from the sale of 56,666,667 shares of our common stock in a public offering at a price of $1.50 per share.
On May 6, 2021, we entered into the ATM Sale Agreement with Jefferies to sell, from time to time, shares of our common stock having an aggregate offering price of up to $200,000,000 through an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended, under which Jefferies would act as sales agent. The shares that may be sold under the ATM Sale Agreement, if any, are issued and sold pursuant to our shelf registration statement on Form S-3 that was declared effective by the SEC on May 13, 2021. From the initiation of the ATM Offering through March 31, 2022, we have issued and sold 5,314,135 shares under the ATM Offering, resulting in aggregate net proceeds of $18.3 million after deducting issuance costs of $0.6 million.
In addition to our existing cash, cash equivalents and marketable securities, we are eligible to earn milestone payments under our collaboration agreement with HutchMed. Our ability to earn these payments and the timing of earning these payments is dependent upon the outcome of our research and development activities and is uncertain at this time.
39
Funding Requirements
Our primary uses of capital are clinical trial costs, third-party research and development services, expenses related to commercialization, debt service obligations, compensation and related expenses, laboratory and related supplies, legal and other regulatory expenses and general overhead costs.
Because the continued approval of TAZVERIK in the approved indications is contingent upon verification and description of clinical benefit in confirmatory trials, and because we are developing tazemetostat for other indications, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of TAZVERIK for the approved indications or the indications that we are exploring or that we may plan to explore. Because EZM0414 is an early clinical product candidate and any future product candidates are in various stages of preclinical development with uncertain outcomes, we also cannot estimate the actual amounts necessary to successfully complete the development and commercialization of EZM0414 or future product candidates. Because of these uncertainties, we also cannot estimate whether, or when, we may achieve profitability. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements. Except for any obligations of our collaborators to make license, milestone or royalty payments under our agreements with them, we do not have any committed external sources of liquidity. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise any additional funds that may be needed through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Outlook
Based on our current operating plan, we expect that our existing cash, cash equivalents and marketable securities as of March 31, 2022, will be sufficient to fund our planned operating expenses and capital expenditure requirements and pay our debt service obligations as they become due into the third quarter of 2023, without giving effect to any potential milestone payments we may receive under our collaboration agreements. We have based this estimate on assumptions that may prove to be wrong, such as the revenue that we expect to generate from the sale of our products, or as to our clinical development costs, particularly as the process of testing drug candidates in clinical trials is costly and the timing of progress in these trials is uncertain. As a result, we could use our capital resources sooner than we expect.
Cash Flows
The following is a summary of cash flows for the three months ended March 31, 2022 and 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
|
Change |
|
|
|
(In millions) |
|
Net cash (used in) operating activities |
|
$ |
(59.2 |
) |
|
$ |
(75.6 |
) |
|
$ |
16.4 |
|
Net cash provided by investing activities |
|
|
(44.2 |
) |
|
|
(20.3 |
) |
|
|
(23.9 |
) |
Net cash provided by financing activities |
|
|
82.5 |
|
|
|
1.4 |
|
|
|
81.1 |
|
Net Cash Used in Operating Activities
Net cash used in operating activities was $59.2 million during the three months ended March 31, 2022 compared to $75.6 million during the three months ended March 31, 2021. The decrease in net cash used in operating activities primarily relates to our net loss of $55.5 million, changes in working capital of $9.6 million, and the $1.4 million change in fair value of warrants, partially offset by net depreciation and amortization of $1.6 million, non-cash stock-based compensation of $5.3 million, and non-cash interest expense associated with the sale of future royalties of $0.4 million.
Net cash used in operating activities during the three months ended March 31, 2021 primarily relates to our net loss of $70.3 million, changes in working capital of $14.6 million, partially offset by net depreciation and amortization of $1.8 million, non-cash stock-based compensation of $7.0 million, and non-cash interest expense associated with the sale of future royalties of $0.5 million.
40
Net Cash Provided by Investing Activities
Net cash used in investing activities during the three months ended March 31, 2022 reflects maturities of available-for-sale securities of $47.8 million, offset by $92.0 million of purchases of available-for-sale securities, and less than $0.1 million of purchases of property and equipment.
Net cash provided by investing activities during the three months ended March 31, 2021 reflects maturities of available-for-sale securities of $100.4 million, offset by $120.6 million of purchases of available-for-sale securities, and $0.1 million of purchases of property and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities of $82.5 million during the three months ended March 31, 2022 primarily reflects net proceeds from the sale of common stock through a public offering and under the ATM Sale Agreement of $82.3 million, and the purchases of shares under our employee stock purchase plan of $0.4 million, partially offset by the payment of offering costs of $0.2 million related to the public offering.
Net cash provided by financing activities of $1.4 million during the three months ended March 31, 2021 reflects cash received from the purchases of shares under our employee stock purchase plan of $1.3 million and stock option exercises of $0.2 million.
Critical Accounting Estimates
Our management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the balance sheets and the reported amounts of collaboration revenue, inventory and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances at the time such estimates are made. Actual results and outcomes may differ materially from our estimates, judgments and assumptions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in the consolidated financial statements prospectively from the date of the change in estimate.
We define our critical accounting policies as those accounting principles generally accepted in the United States of America that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. Management has determined that our most critical accounting policies are those relating to revenue recognition, research and development expenses, including our accounting for clinical trial expense and accruals, inventory and going concern. As our clinical development plan for tazemetostat and EZM0414 progresses, we expect research and development expenses and, in particular, our accounting for clinical trial accruals to be an increasingly important critical accounting policy.
During the three months ended March 31, 2022, there have been no material changes with respect to our critical accounting estimates disclosed in our Annual Report on Form 10-K for our fiscal year ended December 31, 2021.
Recently Adopted Accounting Pronouncements
For detailed information regarding recently issued accounting pronouncements and the expected impact on our condensed consolidated financial statements, see Note 2, Summary of Significant Accounting Policies—Recently Adopted Accounting Pronouncements, in the accompanying Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
41