POSEIDA THERAPEUTICS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q) – Marketscreener.com

The following discussion and analysis of our financial condition and results ofoperations should be read in conjunction with our unaudited condensedconsolidated financial statements and related notes appearing elsewhere in thisQuarterly Report on Form 10-Q and our audited consolidated financial statementsand the related notes thereto included in our Annual Report on Form 10-K for theyear ended December 31, 2021, or 2021 Annual Report, as filed with theSecurities and Exchange Commission, or SEC. Operating results are notnecessarily indicative of results that may occur in future periods. Thisdiscussion, particularly information with respect to our future results ofoperations or financial condition, business strategy and plans and objectives ofmanagement for future operations, includes forward-looking statements thatinvolve risks and uncertainties as described under the heading "Special NoteRegarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q. Youshould review the disclosure under the heading "Risk Factors" in this QuarterlyReport on Form 10-Q for a discussion of important factors that could cause ouractual results to differ materially from those anticipated in theseforward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company dedicated to utilizing ourproprietary genetic engineering platform technologies to create next-generationcell and gene therapeutics with the capacity to cure. We were incorporated inDecember 2014 and subsequently spun out from Transposagen, a company that hasbeen developing genetic engineering technologies since 2003. Since ourinception, our operations have focused on organizing and staffing our company,business planning, raising capital, in-licensing, developing and acquiringintellectual property rights and establishing and protecting our intellectualproperty portfolio, developing our genetic engineering technologies, identifyingpotential product candidates and undertaking research and development andmanufacturing activities, including preclinical studies and clinical trials ofour product candidates, and engaging in strategic transactions. We do not haveany product candidates approved for sale and have not generated any revenue fromproduct sales.

We have discovered and are developing a broad portfolio of product candidates ina variety of indications based on our core proprietary platforms, including ournon-viral piggyBac DNA Delivery System, Cas-CLOVER Site-specific Gene EditingSystem and nanoparticle and AAV-based gene delivery technologies. Our coreplatform technologies have utility, either alone or in combination, across manycell and gene therapeutic modalities and enable us to engineer our portfolio ofproduct candidates that are designed to overcome the primary limitations ofcurrent generation cell and gene therapeutics.

Within cell therapy, we believe our technologies allow us to create productcandidates with engineered cells that engraft in the patient's body and drivelasting durable responses that may have the capacity to result in singletreatment cures. Our CAR-T therapy portfolio consists of both autologous andallogeneic, or off-the-shelf, product candidates. We are advancing a broadpipeline and have multiple CAR-T product candidates in the clinical phase inboth hematological and solid tumor oncology indications. Within gene therapy, webelieve our technologies have the potential to create next-generation therapiesthat can deliver long-term, stable gene expression that does not diminish overtime and that may have the capacity to result in single treatment cures.

Our most advanced investigational clinical programs are:

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We manufacture these product candidates using our non-viral piggyBac DNADelivery System. Our fully allogeneic CAR-T product candidates are developedusing well-characterized cells derived from a healthy donor as starting materialwith the goal of enabling treatment of potentially hundreds of patients from asingle manufacturing run. Doses are cryopreserved and stored at treatmentcenters for future off-the-shelf use. In addition, our allogeneic productcandidates use our proprietary Cas-CLOVER site-specific Gene Editing System toreduce or eliminate reactivity, as well as our booster molecule technology formanufacturing scalability.

Our most advanced preclinical cell therapy program is:

Our gene therapy product candidates have been developed by utilizing ourpiggyBac technology together with AAV to overcome the major limitations oftraditional AAV gene therapy. We believe that our approach can result inintegration and long-term stable expression at potentially much lower doses thanAAV technology alone, thus also conferring cost and tolerability benefits. Oureventual goal is to completely replace AAV with our non-viral nanoparticletechnology, freeing future product development in gene therapy of AAVlimitations.

Our most advanced gene therapy programs are:

We expect our expenses and losses to increase substantially for the foreseeablefuture as we continue our development of, and seek regulatory approvals for, ourproduct candidates, including P-PSMA-101 and P-MUC1C-ALLO1, and begin tocommercialize any approved products. While we anticipate an overall increase indevelopment costs as we continue to expand the number of product candidates inour pipeline and pursue clinical development of those candidates, we expect adecrease in our development costs on a per program basis as we are transitioningto our allogeneic platform. In addition, all or some of the development costsrelated to partnered gene therapy programs and cell therapy programs will bereimbursed by Takeda and Roche, respectively. We also expect our general andadministrative expenses will increase for the foreseeable future to support ourincreased research and development and other corporate activities. Our netlosses may fluctuate significantly from quarter-to-quarter and year-to-year,depending on the timing of our clinical trials and our expenditures on otherresearch and development activities.

We do not expect to generate any revenues from product sales unless and until wesuccessfully complete development and obtain regulatory approval for P-PSMA-101and P-MUC1C-ALLO1, or any other product candidates, which will not be for atleast the next several years, if ever. If we obtain regulatory approval for anyof our product candidates, we expect to incur significant commercializationexpenses related to product sales, marketing, manufacturing and distributionactivities. Accordingly, until such time, if ever, as we can generatesubstantial product revenue, we expect to finance our operations through equityofferings, debt financings or other capital sources, including potential grants,collaborations, licenses or other similar arrangements. However, we may not beable to secure additional financing or enter into such other arrangements in atimely manner or on favorable terms, if at all. There can be no assurances thatwe will be able to secure such additional sources of funds to support ouroperations, or, if such funds are available to us, that such additionalfinancing will be sufficient to meet our needs. Our failure to raise capital orenter into such other arrangements when needed would have a negative impact onour financial condition and could force us to delay, reduce or

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terminate our research and development programs or other operations, or grantrights to develop and market product candidates that we would otherwise preferto develop and market ourselves.

The manufacturing process for our allogeneic product candidates is nearlyidentical to the process for our autologous product candidates, except for thegene editing and related steps. We work with a number of third-party contractmanufacturing organizations for production of our product candidates. We alsowork with a variety of suppliers to provide our manufacturing raw materialsincluding media, DNA and RNA components. We have completed construction of aninternal pilot GMP manufacturing facility in San Diego, California adjacent toour headquarters to develop and manufacture preclinical materials and clinicalsupplies of our product candidates for Phase 1 and Phase 2 clinical trials inthe future. We commenced GMP activity in the third quarter of 2021, however weexpect that we will continue to rely on third parties for various manufacturingneeds. In the future, we may also build one or more commercial manufacturingfacilities for any approved product candidates.

Collaboration Agreements

Roche Collaboration Agreement

In July 2022, we entered the Roche Collaboration Agreement with Roche, pursuantto which we will grant to Roche: (i) an exclusive, worldwide license undercertain of our intellectual property to develop, manufacture and commercializeallogeneic CAR-T cell therapy products from each of our existing P-BCMA-ALLO1and P-CD19CD20-ALLO1 programs, or each, a Tier 1 Program; (ii) an exclusiveoption to acquire an exclusive, worldwide license under certain of ourintellectual property to develop, manufacture and commercialize allogeneic CAR-Tcell therapy products from our existing P-BCMACD19-ALLO1 and P-CD70-ALLO1programs, or each, a Tier 2 Program; (iii) an exclusive license under certain ofour intellectual property to develop, manufacture and commercialize allogeneicCAR-T cell therapy products from the up to six Collaboration Programs, asdefined below, designated by Roche; (iv) an option for a non-exclusive,commercial license under certain limited intellectual property to develop,manufacture and commercialize certain Roche proprietary cell therapy productsfor up to three solid tumor targets to be identified by Roche, or LicensedProducts; and (v) the right of first offer for two of our early-stage existingprograms within hematologic malignancies.

For each Tier 1 Program, we will perform development activities through a Phase1 dose escalation clinical trial, and Roche is obligated to reimburse aspecified percentage of certain costs incurred by us in our performance of suchactivities, up to a specified reimbursement cap for each Tier 1 Program. Foreach Tier 2 Program, we will perform research and development activities eitherthrough selection of a development candidate for IND-enabling studies or,subject to Roche's election and payment of an option maintenance fee, throughcompletion of a Phase 1 dose escalation clinical trial. In addition, for eachTier 2 Program for which Roche exercises its option for an exclusive license,Roche is obligated to pay us an option exercise fee. For each Tier 1 Program andTier 2 Program, we will perform manufacturing activities until the completion ofa technology transfer to Roche.

The parties will conduct an initial two-year research program to explore andpreclinically test a specified number of agreed-upon next generation therapeuticconcepts relating to allogeneic CAR-T cell therapies. Subject to Roche'selection and payment of a fee, the parties would subsequently conduct a secondresearch program of 18 months under which the parties would explore andpreclinically test a specified number of additional agreed-upon next generationtherapeutic concepts relating to allogeneic CAR-T therapies. Roche may designateup to six heme malignancy-directed, allogeneic CAR-T programs from the tworesearch programs, for each of which we will perform research and developmentactivities through selection of a development candidate for IND-enablingactivities, or each, a Collaboration Program. Upon its designation of eachCollaboration Program, Roche is obligated to pay a designation fee. After wecomplete lead optimization activities for a Collaboration Program, Roche mayelect to transition such program to Roche with a payment to us or terminate it.Alternatively, Roche may elect, for a limited number of Collaboration Programs,to have us conduct certain additional development and manufacturing activitiesthrough the completion of a Phase 1 dose escalation clinical trial, in whichcase Roche will pay certain milestones and reimburse a specified percentage ofour costs incurred in connection with such development and manufacturingactivities. For each Collaboration Program, we will perform manufacturingactivities until the completion of a technology transfer to Roche.

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Under the Roche Collaboration Agreement, Roche is obligated to make an upfrontpayment to us of $110.0 million. We could also receive up to $110.0 million innear-term fees and milestone and other payments. Subject to Roche exercising itsTier 2 Program options, designating Collaboration Programs, and exercising itsoption for the Licensed Products commercial license and contingent on, amongother things, the products from the Tier 1 Programs, optioned Tier 2 Programsand Collaboration Programs achieving specified development, regulatory, and netsales milestone events, we are eligible to receive certain reimbursements, feesand milestone payments, including the near-term fees and milestone paymentsdescribed above, in the aggregate up to $6.0 billion, comprised of (i) $1.5billion for the Tier 1 Programs; (ii) $1.1 billion for the Tier 2 Programs,(iii) $2.9 billion for the Collaboration Programs; and (iv) $415 million for theLicensed Products.

We are further entitled to receive, on a product-by-product basis, tieredroyalty payments in the mid-single to low double digits on net sales of productsfrom the Tier 1 Programs, optioned Tier 2 Programs and Collaboration Programsand in the low to mid-single digits for Licensed Products, in each case, subjectto certain customary reductions and offsets. Royalties will be payable, ona product-by-product and country-by-country basis, until the latest of theexpiration of the licensed patents covering such product in such country or tenyears from first commercial sale of such product in such country.

The Roche Collaboration Agreement will become effective upon the expiration ortermination of the applicable waiting period under the Hart-Scott-RodinoAntitrust Improvements Act of 1976, as amended, and continue on aproduct-by-product and country-to-country basis until there is no remainingroyalty or other payment obligations. The Roche Collaboration Agreement includesstandard termination provisions, including for material breach or insolvency andfor Roche's convenience. Certain of these termination rights can be exercisedwith respect to a particular product or license, as well as with respect to theentire Roche Collaboration Agreement.

Takeda Collaboration Agreement

In October 2021, we entered into the Takeda Collaboration Agreement, pursuant towhich we granted to Takeda a worldwide exclusive license under ourpiggyBac, Cas-CLOVER, biodegradable DNA and RNA nanoparticle delivery technologyand other proprietary genetic engineering platforms to research, develop,manufacture and commercialize gene therapy products for certain indications,including Hemophilia A. We collaborate with Takeda to initially develop up tosix in vivo gene therapy programs and Takeda also has an option to add twoadditional programs to the collaboration. We are obligated to lead researchactivities up to candidate selection, after which Takeda is obligated to assumeresponsibility for further development, manufacturing and commercialization ofeach program.

Under the Takeda Collaboration Agreement, Takeda made an upfront payment to usof $45.0 million. Takeda is also obligated to provide funding for allcollaboration program development costs including our P-FVIII-101 program;provided that we are obligated to perform certain platform developmentactivities at our own cost. Timelines for P-FVIII-101 and other programs subjectto the Takeda Collaboration Agreement will be driven by Takeda. Under the TakedaCollaboration Agreement, we are eligible to receive preclinical milestonepayments that could potentially exceed $82.5 million in the aggregate ifpreclinical milestones for all six programs are achieved. We are also eligibleto receive future clinical development, regulatory and commercial milestonepayments of $435.0 million in the aggregate per target, with a total potentialdeal value over the course of the collaboration of up to $2.7 billion, ifmilestones for all six programs are achieved and up to $3.6 billion if themilestones related to the two optional programs are also achieved. We areentitled to receive tiered royalty payments on net sales in the mid-single tolow double digits, subject to certain standard reductions and offsets. Royaltieswill be payable, on a product-by-product and country-by-country basis, until thelatest of the expiration of the licensed patents covering such product in suchcountry, ten years from first commercial sale of such product in such country,or expiration of regulatory exclusivity for such product in such country.

In-License Agreements

Below is a summary of our key license agreements. For a more detaileddescription of these and our other license agreements, see the section titled"Business-In-License Agreements" and Note 11 to our annual consolidatedfinancial statements included in our 2021 Annual Report.

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CIRM Grant Funding

In 2017, we were granted an award in the amount of $19.8 million from CaliforniaInstitute of Regenerative Medicine, or CIRM, to support our clinical trial forP-BCMA-101. To date we have received a total of $19.7 million from this grantand we may receive up to $0.1 million in future grant payments upon closeout ofour clinical trial for this program. In the fourth quarter of 2021 we made thedecision to wind down clinical development of the P-BCMA-101 program andderecognized the liability related to amount of the award previously received.In 2018, we were granted an additional award in the amount of $4.0 million fromCIRM to support our preclinical studies for P-PSMA-101, of which we havereceived all proceeds from this grant. The terms of these awards include anoption to repay the grant or convert it to a royalty obligation uponcommercialization of the program. Based upon the terms of the grant agreements,we initially record proceeds as a liability when received and subsequentlyreassess based on our intention to repay the amounts associated with awards orconvert them to a royalty obligation.

Components of Our Results of Operations

Revenues

Collaboration Revenue

Collaboration revenue consists of revenue recognized from our collaboration andlicense agreement with Takeda and reflects the timing and pattern in which wedeliver the contractual deliverables to Takeda.

Operating Expenses

Research and Development

Research and development expenses consist primarily of external and internalcosts incurred for our research and development activities, includingdevelopment of our platform technologies, our drug discovery efforts and thedevelopment of our product candidates.

External costs include:

Internal costs include:

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We expense research and development costs as incurred. External expenses arerecognized based on an evaluation of the progress to completion of specifictasks using information provided to us by our service providers or our estimateof the volume of service that has been performed at each reporting date. Upfrontpayments and milestone payments made for the licensing of technology are relatedto clinical stage programs and expensed as research and development in theperiod in which they are incurred. Advance payments that we make for goods orservices to be received in the future for use in research and developmentactivities are recorded as prepaid expenses or other long-term assets. Theseamounts are expensed as the related goods are delivered or the services areperformed.

At any one time, we are working on multiple research programs. We track externalcosts by the stage of program, clinical or preclinical. Our internal resources,employees and infrastructure are not directly tied to any one program and aretypically deployed across multiple programs. As such, we do not track internalcosts on a specific program basis.

Product candidates in later stages of clinical development generally have higherdevelopment costs than those in earlier stages of clinical development,primarily due to CRO activity and manufacturing expenses. We expect that ourresearch and development expenses will increase substantially in connection withour planned preclinical and clinical development activities in the near term andin the future, including in connection with our ongoing Phase 1 trial ofP-PSMA-101 for the treatment of patients with mCRPC, Phase 1 trial ofP-BCMA-ALLO1 for the treatment of patients with relapsed/refractory multiplemyeloma and Phase 1 trial of P-MUC1C-ALLO1 for the treatment of patients withsolid tumor cancers and additional clinical programs expected to commence as weexpand our pipeline of drug candidates. We cannot accurately estimate or knowthe nature, timing and costs of the efforts that will be necessary to completethe preclinical and clinical development of any of our product candidates. Ourdevelopment costs may vary significantly based on factors such as:

the number and scope of preclinical and IND-enabling studies;

per patient trial costs;

the number of trials required for approval;

the number of sites included in the trials;

the countries in which the trials are conducted;

the length of time required to enroll eligible patients;

the number of patients that participate in the trials;

the drop-out or discontinuation rates of patients;

potential additional safety monitoring requested by regulatory agencies;

the duration of patient participation in the trials and follow-up;

the cost and timing of manufacturing our product candidates;

the phase of development of our product candidates;

the efficacy and safety profile of our product candidates;

the extent to which we establish additional licensing agreements; and

A change in the outcome of any of these variables with respect to thedevelopment of any of our product candidates could significantly change the coststructure and timing associated with the development of respective productcandidates. We may never succeed in obtaining regulatory approval for any of ourproduct candidates. We may obtain unexpected results from our clinical trialsand preclinical studies.

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General and Administrative

General and administrative expenses consist primarily of salaries and relatedcosts, including stock-based compensation, for personnel in executive, financeand administrative functions. General and administrative expenses also includedirect and allocated facility-related costs as well as professional fees forlegal, patent, consulting, investor and public relations, and accounting andaudit services. We anticipate that our general and administrative expenses willincrease in the future as we increase our headcount to support our continuedresearch activities and development of our product candidates, includingP-PSMA-101, P-BCMA-ALLO1 and P-MUC1C-ALLO1, and begin to commercialize anyapproved products.

Interest expense consists of interest expense on outstanding borrowings underour loan agreement and amortization of debt discount and debt issuance costs.

Other Income (Expense), Net

Other income (expense), net consists of interest income and miscellaneous incomeand expense unrelated to our core operations. Interest income is comprised ofinterest earned on our available-for-sale securities.

Results of Operations

Comparison of the Three Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations (in thousands):

Collaboration revenue of $2.7 million for the three months ended June 30, 2022represents revenue recognized from the Takeda Collaboration Agreement that weentered into in the fourth quarter of 2021 and related to the research serviceswe performed for Takeda.

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Research and Development Expenses

Preclinical stage programs and other

Total research and development expenses $ 35,008 $ 36,008 $ (1,000 )

(1) Clinical stage programs include costs related to P-BCMA-ALLO1, P-MUC1C-ALLO1,

Research and development expenses were $35.0 million for the three months endedJune 30, 2022, compared to $36.0 million for the three months ended June 30,2021. The decrease in research and development expenses of $1.0 million wasprimarily due to a decrease of $4.1 million in external costs related to ourclinical stage programs, driven mainly by the wind-down of our clinicaldevelopment activities associated with the P-BCMA-101 program, as announced inthe fourth quarter of 2021, and an early termination and accelerated expense ofa contract with one of our autologous contract manufacturers in the firstquarter of 2022, partially offset by increases in the number of ongoing clinicaltrials, including enrollment and manufacturing for the P-PSMA-101, P-BCMA-ALLO1,and the P-MUC1C-ALLO1 Phase 1 clinical trials, and a $1.7 million decrease inexternal costs related to our preclinical stage programs, driven mainly by thetransition of the P-BCMA-ALLO1 and P-MUC1C-ALLO1 programs to clinical stage. Theincrease of $4.0 million in personnel expenses was a result of an increase inheadcount which included a $0.4 million increase in stock-based compensationexpense.

General and Administrative Expenses

General and administrative expenses were $9.2 million for the three months endedJune 30, 2022, compared to $8.9 million for the three months ended June 30,2021. The increase in general and administrative expenses of $0.4 million wasprimarily due to an increase of $0.2 million in personnel expenses as a resultof an increase in headcount which included a $0.1 million increase instock-based compensation expense.

Interest Expense

Interest expense was $1.5 million for the three months ended June 30, 2022,compared to $0.8 million for the three months ended June 30, 2021 and consistedof interest on the principal balance outstanding under our term loans withOxford Finance LLC, or Oxford. The increase in interest expense of $0.7 millionwas primarily due to an increase in principal outstanding related to themodification of the terms of our loan pursuant to the 2022 Loan Agreement, asdefined below, which we entered into in February 2022.

Other Income (Expense), Net

Other income, net was less than $0.1 million for each of the three months endedJune 30, 2022 and 2021.

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Comparison of the Six Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations (in thousands):

Collaboration revenue of $4.1 million for the six months ended June 30, 2022represents revenue recognized from the Takeda Collaboration Agreement that weentered into in the fourth quarter of 2021 and related to the research serviceswe performed for Takeda.

Research and Development Expenses

Preclinical stage programs and other

Total research and development expenses $ 83,858 $ 65,103 $ 18,755

(1) Clinical stage programs include costs related to P-BCMA-ALLO1, P-MUC1C-ALLO1,

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Research and development expenses were $83.9 million for the six months endedJune 30, 2022, compared to $65.1 million for the six months ended June 30, 2021.The increase in research and development expenses of $18.8 million was primarilydue to an increase of $8.7 million in external costs related to our clinicalstage programs from an increase in the number of ongoing clinical trials,including enrollment and manufacturing for the P-PSMA-101 Phase 1, theP-BCMA-ALLO1 Phase 1, and the P-MUC1C-ALLO1 Phase 1 clinical trials, an increaseof $8.4 million in personnel expenses as a result of an increase in headcountwhich included a $1.2 million increase in stock-based compensation expense, anda $1.3 million increase in internal facilities and other costs. The increase inexternal costs related to our clinical stage programs also includes a loss on acontract termination related to an early termination and accelerated expense ofa contract with one of our autologous contract manufacturers during the sixmonths ended June 30, 2022, consisting of future contractual paymentobligations, a write off of deferred milestone payments previously made to ourautologous contract manufacturer, and an impairment of a related right-of-useasset, partially offset by the wind-down of our clinical development activitiesassociated with the P-BCMA-101 program.

General and Administrative Expenses

General and administrative expenses were $18.8 million for the six months endedJune 30, 2022, compared to $17.2 million for the six months ended June 30, 2021.The increase in general and administrative expenses of $1.5 million wasprimarily due to an increase of $1.3 million in personnel expenses as a resultof an increase in headcount which included a $0.7 million increase instock-based compensation expense.

Interest Expense

Interest expense was $2.6 million for the six months ended June 30, 2022,compared to $1.7 million for the six months ended June 30, 2021 and consisted ofinterest on the principal balance outstanding under our term loans with Oxford.The increase in interest expense of $0.9 million was primarily due to anincrease in principal outstanding related to the modification of the terms ofour loan pursuant to the 2022 Loan Agreement, as defined below, which we enteredinto in February 2022.

Other Income (Expense), Net

Other income, net was less than $0.1 million for each of the six months endedJune 30, 2022 and 2021.

Liquidity and Capital Resources

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POSEIDA THERAPEUTICS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q) - Marketscreener.com