UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

For the quarterly period ended March 31, 2016

OR

For the transition period from                      to                     

Commission File Number: 001-36644

 

CALITHERA BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

 

 

343 Oyster Point Blvd., Suite 200

South San Francisco, CA 94080

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (650) 870-1000

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of May 3, 2016, the registrant had 18,955,302 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 

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Calithera Biosciences, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2016

INDEX

 

 

 

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PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements

Calithera Biosciences, Inc.

Condensed Balance Sheets

(Unaudited)

(In thousands, except per share amounts)

 

 

 

See accompanying notes.

 

 

 

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Calithera Biosciences, Inc.

Condensed Statements of Operations

(Unaudited)

(In thousands, except per share amounts)

 

 

 

 

 

See accompanying notes.

 

 

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Calithera Biosciences, Inc.

Condensed Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

See accompanying notes.

 

 

 

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Calithera Biosciences, Inc.

Condensed Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

See accompanying notes.

 

 

 

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Calithera Biosciences, Inc.

Notes to Condensed Financial Statements

 

 

1. Organization and Basis of Presentation

Calithera Biosciences, Inc. (the “Company”) was incorporated in the State of Delaware on March 9, 2010. The Company is a clinical-stage biopharmaceutical company focused on discovering and developing novel small molecule drugs directed against tumor metabolism and tumor immunology targets for the treatment of cancer. The Company’s principal operations are based in South San Francisco, California, and it operates in one segment.

 

2. Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The interim condensed balance sheet as of March 31, 2016, and the statements of operations, comprehensive loss, and cash flows for the three months ended March 31, 2016 and 2015 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s condensed financial statements included in this report. The financial data and the other information disclosed in these notes to the financial statements related to the three-month periods are also unaudited. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016 or for any other future annual or interim period. The balance sheet as of December 31, 2015 included herein was derived from the audited financial statements as of that date. These financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Form 10-K as filed with the Securities and Exchange Commission (“SEC”).

Use of Estimates

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of financial statements in conformity with GAAP requires management 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 reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to preclinical, clinical trial and contract manufacturing accrued liabilities, fair value of common stock, income taxes, and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash equivalents.

Investments

All investments have been classified as “available-for-sale” and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its investments at the time of purchase and reevaluates such designation as of each balance sheet date. Unrealized gains and losses are excluded from net loss and are reported as a component of comprehensive loss. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in interest income, net in the statement of operations. The cost of securities sold is based on the specific-identification method. Interest on marketable securities is included in interest income, net.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents, investments and restricted cash. The Company invests in a variety of financial instruments and, by its policy, limits these financial instruments to high credit quality securities issued by the U.S. government, U.S. government-sponsored agencies and highly rated banks and corporations, subject to certain concentration limits. The Company’s cash, cash equivalents, investments and restricted cash are held by financial institutions in the United States that management believes are of high credit quality. Amounts on deposit may at times exceed federally insured limits.

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Accrued Research and Development Costs

The Company records accrued liabilities for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of preclinical and clinical studies, and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced, and include these costs in accrued liabilities in the balance sheets and within research and development expense in the statements of operations. These costs are a significant component of the Company’s research and development expenses. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers under the service agreements. The Company makes significant judgments and estimates in determining the accrued liabilities balance in each reporting period. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued costs and actual costs incurred. However, the status and timing of actual services performed, number of patients enrolled, and the rate of patient enrollments may vary from the Company’s estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of shares of common stock outstanding during the period without consideration of common stock equivalents. Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.  

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, companies will have reduced diversity in the timing and content of footnote disclosures than under today’s guidance. ASU 2014-15 is effective for the Company for the 2016 annual period and with early adoption permitted. The Company will include the required disclosures in our December 31, 2016 annual financial statements to the extent that they are applicable.

In February 2016, the FASB issued ASU 2016-02, Leases. The ASU requires management to recognize lease assets and lease liabilities by lessees for all operating leases. The ASU is effective for the annual period beginning after December 15, 2018 and interim periods therein on a modified retrospective basis. The Company is currently assessing the impact the adoption of ASU 2016-02 will have on the financial statements.

In March 2016, FASB issued ASU 2016-09, Compensation – Stock Compensation.  ASU 2016-09 simplified certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification in the statement of cash flows. ASU 2016-09 is effective for the annual period beginning after December 15, 2016, and interim periods therein. The Company is currently assessing the impact of adopting ASU 2016-09 will have on its financial statements.

 

3. Fair Value Measurements

Fair value accounting is applied for all financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Financial instruments include cash and cash equivalents, short-term investments, accounts payable and accrued liabilities that approximate fair value due to their relatively short maturities.

Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3—Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

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A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Where quoted prices are available in an active market, securities are classified as Level 1. The Company classifies money market funds as Level 1. When quoted market prices are not available for the specific security, then the Company estimates fair value by using quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third party data providers, including but not limited to, benchmark yields, interest rate curves, reported trades, broker/dealer quotes and market reference data. The Company classifies its corporate notes and U.S. government agency securities as Level 2. Level 2 inputs for the valuations are limited to quoted prices for similar assets or liabilities in active markets and inputs other than quoted prices that are observable for the asset or liability. There were no transfers between Level 1 and Level 2 during the periods presented.

The following table sets forth the fair value of our financial assets and liabilities, allocated into Level 1, Level 2 and Level 3, that was measured on a recurring basis (in thousands):

 

4. Financial Instruments

Cash equivalents, short-term investments and long-term investments, all of which are classified as available-for-sale securities, and restricted cash consisted of the following (in thousands):

 

 

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At March 31, 2016, the remaining contractual maturities of available-for-sale securities were less than two year. There have been no significant realized gains or losses on available-for-sale securities for the periods presented.  As of March 31, 2016, the Company had a total of $68.3 million in cash, cash equivalents, and investments, which includes $0.8 million in cash and $67.5 million in cash equivalents and investments.

 

5. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 

6.  Stockholders’ Equity

At-the-Market Offering

In November 2015, the Company entered into a sales agreement with Cowen and Company LLC (“Cowen”), as sales agent and underwriter, pursuant to which the Company may issue and sell shares of its common stock for an aggregate maximum offering price of $50.0 million under an at-the-market (“ATM”) offering program.  The Company will pay Cowen up to 3% of gross proceeds for any common stock sold through the sales agreement.

During the three months ended March 31, 2016, the Company sold an aggregate of 710,783 shares of common stock pursuant to the ATM program, at an average price of approximately $6.21 per share for net proceeds of $4.0 million, after deducting underwriting fees and offering expenses of $460,000.  As of March 31, 2016, $45.6 million of common stock remained available for sale under the ATM program.

 

7. Stock Based Compensation

A summary of stock option activity is as follows (in thousands, except weighted average exercise price and contractual term amounts):

 

 

Total stock-based compensation expense related to the Company’s 2010 Equity Incentive Plan, 2014 Equity Incentive Plan and the 2014 Employee Stock Purchase Plan was as follows (in thousands):

 

 

 

 

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8. Net Loss per Share

Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods as the inclusion of all potential common shares outstanding would have been anti-dilutive.

Potentially dilutive securities that were not included in the diluted per share attributable to common stockholders calculations because they would be anti-dilutive were as follows (in thousands):

 

 

 

 

9. Licensing Agreements

Symbioscience License Agreement

In December 2014, the Company entered into an exclusive license agreement with Mars, Inc., by and through its Mars Symbioscience division, or Symbioscience, under which the Company has been granted the exclusive, worldwide license to develop and commercialize Symbioscience’s portfolio of arginase inhibitors for use in human healthcare (“Symbioscience License Agreement”). Under the terms of the Symbioscience License Agreement, the Company paid Symbioscience an upfront license fee of $0.3 million, which was recorded as research and development expense in 2014. For the three months ended March 31, 2016 and 2015, the Company made a milestone payment of $0.2 million and $0, respectively, which was recorded in research and development expense in the statement of operations.

The Company may make future payments of up to $24.0 million contingent upon attainment of various development and regulatory milestones and $95.0 million contingent upon attainment of various sales milestones. Additionally, the Company will pay royalties on sales of the licensed product, if such product sales are ever achieved. If the Company develops additional licensed products, after achieving regulatory approval of the first licensed product, the Company would owe additional regulatory milestone payments and additional royalty payments based on sales of such additional licensed products.

vTv License Agreement

In March 2015, the Company entered into a License and Research agreement with High Point Pharmaceuticals, LLC and TransTech Pharma LLC, or collectively TransTech, under which the Company obtained an exclusive, worldwide license to develop and commercialize TransTech’s hexokinase II inhibitors (“vTv License Agreement”).  The agreement was subsequently assigned by TransTech to its parent company, vTv Therapeutics LLC (“vTv”).  Under the terms of the vTv License Agreement, the Company paid an initial license fee of $0.6 million in 2015.  For the three months ended March 31, 2016 and 2015, the Company recognized expense of $0 million and $0.6 million, respectively, which was recorded in research and development expense in the statement of operations.

The Company may pay potential development and regulatory milestone payments totaling up to $30.5 million for the first licensed product. vTv is eligible for an additional $77.0 million in potential sales-based milestones, as well as royalty payments, at mid-single digit royalty rates, based on tiered sales of the first commercialized licensed product. If the Company develops additional licensed products, after achieving regulatory approval of the first licensed product, the Company would owe additional regulatory milestone payments and additional royalty payments based on sales of such additional licensed products.  The Company will be responsible for the worldwide development and commercialization of the licensed products, at its cost.  

 

 

 

 

 

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You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed financial statements and related notes included in Part I, Item 1 of this report.

This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A — “Risk Factors,” and elsewhere in this report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments. We caution investors that our business and financial performance are subject to substantial risks and uncertainties.

Overview  

We are a clinical-stage pharmaceutical company focused on discovering and developing novel small molecule oncology drugs directed against tumor and immune cell targets that control key metabolic pathways in the tumor microenvironment. Tumor metabolism and tumor immunology have emerged as promising new interrelated fields for cancer drug discovery, and recent clinical successes with therapeutic agents in each field have demonstrated the potential to create fundamentally new therapies for cancer patients. We are developing agents that take advantage of the unique metabolic requirements of tumor cells and cancer-fighting immune cells such as cytotoxic T-cells. Our lead product candidate, CB-839, is an internally discovered, first-in-class inhibitor of glutaminase, a critical enzyme in tumor cells. We are currently evaluating CB-839 in Phase 1 clinical trials in solid and hematological tumors. CB-839 administered as a single agent has resulted in clinical responses in renal cell cancer and acute myeloid leukemia, and clinical benefit in several other tumor types.  We are currently enrolling patients in a series of combination Phase 1b cohorts in specific solid tumor types and AML. We are also planning to evaluate the immune-enhancing activity of CB-839 in a separate Phase 1/2 trial beginning in the second quarter of 2016.  Our second product candidate, CB-1158, is a first-in-class oral inhibitor of arginase, an enzyme that depletes the amino acid arginine, a key metabolic nutrient for T-cells. We intend to initiate a Phase 1 clincial trial with CB-1158 following the submission of an Investigational New Drug, or IND, application to the U.S. Food and Drug Administration , or FDA, planned for mid-2016. We also have a third program directed towards the development of inhibitors of the tumor metabolism target hexokinase II and ongoing research efforts that are focused on discovering additional product candidates against novel tumor and immune cell metabolism targets.

Recent Developments

CB-839

Our lead product candidate, CB-839 is a potent, selective, reversible and orally bioavailable inhibitor of human glutaminase. CB-839 binds to a unique site on glutaminase that is distinct from the site that binds glutamine, thereby reducing the potential for undesirable side effects due to inhibition of other enzymes and receptors that bind glutamine. CB-839 takes advantage of the pronounced dependency many cancers have on the nutrient glutamine for growth and survival.  In preclinical studies, CB-839 demonstrated broad antitumor activity in cell lines, inhibited the growth of human tumors in animal models, and was well tolerated in animals at doses above those shown to inhibit tumor growth. CB-839 was also synergistic with several approved cancer therapeutics that are part of the current standard of care.

The single agent safety and tolerability of CB-839 has been assessed in three Phase 1 clinical trials in patients with solid tumors (CX-839-001), multiple myeloma or non-Hodgkin’s lymphoma (CX-839-002), and acute myeloid leukemia (CX-839-003).  The optimal dose and schedule of single agent CB-839, 600-800 mg twice daily (BID) with food, has been well tolerated across all three Phase 1 studies. An initial observation of Grade 3/4 increases in liver function enzymes was reduced to a rate of <2% with this regimen. Single agent objective responses have been observed in patients with metastatic renal cell cancer (a Partial Response, or PR) and acute myeloid leukemia (a Complete Response with incomplete recovery of peripheral blood counts, or CRi). Furthermore, 60% of patients with renal cell cancer have had stable disease or better, with several patients remaining on study. We have observed long lasting stable disease in renal cell cancer patients, ranging from 63 days to more than 17 months. These results were presented in November 2015 at the combined EORTC/NCI/AACR meeting.

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In addition to single agent cohorts, we also initiated enrollment in six Phase 1b combination cohorts, one in which CB-839 is being combined with paclitaxel in patients with triple-negative breast cancer (TNBC), with everolimus (marketed as Afinitor) in renal cell cancer (RCC), with erlotinib (marketed as Tarceva) in patients with EGFR-mutated non-small cell lung cancer (NSCLC), with dexamethasone or with in patients with multiple myeloma, with pomalidomide (marketed as Pomalyst) and dexamethasone in patients with multiple myeloma, and with azacitidine (marketed as Vidaza) in front-line acute myeloid leukemia. Initial data from our single agent trials and from our combination trial in multiple myeloma were presented in 2015, and we will provide additional data from our combination trials in mid-2016.  Combination data from the Phase 1 solid tumor trial in TNBC and RCC have been accepted for presentation at the 2016 American Society of Clinical Oncology (ASCO) annual meeting. As of January 26, 2016, we enrolled a total of 180 patients across the three trials, including 147 who received CB-839 as a single agent and 33 who received CB-839 in combination with other agents.

In April 2016, we presented preclinical data at the American Association for Cancer Research (AACR).  We reported preclinical anti-tumor activity of CB-839 in combination with an anti-PD-L1 or an anti-PD-1 antibody.  The combination of CB-839 and anti-PD-L1 or anti-PD-1 substantially increased the number of tumor regressions seen in the CT-26 syngeneic colon carcinoma model.  Synergistic effects with CB-839 and anti-PD-L1 were also observed in a B16 melanoma model.  We plan to initiate a Phase 1/2 trial, CX-839-004, in the second quarter 2016 utilizing CB-839 in combination with nivolumab in patients with renal cell cancer, melanoma, and non-small cell lung cancer.

Based on data generated from an academic research group at Case Western Reserve University, single agent CB-839 inhibits the growth of colorectal carcinomas with PIK3CA mutations in immunocompromised mice, but CRC tumors with a normal PIK3CA gene were not inhibited. These results have led to an investigator-sponsored trial at Case Western Reserve University which is planned to start in the second half of 2016 and will be enrolling colorectal cancer patients with a PIK3CA mutation for treatment with a combination of CB-839 and capecitabine.

Pending input from the FDA, on the results of our Phase 1 trials, we plan to initiate one or more randomized, placebo-controlled Phase 2 clinical trials, likely in 2017, to study CB-839 in combination with approved conventional therapies and/or checkpoint inhibitors.

CB-1158

Our second product candidate, CB-1158, is a potent and selective orally bioavailable inhibitor of the enzyme arginase. Arginase depletes arginine, a nutrient that is critical for the activation and proliferation of the body’s cancer-fighting immune cells, such as cytotoxic T-cells and natural killer (NK)-cells. During normal activation of the immune system, arginase, which is expressed by suppressive myeloid immune cells, plays an important role in halting T-cell proliferation. But in many tumors, including lung, gastrointestinal, bladder, renal cancer and acute myeloid leukemia, arginase-expressing myeloid cells accumulate and maintain an immunosuppressive environment, blocking the ability of T-cells and NK-cells to kill cancer cells. We believe that inhibitors of arginase can promote an anti-tumor immune response by restoring arginine levels, thereby allowing activation of the body’s own immune cells, including cytotoxic T-cells and NK-cells.

In April 2016, we presented data at AACR which demonstrated that CB-1158 has single agent efficacy in animal models.  Inhibition of tumor growth was accompanied by an increase in the local concentration of arginine, and the induction of multiple pro-inflammatory changes in the tumor microenvironment.  CB-1158 increased CD8⁺ T-cell infiltrates in a lung tumor model.  The addition of CB-1158 to anti-CTLA-4 and anti-PD-1, significantly inhibited tumor growth and reduced metastases in a mouse model that was resistant to dual checkpoint inhibitor therapy.  CB-1158 was well tolerated as a single agent and in combination with checkpoint inhibitors in animal studies.  The compound has low clearance in mice, rats, dogs, and monkeys.  Low clearance is anticipated for CB‑1158 in humans based on excellent stability in animal and human liver cells.  Preclinical in vitro and in vivo data also predict good oral bioavailability of CB-1158 in humans. We intend to initiate a Phase 1 clinical trial with CB-1158 following the submission of an IND application to the FDA planned for mid-2016.

Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies during the three months ended March 31, 2016, as compared to those disclosed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Form 10-K dated December 31, 2015, filed with the SEC.

 

Financial Overview

 

Research and Development Expenses

 

Research and development expenses represent costs incurred to conduct research, such as the discovery and development of our product candidates. We recognize all research and development costs as they are incurred. Research and development expenses consist primarily of the following:

 

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The largest component of our total operating expenses has historically been our investment in research and development activities including the clinical development of our product candidates. We allocate to research and development expenses the salaries, benefits, stock-based compensation expense, and indirect costs of our clinical and preclinical programs on a program-specific basis, and we include these costs in the program-specific expenses. The following table shows our research and development expenses for the three months ended March 31, 2016 and 2015:

 

 

 

We expect our research and development expenses will increase in the future as we advance our product candidates into and through clinical trials, pursue regulatory approval of our product candidates, which will require a significant investment in contract manufacturing and inventory build-up related costs.

 

We have exclusive license agreements with Mars, Inc., by and through its Mars Symbioscience division, to develop and commercialize their portfolio of arginase inhibitors and with High Point Pharmaceuticals, LLC and TransTech Pharma LLC, or collectively TransTech, (which was subsequently assigned by TransTech to its parent company, vTv Therapeutics LLC) to develop and commercialize their hexokinase II inhibitors.  These license agreements will result in higher research and development expenses in the future.

 

The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for our product candidates. The probability of success of our product candidates may be affected by numerous factors, including clinical trial enrollment, clinical data, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.

 

General and Administrative Expenses

 

General and administrative expenses consist of personnel costs, allocated expenses and other expenses for outside professional services, including legal, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation. Allocated expenses consist of facilities and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies. We expect to incur additional expenses as a public company, including expenses related to compliance with the rules and regulations of the SEC and those of the NASDAQ Global Select Market on which our securities are traded, and other administration and professional services.

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Results of Operations

 

Comparison of the Three Months Ended March 31, 2016 and 2015

 

 

*    Percentage not meaningful.

 

 

Research and Development.    Research and development expenses increased $1.4 million, or 26%, from $5.6 million for the three months ended March 31, 2015 to $7.1 million for the three months ended March 31, 2016. The increase of $1.4 million was due to an increase of $1.2 million primarily related to increased development activities in our arginase inhibitors program as we plan to file an IND in mid-2016, an increase of $0.6 million in personnel-related costs primarily due to higher headcount, salary increases and stock-based compensation expense, offset by a decrease of $0.4 million related to our licensing arrangements.

 

General and Administrative.    General and administrative expenses increased $0.4 million, or 16%, from $2.2 million for the three months ended March 31, 2015 to $2.6 million for the three months ended March 31, 2016. The increase of $0.4 million was due to an increase of $0.5 million in personnel-related costs as a result of higher headcount, salary increases and stock-based compensation expense, offset by a decrease of $0.1 million in professional services primarily related to higher legal costs associated with our in-licensing agreements in 2015.

 

Interest Income.   Interest income increased $66,000, from $9,000 for the three months ended March 31, 2015 to $75,000 for the three months ended March 31, 2016.  The increase of $66,000 was primarily due to higher interest income generated from our cash equivalents and investment balances as compared to the same period in the prior year.

 

Liquidity and Capital Resources

 

As of March 31, 2016, we had cash, cash equivalents and investments totaling $68.3 million.  Our operations have been financed primarily by net proceeds from the sale of shares of our preferred stock, our initial public offering in October 2014 and our at-the-market, or ATM, offering program.

 

In November 2015, we filed a registration statement on Form S-3 with the Securities and Exchange Commission which permits the offering, issuance and sale by us of up to a maximum aggregate offering price of $150 million of our common stock. Up to $50 million of the maximum aggregate offering price of $150 million may be issued and sold pursuant to an ATM program under a sales agreement with Cowen and Company LLC, which is acting as our sales agent and underwriter. During the three months ended March 31, 2016, we sold an aggregate of 710,783 shares of common stock pursuant to the ATM program, at an average price of approximately $6.21 per share for proceeds of $4.4 million and net proceeds of $4.0 million, after deducting underwriting fees and offering expenses.  As of March 31, 2016, $145.6 million of our common stock remained available for sale pursuant to the shelf registration statement, of which $45.6 million may be sold pursuant to the ATM program, subject to certain conditions as specified in the sales agreement.

 

Our primary uses of cash are to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

 

We believe that our existing cash, cash equivalents and investments as of March 31, 2016 will be sufficient for us to meet our current operating plan for at least the next twelve months. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. In order to complete the process of obtaining regulatory approval for our product candidates and to build

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the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

 

 

 

 

 

 

 

 

We plan to continue to fund our operations and capital funding needs through equity and/or debt financing. We may also consider collaborations or selectively partnering for clinical development and commercialization. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. If we are not able to secure adequate additional funding we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could harm our business, results of operations and future prospects.

 

Cash Flows

The following table summarizes our cash flows for the periods indicated:

 

 

Cash Flows from Operating Activities

 

Cash used in operating activities for the three months ended March 31, 2016 was $7.6 million. Our net loss of $9.6 million was offset in part by non-cash charges of $1.0 million of stock-based compensation and $0.3 million for depreciation and amortization. The change in operating assets and liabilities of $0.7 million was primarily due to the timing of payments for our research and development activities.

 

Cash used in operating activities for the three months ended March 31, 2015 was $7.6 million. Our net loss of $7.9 million was offset in part by non-cash charges of $0.6 million of stock-based compensation and $0.1 million for depreciation and amortization. The change in operating assets and liabilities of $0.5 million was primarily due to the timing of payments for our research and development activities.

  

Cash Flows from Investing Activities

 

Cash provided by investing activities was $9.4 million for the three months ended March 31, 2016 and was related to the sale or maturity of investments of $22.1 million, offset by purchase of investments of $12.5 million and purchase of property and equipment of $0.2 million.

 

Cash used in investing activities was $20.5 million for the three months ended March 31, 2015 and was related to the purchase of investments of $20.4 million and purchase of property and equipment of $0.1 million.

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Cash Flows from Financing Activities

 

Cash provided by financing activities was $4.2 million for the three months ended March 31, 2016 and was primarily related to proceeds from the issuance of common stock through our ATM program.  

 

Cash provided by financing activities for the three months ended March 31, 2015 was $7,000 was related to the issuance of common stock upon the exercise of stock options.

 

Contractual Obligations and Other Commitments

 

There have been no material changes to the contractual obligations during the three months ended March 31, 2016, as compared to those disclosed in our Annual Report on Form 10-K for the year ending December 31, 2015.

 

Off-Balance Sheet Arrangements

 

During 2015 and the three months ended March 31, 2016, we did not have any off balance sheet arrangements.

 

Recent Accounting Pronouncements

 

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. In doing so, companies will have reduced diversity in the timing and content of footnote disclosures than under today’s guidance. ASU 2014-15 is effective for the 2016 annual period and with early adoption permitted. We will include the required disclosures in our December 31, 2016 annual financial statements to the extent that they are applicable.

In February 2016, the FASB issued ASU 2016-02, Leases. The ASU requires management to recognize lease assets and lease liabilities by lessees for all operating leases. The ASU is effective for the annual period beginning after December 15, 2018 and interim periods therein on a modified retrospective basis. We are currently assessing the impact the adoption of ASU 2016-02 will have on the financial statements.

In March 2016, FASB issued ASU 2016-09, Compensation – Stock Compensation.  ASU 2016-09 simplified certain aspects of the accounting for share-based payment transactions, including income taxes, classification of awards and classification in the statement of cash flows. ASU 2016-09 is effective for the annual period beginning after December 15, 2016, and interim periods therein. We are currently assessing the impact of adopting ASU 2016-09 will have on its financial statements.

 

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. Our investment policy allows us to maintain a portfolio of cash equivalents and investments in a variety of high credit quality securities issued by the U.S. government, U.S. government-sponsored agencies and highly rated banks and corporations, subject to certain concentration limits. Our investment policy prohibits us from holding auction rate securities or derivative financial instruments. As of March 31, 2016, we had cash, cash equivalents and investments of $68.3 million. A portion of our investments may be subject to interest rate risk and could fall in value if market interest rates increase. However, we believe that our exposure to interest rate risk is not significant as the majority of our investments are short-term in duration and a 1% change in interest rates would not have a significant impact on the total value of our portfolio. We actively monitor changes in interest rates. We had no outstanding debt as of March 31, 2016.  

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our President and Chief Executive Officer and our Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) prior to the filing of this quarterly report. Based on that evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective at a reasonable assurance level.

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Changes in Internal Control Over Financial Reporting.

There were no changes in our internal control over financial reporting during the quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

 

 

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PART II. – OTHER INFORMATION

 

Item 1. Legal Proceedings

From time to time, we may become involved in legal proceedings relating to claims arising from the ordinary course of business. Our management believes that there are currently no claims or actions pending against us, the ultimate disposition of which could have a material adverse effect on our results of operations, financial condition or cash flows.

 

Item 1A. Risk Factors

You should carefully consider the following risk factors, in addition to the other information contained in this report on Form 10-Q, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. If any of the events described in the following risk factors and the risks described elsewhere in this report occurs, our business, operating results and financial condition could be harmed. This report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report. The risks relating to our business set forth in our Annual Report on Form 10-K, filed with the SEC, are set forth below and are unchanged substantively as of March 31, 2016, except for those risks designated by an asterisk (*).

Risks Related to Our Financial Position and Need For Additional Capital

We have incurred significant operating losses since our inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future. We may never achieve or maintain profitability*.

Since our inception, we have incurred significant operating losses. Our net loss was $32.6 million and $9.6 million for 2015 and the three months ended March 31, 2016, respectively. As of March 31, 2016, we had an accumulated deficit of $94.1 million. To date, we have financed our operations primarily through private placements of our preferred stock, our initial public offering in October 2014 and our at-the-market program. We have devoted substantially all of our financial resources and efforts to research and development. We began Phase 1 clinical trials on our lead product candidate, CB-839, in early 2014 and expect that it will be many years, if ever, before we receive regulatory approval and have a product candidate ready for commercialization. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially if and as we:

To become and remain profitable, we must develop and eventually commercialize one or more products with significant market potential. This will require us to be successful in a range of challenging activities, including completing preclinical studies and clinical trials of our product candidates, obtaining marketing approval for these product candidates, manufacturing, marketing and selling those product candidates for which we may obtain marketing approval, and satisfying any post-marketing requirements. We may never succeed in these activities and, even if we do, may never generate revenue that is significant or large enough to achieve profitability. We are currently only in Phase 1 clinical trials for CB-839 and in preclinical studies for our arginase and hexokinase II inhibitor programs. Our failure to become and remain profitable would decrease the value of the company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.

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We will need substantial additional funding. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our product development programs or commercialization efforts*.

We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue and initiate clinical trials of and seek marketing approval for our product candidates, specifically CB-839 and as we become obligated to make milestone payments pursuant to our outstanding license agreements. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution of the approved product.

Our future capital requirements will depend on many factors, including:

Identifying potential product candidates and conducting preclinical studies and clinical trials are time consuming, expensive and uncertain processes that take years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales for any of our current or future product candidates. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenue, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if at all.

Accordingly, we will need substantial additional funding in connection with our continuing operations and to achieve our goals. As of March 31, 2016, we had cash, cash equivalents and investments of $68.3 million. We expect that our existing cash, cash equivalents, and investments will be sufficient to enable us to meet our current operating plan for at least the next 12 months. However, our existing cash and cash equivalents may prove to be insufficient for these activities. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional financing due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our operating plans.

Raising additional capital may cause dilution to our stockholders restrict our operations or require us to relinquish rights to our technologies or product candidates.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity and debt financings, as well as entering into collaborations, strategic alliances and licensing arrangements. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt 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, and may be secured by all or a portion of our assets. If we raise funds by entering into collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or through collaborations, strategic alliances or licensing arrangements 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.

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Our short operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

We were founded in March 2010 and our operations to date have been limited to organizing and staffing our company, business planning, raising capital, developing our technology, identifying potential product candidates, undertaking preclinical studies and commencing Phase 1 clinical trials of our product candidate. We have one product candidate in Phase 1 clinical trials, and all of our other programs are in research and preclinical development. We have not yet demonstrated our ability to successfully complete any clinical trials, including large-scale, pivotal clinical trials required for regulatory approval of our product candidates, obtain marketing approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Typically, it takes many years to develop one new product from the time it is discovered to when it is commercially available. Consequently, any predictions made about our future success or viability may not be as accurate as they could be if we had a longer operating history or if we had product candidates in advanced clinical trials.

In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors that may alter or delay our plans. We will need to transition from a company with a research focus to a company capable of supporting development activities and, if a product candidate is approved, a company with commercial activities. We may not be successful in any step in such a transition.

Risks Related to Drug Discovery, Development and Commercialization

Our approach to the discovery and development of product candidates that target tumor metabolism and tumor immunology is unproven and may never lead to marketable products.

Our scientific approach focuses on using our understanding of cellular metabolic pathways and the role of glutaminase and hexokinase in these pathways, as well as the role of arginase in the anti-tumor immune response, to identify molecules that are potentially promising as therapies for cancer indications. Any product candidates we develop may not effectively modulate metabolic or immunology pathways. The scientific evidence to support the feasibility of developing product candidates based on inhibiting tumor metabolism or impacting the anti-tumor immune response are both preliminary and limited. Although preclinical studies suggest that inhibiting glutaminase and hexokinase can suppress the growth of certain cancer cells, to date no company has translated this mechanism into a drug that has received marketing approval. Even if we are able to develop a product candidate in preclinical studies, we may not succeed in demonstrating the safety and efficacy of the product candidate in human clinical trials. Our expertise in cellular metabolic pathways, the role of glutaminase and hexokinase in these pathways, and the role of arginase in the anti-tumor immune response may not result in the discovery and development of commercially viable products to treat cancer.

We are very early in our development efforts, which may not be successful.

We have invested a significant portion of our efforts and financial resources in the identification of our most advanced products candidate, CB-839, which is being evaluated in three Phase 1 clinical trials and CB-1158, where we plan to file an IND in mid-2016. Our hexokinase II inhibitor program is in preclinical development. Because of the early stage of our development efforts and our unproven and novel approach to discovery and development of product candidates, we do not have a clearly defined clinical development path. It is also too early in our development efforts to determine whether our product candidates will demonstrate single-agent activity or will be developed for use in combination with other approved therapies, or both. As a result, the timing and costs of the regulatory paths we will follow and marketing approvals remain uncertain. Our ability to generate product revenue, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of CB-839 and CB-1158. The success of CB-839, CB-1158 and our hexokinase II inhibitor programs and any other product candidates we may develop will depend on many factors, including the following:

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If we do not accomplish one or more of these goals in a timely manner, or at all, we could experience significant delays or an inability to successfully commercialize our product candidates, which would harm our business.

We may not be successful in our efforts to identify or discover potential product candidates.

Our drug discovery efforts may not be successful in identifying compounds that are useful in treating cancer. Our research programs may initially show promise in identifying potential product candidates, yet fail to yield product candidates for clinical development for a number of reasons. In particular, our research methodology used may not be successful in identifying compounds with sufficient potency or bioavailability to be potential product candidates. In addition, our potential product candidates may, on further study, be shown to have harmful side effects or other negative characteristics.

Research programs to identify new product candidates require substantial technical, financial and human resources. We may choose to focus our efforts and resources on potential product candidates that ultimately prove to be unsuccessful. If we are unable to identify suitable compounds for preclinical and clinical development, we will not be able to generate product revenue, which would harm our financial position and adversely impact our stock price.

If clinical trials of our product candidates fail to demonstrate safety and efficacy to the satisfaction of regulatory authorities or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must complete preclinical development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials could occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a particular clinical trial do not necessarily predict final results of that trial.

Moreover, preclinical and clinical data are often susceptible to multiple interpretations and analyses. Many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products.

We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our product candidates, including that:

If we are required to conduct additional clinical trials or other testing of our product candidates beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may:

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Product development costs will also increase if we experience delays in testing or in receiving marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates, could allow our competitors to bring products to market before we do, and could impair our ability to successfully commercialize our product candidates, any of which may harm our business and results of operations.

If we experience delays or difficulties in enrolling patients in clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.

We may not be able to initiate or continue clinical trials for our product candidates if we are unable to identify and enroll a sufficient number of eligible patients to participate in these trials as required by the U.S. Food and Drug Administration, or FDA, or analogous regulatory authorities outside the United States. In addition, some of our competitors may have ongoing clinical trials for product candidates that would treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of our competitors’ product candidates. Patient enrollment is also affected by other factors, including:

Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether. Enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing.

If serious adverse effects or unexpected characteristics of our product candidates are identified during development, we may need to abandon or limit our development of some or all of our product candidates.

CB-839 is our only product candidate in Phase 1 clinical trials, all our other programs are in preclinical development and their risk of failure is high. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or will receive marketing approval. If our product candidates are associated with undesirable side effects or have characteristics that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many agents that initially showed promise in early stage testing for treating cancer or other diseases have later been found to cause side effects that prevented further development of the agent.

We are in early clinical trials with CB-839 and we have seen several adverse events deemed possibly or probably related to CB-839. As of November 2015, a variety of adverse events, or AEs, have been reported. In the CX839-001 study, treatment-emergent Grade ≥ 3 AEs occurring in >5% of patients included increases in liver enzymes aspartate aminotransferase (AST) and alanine aminotransferase (ALT). With a change to twice daily dosing with food, only one out of the 66 patients showed a Grade 3 liver enzyme increase. We have treated an insufficient number of patients to fully assess the safety of CB-839 and, as our trials progress, we may experience more frequent or more severe adverse events. Our ongoing trials for CB-839 may fail due to safety issues, and we may need to abandon development of CB-839. Our arginase and hexokinase II inhibitor programs may fail due to preclinical or clinical safety issues, causing us to abandon or delay the development of a product candidate from these programs.

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We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.

We have limited financial and managerial resources. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.

Even if any of our product candidates receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, third party payors and others in the medical community necessary for commercial success.

If any of our product candidates receive marketing approval, they may nonetheless fail to gain sufficient market acceptance by physicians, patients, third party payors and others in the medical community for us to achieve commercial success. For example, current cancer treatments like chemotherapy and radiation therapy for certain diseases and conditions are well established in the medical community, and doctors may continue to rely on these treatments. If our product candidates do not achieve an adequate level of acceptance, we may not generate significant product revenue to become profitable. The degree of market acceptance of our product candidates, if approved for commercial sale, will depend on a number of factors, including:

If, in the future, we are unable to establish sales and marketing capabilities or to selectively enter into agreements with third parties to sell and market our product candidates, we may not be successful in commercializing our product candidates if and when they are approved.

We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of pharmaceutical products. To achieve commercial success for any approved product for which we retain sales and marketing responsibilities, we must either develop a sales and marketing organization or outsource these functions to other third parties. In the future, we may choose to build a focused sales and marketing infrastructure to sell some of our product candidates if and when they are approved.

There are risks involved both with establishing our own sales and marketing capabilities and with entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of a product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

Factors that may inhibit our efforts to commercialize our product candidates on our own include:

If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenue or the profitability of these product revenue to us may be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our product candidates or may be unable to do so on terms that are favorable to us. We may have little control over such third parties, and any of them may fail to

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devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our product candidates.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

The development and commercialization of new drug products is highly c