PHASEBIO PHARMACEUTICALS INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations.

Edgar Glimpses |

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the periods ended and 2017 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K filed with the SEC on . Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to "we," "us," and "our" refer to PhaseBio Pharmaceuticals, Inc.

Forward-Looking Statements

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the "safe harbor" created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q and in our other filings with the SEC. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapies to treat orphan diseases, with an initial focus on cardiopulmonary indications. Our lead product candidate, PB2452, is a novel reversal agent for the antiplatelet drug ticagrelor, which we are developing for the treatment of patients on ticagrelor who are experiencing a major bleeding event or those who require urgent surgery. Based on feedback from the United States Food and Drug Administration, or FDA, we intend to seek approval of PB2452 in the United States through an accelerated approval process. In our recently completed Phase 1 clinical trial of PB2452, we observed immediate and complete reversal of ticagrelor's antiplatelet activity within five minutes following initiation of infusion, and sustained reversal for over 20 hours in dosing cohorts in which we administered PB2452 over an extended infusion period. We are currently conducting a Phase 2a clinical trial of PB2452 in healthy older and elderly subjects. In , we announced the preliminary results from the Phase 2a trial, in which a statistically significant reversal of ticagrelor was achieved within 5 minutes of initiation of PB2452 infusion and sustained for over 20 hours. Platelet function was normalized by 15 minutes following initiation of PB2452 infusion and remained normal for over 20 hours. In these cohorts, PB2452 was generally well tolerated, with only minor adverse events reported. These preliminary data are consistent with results from our previously published Phase 1 trial. The FDA granted Breakthrough Therapy designation for PB2452 in . We expect to complete our Phase 2a trial, and initiate our Phase 2b trial, in the fourth quarter of 2019. Based on feedback from the FDA, we intend to submit a Biologics License Application, or BLA, based on an interim analysis of the first 100 patients treated in our Phase 3 trial. We expect to initiate our Phase 3 trial in the first quarter of 2020. Based on an 18-month estimated enrollment timeline for the Phase 3 trial, we anticipate that we could submit our BLA for PB2452 in the second half of 2022. Our second product candidate, PB1046, is a once-weekly fusion protein currently in a Phase 2b clinical trial for the treatment of pulmonary arterial hypertension, or PAH. PB1046 utilizes our proprietary half-life extending elastin-like polypeptide, or ELP, technology, which also serves as the engine for our preclinical pipeline. We retain worldwide rights to all of our product candidates.

We have a limited operating history. Since our inception in 2002, our operations have focused on developing our clinical and preclinical product candidates and our proprietary ELP technology, organizing and staffing our company, business planning, raising capital, establishing our intellectual property portfolio and conducting clinical trials and preclinical studies. We do not have any product candidates approved for sale and have not generated any revenue from product sales. Since inception, we have financed our operations through the sale of equity and debt securities and our term loans with Silicon Valley Bank, or SVB, and WestRiver Innovation Lending Fund VIII, L.P., or WestRiver.

In 2018, we received $60.7 million in aggregate net proceeds from our initial public offering, or IPO, and the sale of Series D convertible preferred stock and $4.0 million in borrowings under our term loan with SVB. In the second quarter of 2019, we received $46.3 million in net proceeds from an underwritten public offering of our common stock and an additional $2.5 million under our term loan with SVB and WestRiver, or our 2019 Loan.


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Since our inception, we have incurred significant operating losses. Our net loss was $16.5 million for the six months ended . As of , we had an accumulated deficit of $139.4 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:

    •   continue our ongoing clinical trials of PB2452 and PB1046, as well as
        initiate and complete additional clinical trials, as needed;


    •   pursue regulatory approvals for PB2452 as a reversal agent for the
        antiplatelet drug ticagrelor and PB1046 for the treatment of PAH;


    •   seek to discover and develop additional clinical and preclinical product
        candidates;


  • scale up our clinical and regulatory capabilities;


    •   establish a commercialization infrastructure and scale up external
        manufacturing and distribution capabilities to commercialize any product
        candidates for which we may obtain regulatory approval, including PB2452
        and PB1046;


    •   adapt our regulatory compliance efforts to incorporate requirements
        applicable to any potentially marketed products;


  • maintain, expand and protect our intellectual property portfolio;


  • hire additional clinical, manufacturing and scientific personnel;


    •   add operational, financial and management information systems and
        personnel, including personnel to support our product development and
        possible future commercialization efforts; and


    •   incur additional legal, accounting and other expenses in operating as a
        public company.


Recent Developments

PB2452 Regulatory Update

We recently provided an update on our clinical development and regulatory plans for PB2452. Based on the written minutes from our End-of-Phase 1 meeting with the FDA held in , we believe that we have reached general agreement with the FDA on the overall design of our Phase 3 trial in major bleeding and urgent surgical populations to support the submission of a BLA for potential accelerated approval of PB2452. During the meeting, the FDA agreed that Accelerated Approval was the appropriate approval pathway for PB2452.

To further support safety assessments, the FDA recommended that we include 200 active treatment subjects across our Phase 1 and Phase 2 trials, which includes our planned Phase 2b trial that will begin in the fourth quarter of 2019 and run in parallel to our ongoing Phase 2a and planned Phase 3 trial. To date, approximately 50 subjects have received PB2452 in the completed Phase 1 trial and ongoing Phase 2a trial. We expect to enroll a total of 200 subjects in our Phase 2b trial, including 150 subjects who will be randomized to receive PB2452.

The FDA also recommended an assessment of PB2452 reversal in patients who may have supratherapeutic blood levels of ticagrelor as a result of ticagrelor overdosage or drug-drug interactions. Based on the pharmacokinetic and pharmacodynamic modeling conducted in earlier preclinical studies and clinical trials of PB2452, we believe we have a clear understanding of the appropriate dosing regimen to reverse the antiplatelet effects of supratherapeutic blood levels of ticagrelor and plan to address this request in our ongoing Phase 2a trial, with dosing of these subjects to begin in the third quarter of 2019. We expect to complete the Phase 2a trial in the fourth quarter of 2019.

With respect to the pivotal Phase 3 trial design, the FDA agreed with our proposed 200 patient, non-randomized, open-label trial design and the proposed pharmacodynamic, clinical and safety endpoints. The FDA also agreed with the proposed use of the VerifyNow PRUTest® biomarker as the primary endpoint for the Phase 3 trial. We have used VerifyNow PRUTest in our Phase 1 and Phase 2a clinical trials, where it demonstrated a high degree of correlation to other biomarkers used to measure platelet function. To support the BLA submission for Accelerated Approval, the FDA recommended that an interim analysis of the Phase 3 trial include data from the first 100 subjects treated with PB2452, with approximately 50 subjects from each of the major bleeding and surgical populations. To support full approval for patients with major bleeding or requiring urgent surgery, the FDA recommended enrollment of 200 total patients in the Phase 3 trial. We expect to initiate the Phase 3 trial in the first quarter of 2020; based on an estimated 18-month enrollment timeline, a BLA could potentially be submitted in the second half of 2022. For post-approval commitments, the FDA recommended the completion of the remaining portions of the Phase 3 trial and the establishment of a post-approval registry.


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FINANCIAL OVERVIEW

Components of Operating Results

Revenue

Grant Revenue

Grant revenue is derived from government grants that support our efforts on specific research projects. We recognize grant revenue when there is reasonable assurance of compliance with the conditions of the grant and reasonable assurance that the grant revenue will be received.

Revenue Under Collaborative Agreement

Revenue under collaborative agreement is derived from an agreement with our collaboration partner, ImmunoForge Co., Ltd., or ImmunoForge. We have granted ImmunoForge a license to develop certain compound indications in exchange for an upfront license payment and event-based payments subject to ImmunoForge's achievement of specified development, regulatory and sales-based milestones. In addition, we are entitled to royalties if products under the collaboration are commercialized. We recognize revenue for upfront amounts when the license is transferred to the collaboration partner. Development milestones and other fees are recognized in revenue when it is probable that the amount will not result in a significant reversal of revenue in the future. Sales-based milestones and royalties cannot be recognized until the underlying sales occur.

Research and Development Expense

Research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses include:

    •   expenses incurred under agreements with contract research organizations,
        or CROs, as well as investigative sites and consultants that conduct our
        clinical trials and preclinical studies;


    •   manufacturing and supply scale-up expenses and the cost of acquiring and
        manufacturing preclinical and clinical trial supply and potential
        commercial supply, including manufacturing validation batches;


  • outsourced professional scientific development services;


    •   employee-related expenses, which include salaries, benefits and
        stock-based compensation;


    •   licensing costs payable to third parties for use of their intellectual
        property;


  • expenses relating to regulatory activities; and


    •   facilities, laboratory materials and supplies used to support our research
        activities.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect our research and development expense to increase significantly over the next several years as we increase personnel costs, including stock-based compensation, conduct our later-stage clinical trials for PB2452 and PB1046 and conduct other preclinical studies and clinical trials and potentially prepare regulatory filings and, if approved, commence commercialization efforts for our product candidates.

The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of, or when, if ever, material net cash inflows may commence from our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of clinical trials, which vary significantly over the life of a project as a result of many factors, including:

    •   delays in regulators or institutional review boards authorizing us or our
        investigators to commence our clinical trials or in our ability to
        negotiate agreements with clinical trial sites or contract research
        organizations;


    •   our ability to secure adequate supply of our product candidates for our
        trials;


  • the number of clinical sites included in the trials;


  • the length of time required to enroll suitable patients;


  • the number of patients that ultimately participate in the trials;


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  • the number of doses patients receive;


  • any side effects associated with our product candidates;


  • the duration of patient follow-up; and


  • the results of our clinical trials.

Our expenditures are subject to additional uncertainties, including the terms and timing of regulatory approvals, and the expense of filing, prosecuting, defending and enforcing any patent claims or other intellectual property rights. We may never succeed in achieving regulatory approval for our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of our product candidates. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Product commercialization will take several years and millions of dollars in development costs.

General and Administrative Expense

General and administrative expense consists principally of salaries and related costs for personnel in executive and administrative functions, including stock-based compensation, travel expenses and recruiting expenses. Other general and administrative expense includes professional fees for legal, accounting and tax-related services and insurance costs.

We anticipate that our general and administrative expense will increase as a result of increased payroll, expanded infrastructure and higher consulting, legal and tax-related services associated with maintaining compliance with stock exchange listing and SEC requirements, accounting and investor relations costs, and director and officer insurance premiums associated with being a public company. We anticipate the additional costs for these services will increase our general and administrative expense by between $1.0 million and $2.0 million on an annual basis.

Interest Expense

Interest expense consists of interest expense on our convertible promissory notes and term loan. Following the conversion of the convertible promissory notes into shares of redeemable convertible Series D preferred stock in , we no longer recognize interest on the convertible promissory notes. We recognize interest on our term loan with SVB and WestRiver.

Change in Fair Value of Warrant and Derivative Liabilities

Change in fair value of warrant and derivative liabilities reflects the revaluation at each reporting date of our redeemable convertible preferred stock warrants and the conversion option on our convertible promissory notes, respectively. Following the conversion of our convertible promissory notes to preferred stock in , the conversion of all outstanding shares of our preferred stock into common stock, and the corresponding conversion of all outstanding preferred stock warrants into common stock warrants, in connection with the closing of our IPO in , we no longer remeasure the warrant liability or derivative liability for periods following the closing of the IPO.

License Agreements

MedImmune Limited

In , we entered into an exclusive license agreement, or the MedImmune License, with MedImmune Limited, or Medimmune, a wholly owned subsidiary of AstraZeneca plc. Pursuant to the MedImmune License, MedImmune granted us an exclusive, worldwide license under certain patent rights owned or controlled by MedImmune to develop and commercialize any products covered by the MedImmune License, or the MedImmune Licensed Products, for the treatment, palliation, diagnosis or prevention of any human disorder or condition. Under the MedImmune License, we paid MedImmune an upfront fee of $0.1 million. We are also required to pay MedImmune: quarterly fees relating to technical services provided by MedImmune; up to $18.0 million in clinical and regulatory milestone fees, $1.0 million of which was incurred in the second quarter of 2019; up to $50.0 million in commercial milestone fees; and mid-single digit to low-teen royalty percentages on net sales of MedImmune Licensed Products, subject to reduction in specified circumstances. In addition, the MedImmune License offers an option for third-party product storage costs. As of , we have incurred costs of $1.6 million under the MedImmune License.


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Duke University

In , we entered into an exclusive license agreement, or the Duke License, with Duke University, or Duke, which we most recently amended in . Pursuant to the Duke License, Duke granted us an exclusive, worldwide license under certain patent rights owned or controlled by Duke, and a non-exclusive, worldwide license under certain know-how of Duke, to develop and commercialize any products covered by the Duke License, or Duke licensed products, relating to ELPs. Under the Duke License, we paid Duke an upfront fee of $37,000, additional fees in connection with amendments to the Duke License of $0.2 million and other additional licensing fees of $0.2 million. In consideration for license rights granted to us, we initially issued Duke 24,493 shares of our common stock. Until we reached a certain stipulated equity milestone, which we reached in , we were obligated to issue additional shares of common stock to Duke from time to time so that its aggregate ownership represented 7.5% of our issued and outstanding capital stock. We are also required to pay Duke: up to $2.2 million in regulatory and clinical milestone fees; up to $0.4 million in commercial milestone fees; low single-digit royalty percentages on net sales of Duke licensed products, with minimum aggregate royalty payments of $0.2 million payable following our achievement of certain commercial milestones; and up to the greater of $0.3 million or a low double-digit percentage of the fees we receive from a third party in consideration of forming a strategic alliance with respect to certain patent rights covered under the Duke License. We also must pay Duke the first $1.0 million of non-royalty payments we receive from a sublicensee, and thereafter a low double-digit percentage of any additional nonroyalty payments we receive, subject to certain conditions. As of , we have incurred $0.3 million payable to Duke under the Duke License. We are also required to apply for, prosecute and maintain all U.S. and foreign patent rights under the Duke License.

Wacker

In , we entered into a license agreement, or the Wacker License Agreement, with Wacker Biotech GmbH, or Wacker, pursuant to which Wacker granted us an exclusive license under certain of Wacker's intellectual property rights to use Wacker's proprietary E. coli strain for the manufacture of PB2452 worldwide outside of specified Asian countries, and to commercialize PB2452, if approved, manufactured by us or on our behalf using Wacker's proprietary E. coli strain throughout the world. We have the right to grant sublicenses under the license, subject to certain conditions as specified in the Wacker License Agreement. Under the terms of the agreement, we are required to pay a fixed nominal per-unit royalty, which is subject to adjustment, and an annual license fee in a fixed Euro amount in the low to mid six digits. The agreement will be in force for an indefinite period of time, and upon the expiration of our royalty obligations, the license will be considered fully paid and will convert to a non-exclusive license. Either party may terminate the Wacker License Agreement for breach if such breach is not cured within a specified number of days. As of , we have not incurred any costs under the Wacker License Agreement.

Results of Operations

Comparison of the Three Months Ended and 2018

The following table summarizes our results of operations for the three months ended and 2018 (in thousands):



                                                    Three Months Ended
                                                         June 30,
                                                     2019          2018        Change
   Revenue:
   Grant revenue                                  $      203     $      -     $    203
   Revenue under collaborative agreement                 500            -          500
   Total revenue                                         703            -          703
   Operating expenses:
   Research and development                            7,781        3,190        4,591
   General and administrative                          2,404          917        1,487
   Total operating expenses                           10,185        4,107        6,078
   Loss from operations                               (9,482 )     (4,107 )     (5,375 )
   Other income (expense):
   Interest income                                       491           36          455
   Interest expense                                     (219 )     (1,447 )      1,228
   Foreign exchange loss                                 (22 )          -          (22 )
   Change in fair value of warrant liability               -       (1,001 )      1,001
   Change in fair value of derivative liability            -         (155 )        155
   Total other income (expense)                          250       (2,567 )      2,817
   Net loss                                       $   (9,232 )   $ (6,674 )   $ (2,558 )




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Revenue

Grant revenue was $0.2 million for the three months ended as we incurred allowable costs qualifying for reimbursement under our government grants. We did not receive any grant revenue for the three months ended . Revenue under collaborative agreement was $0.5 million for the three months ended related to the receipt of an upfront payment in under our agreement with ImmunoForge.

Research and Development Expense

Research and development expense was $7.8 million for the three months ended , compared to $3.2 million for the three months ended . The increase of $4.6 million was primarily attributable to increased costs associated with preclinical and clinical development activities largely related to PB2452 and increased personnel costs.


The following table summarizes our research and development expenses by
functional area for the three months ended  and 2018 (in
thousands):



                                                  Three Months Ended
                                                       June 30,
                                                   2019          2018       Change
      Preclinical and clinical development      $    6,290      $ 2,339     $ 3,951
      Compensation and related benefits              1,036          645         391
      Stock-based compensation                          65           36          29
      Facilities expense                               229          103         126
      Other                                            161           67          94
      Total research and development expenses   $    7,781      $ 3,190     $ 4,591



We track our external research and development expenses on a program-by-program basis. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and consumable costs, which are deployed across multiple projects under development. The following table summarizes our research and development expenses by product candidate for the three months ended and 2018 (in thousands):



                                                    Three Months Ended
                                                         June 30,
                                                   2019             2018          Change
External research and development expense by
program:
PB2452                                          $     4,609      $    1,265     $    3,344
PB1046                                                1,185             360            825
Unallocated research and development expense:
Compensation and stock-based compensation             1,101             681            420
Other research and development                          886             884              2

Total research and development expenses $ 7,781 $ 3,190 $ 4,591

General and Administrative Expense

General and administrative expense was $2.4 million for the three months ended , compared to $0.9 million for the three months ended . The increase of $1.5 million was primarily attributable to increases in professional services including legal, marketing and other consulting services, personnel expense due to additional headcount and expenses associated with being a public company.

Interest Income

Interest income was $0.5 million for the three months ended , compared to $36,000 for the three months ended . The increase of $0.5 million was attributable to higher balances of cash and cash equivalents.


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Interest Expense

Interest expense was $0.2 million for the three months ended , compared to $1.4 million for the three months ended . The decrease of $1.2 million was attributable to interest from $14.1 million in borrowings pursuant to our convertible promissory notes, which were outstanding as of . These notes were converted into shares of redeemable convertible Series D stock in and therefore were not outstanding during the three months ended . Interest for the three months ended was attributable to interest on the 2019 Loan.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability resulted in no expense for the three months ended , compared to other expense of $1.0 million for the three months ended . The preferred stock warrants were subject to remeasurement at each reporting period, with changes in fair value recorded in the condensed statement of operations. The outstanding preferred stock warrants converted into common stock warrants upon the completion of our IPO in and, accordingly, we no longer remeasure the fair value of the warrant liability.

Change in Fair Value of Derivative Liability

Change in fair value of derivative liability resulted in no expense for the three months ended , compared to $0.2 million of expense for the three months ended . The conversion option related to our convertible promissory notes was subject to remeasurement at each reporting period, with changes in fair value recorded in the condensed statement of operations. The convertible promissory notes converted into redeemable convertible preferred stock in upon the sale of the Series D redeemable convertible preferred stock and, accordingly, we no longer remeasure the fair value of the derivative liability.

Comparison of the Six Months Ended and 2018

The following table summarizes our results of operations for the six months ended and 2018 (in thousands):



                                                     Six Months Ended
                                                         June 30,
                                                    2019          2018         Change
   Revenue:
   Grant revenue                                  $     856     $       -     $    856
   Revenue under collaborative agreement                500             -          500
   Total revenue                                      1,356             -        1,356
   Operating expenses:
   Research and development                          13,502         5,425        8,077
   General and administrative                         4,720         1,560        3,160
   Total operating expenses                          18,222         6,985       11,237
   Loss from operations                             (16,866 )      (6,985 )     (9,881 )
   Other income (expense):
   Interest income                                      808            72          736
   Interest expense                                    (445 )      (2,851 )      2,406
   Foreign exchange loss                                (22 )           -          (22 )
   Change in fair value of warrant liability              -          (996 )        996
   Change in fair value of derivative liability           -          (317 )        317
   Total other income (expense)                         341        (4,092 )      4,433
   Net loss                                       $ (16,525 )   $ (11,077 )   $ (5,448 )




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Revenue

Grant revenue was $0.9 million for the six months ended as we incurred allowable costs qualifying for reimbursement under our government grants. We did not receive any grant revenue for the six months ended . Revenue under collaborative agreement was $0.5 million for the six months ended related to the receipt of an upfront payment in under our agreement with ImmunoForge.

Research and Development Expense

Research and development expense was $13.5 million for the six months ended , compared to $5.4 million for the six months ended . The increase of $8.1 million was primarily attributable to increased costs associated with preclinical and clinical development activities largely related to PB2452 and increased personnel costs.

The following table summarizes our research and development expenses by functional area for the six months ended and 2018 (in thousands):



                                                   Six Months Ended
                                                       June 30,
                                                   2019         2018       Change
       Preclinical and clinical development      $  10,604     $ 3,706     $ 6,898
       Compensation and related benefits             2,121       1,277         844
       Stock-based compensation                        111         112          (1 )
       Facilities expense                              387         202         185
       Other                                           279         128         151
       Total research and development expenses   $  13,502     $ 5,425     $ 8,077



We track our external research and development expenses on a program-by-program basis. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and consumable costs, which are deployed across multiple projects under development. The following table summarizes our research and development expenses by product candidate for the six months ended and 2018 (in thousands):



                                                          Six Months Ended
                                                              June 30,
                                                          2019         2018       Change

External research and development expense by program: PB2452

                                                  $   7,926     $ 1,572     $ 6,354
PB1046                                                      2,086       1,278         808
Unallocated research and development expense:
Compensation and stock-based compensation                   2,232       1,389         843
Other research and development                              1,258       1,186          72
Total research and development expenses                 $  13,502     $ 5,425     $ 8,077




General and Administrative Expense

General and administrative expense was $4.7 million for the six months ended , compared to $1.6 million for the six months ended . The increase of $3.1 million was primarily attributable to increases in professional services including legal, marketing and other consulting services, personnel expense due to additional headcount and expenses associated with being a public company.

Interest Income

Interest income was $0.8 million for the six months ended , compared to $0.1 million for the six months ended . The increase of $0.7 million was attributable to higher balances of cash and cash equivalents.


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Interest Expense

Interest expense was $0.4 million for the six months ended , compared to $2.9 million for the six months ended . The decrease of $2.5 million was attributable to interest from $14.1 million in borrowings pursuant to our convertible promissory notes, which were outstanding as of . These notes were converted into shares of redeemable convertible Series D stock in and therefore were not outstanding during the six months ended . Interest for the six months ended was attributable to interest on the 2019 Loan.

Change in Fair Value of Warrant Liability

Change in fair value of warrant liability resulted in no expense for the six months ended , compared to other expense of $1.0 million for the six months ended . The preferred stock warrants were subject to remeasurement at each reporting period, with changes in fair value recorded in the condensed statement of operations. The outstanding preferred stock warrants converted into common stock warrants upon the completion of our IPO in and, accordingly, we no longer remeasure the fair value of the warrant liability.

Change in Fair Value of Derivative Liability

Change in fair value of derivative liability resulted in no expense for the six months ended , compared to $0.3 million of expense for the six months ended . The conversion option related to our convertible promissory notes was subject to remeasurement at each reporting period, with changes in fair value recorded in the condensed statement of operations. The convertible promissory notes converted into redeemable convertible preferred stock in upon the sale of the Series D redeemable convertible preferred stock and, accordingly, we no longer remeasure the fair value of the derivative liability.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue from product sales and have incurred net losses and negative cash flows from our operations. We have financed our operations primarily through public offerings of our common stock, private placements of convertible debt and our convertible preferred stock and borrowings under our term loans.

In , we entered into a loan and security agreement, or SVB Loan, with SVB which provided that we could borrow up to $7.5 million. In , we entered into the 2019 Loan with SVB and WestRiver, pursuant to which we may borrow up to $15.0 million, issuable in three separate tranches. As of , we have drawn on two tranches under the 2019 Loan of $7.5 million and $2.5 million, respectively. The final tranche of $5.0 million shall be drawn upon the achievement of a clinical milestone related to the development of PB2452.

In , we received $17.7 million in net proceeds from the sale of our Series D redeemable convertible preferred stock. Concurrent with this financing, all of our outstanding convertible promissory notes, and accrued interest thereon, were converted into 2.1 million shares of Series D redeemable convertible preferred stock.

In , we completed our IPO of our common stock, which resulted in the issuance and sale of 9.9 million shares of common stock at a public offering price of $5.00 per share, generating net proceeds of approximately $43.0 million after deducting underwriting discounts and commissions and other offering costs. Upon closing of the IPO, all outstanding shares of our redeemable convertible preferred stock were converted into an aggregate of 13.2 million shares of common stock.

In , we completed an underwritten public offering of our common stock, which resulted in the issuance and sale of an aggregate of 4,124,475 shares of common stock at a public offering price of $12.00 per share, generating net proceeds of $46.3 million after deducting underwriting discounts and commissions and other offering costs.

As of , we had cash and cash equivalents of $90.3 million.


The following table summarizes our cash flows for each of the periods set forth
below (in thousands):



                                                         Six Months Ended June 30,
                                                            2019              2018
Net cash used in operating activities                  $      (18,865 )     $  (6,639 )
Net cash used in investing activities                            (429 )           (28 )
Net cash provided by financing activities                      48,585           1,995

Net increase (decrease) in cash and cash equivalents $ 29,291 $ (4,672 )



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Operating Activities

Net cash used in operating activities was $18.9 million during the six months ended . The use of cash primarily related to our net loss of $16.5 million, in addition to a $3.2 million change in our operating assets and liabilities.

Net cash used in operating activities was $6.6 million during the six months ended . The use of cash primarily related to our net loss of $11.1 million, adjusted for non-cash charges principally related to $2.8 million for non-cash interest expense and $1.3 million for changes in fair value of warrant and derivative liabilities.

Investing Activities

Net cash used in investing activities was $0.4 million for the purchase of property and equipment during the six months ended . Net cash used in investing activities was $28,000 for the purchase of property and equipment during the six months ended .

Financing Activities

Net cash provided by financing activities was $48.6 million during the six months ended , due primarily to the receipt of $46.3 million in net proceeds from the underwritten public offering and borrowings of $3.1 million on the 2019 Loan, partially offset by $0.9 million in repayments of the SVB Loan. There was $2.0 million in net cash provided by financing activities for the six months ended related to borrowings on the SVB Loan.

Funding Requirements

To date, we have not generated any revenues from the commercial sale of approved drug products, and we do not expect to generate substantial revenue for at least the next several years. If we fail to complete the development of our product candidates in a timely manner or fail to obtain their regulatory approval, our ability to generate future revenue will be compromised. We do not know when, or if, we will generate any revenue from our product candidates, and we do not expect to generate significant revenue unless and until we obtain regulatory approval of, and commercialize, our product candidates. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue or initiate clinical trials of and seek marketing approval for our product candidates. In addition, if we obtain approval for any of our product candidates, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

We expect our existing cash and cash equivalents as of are sufficient to fund our operating expenses and capital requirements into the second half of 2020. We intend to devote our existing cash to advance PB2452 and PB1046, fund the development of our ELP technology and preclinical programs and for general working capital and other general corporate purposes. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of product candidates.

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

    •   the progress and results of our ongoing and planned future clinical trials
        of PB2452 and PB1046 and our preclinical programs;


    •   the scope, progress, results and costs of preclinical development,
        laboratory testing and clinical trials for any future product candidates
        we may decide to pursue;


    •   the extent to which we develop, in-license or acquire other product
        candidates and technologies;


    •   the number and development requirements of other product candidates that
        we may pursue;


  • the costs, timing and outcome of regulatory review of our product candidates;


    •   the costs and timing of future commercialization activities, including
        product manufacturing, marketing, sales and distribution, for any of our
        product candidates for which we receive marketing approval;


                                       27

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    •   the revenue, if any, received from commercial sales of our product
        candidates for which we receive marketing approval;


    •   our ability to establish collaborations to commercialize PB1046 in the
        United States;


    •   our ability to establish collaborations to commercialize PB2452, PB1046 or
        any of our other product candidates outside the United States; and


    •   the costs and timing of preparing, filing and prosecuting patent
        applications, maintaining and enforcing our intellectual property rights
        and defending any intellectual property-related claims.

Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.

Our future commercial revenue, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the terms of these equity securities or this debt may restrict our ability to operate. Any future debt financing and equity financing, if available, may involve agreements that include, covenants limiting and restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, entering into profit-sharing or other arrangements or declaring dividends. If we raise additional funds through government or private grants, collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required 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.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the SEC rules and regulations.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with U.S. generally accepted accounting policies, or GAAP. The preparation of these condensed financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of expenses during the reporting periods. In accordance with GAAP, we evaluate our estimates and judgments on an ongoing basis.

Significant estimates include assumptions used in the determination of accrued research and development costs and share-based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There were no material changes to our critical accounting policies which are disclosed in our audited financial statements for the years ended and 2017 included in our Annual Report on Form 10-K for the year ended filed with the SEC on .

Recent Accounting Pronouncements

See "Note 2. Significant Accounting Policies" in "Notes to Condensed Financial Statements" located in "Part I - Financial Information, Item 1. Financial Statements" in this Quarterly Report on Form 10-Q for information concerning recent accounting pronouncements.

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