Cypherpunk Technologies Inc 10-Q for FY2023 Q3
Cypherpunk Technologies Inc. (CYPH)
About this 10-Q
Cypherpunk Technologies Inc filed this 10-Q on November 13, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $13.7M
- compared with a net loss of $15.09M a year earlier
- Diluted EPS
- -$0.51
- compared with -$1.33 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:
(Exact name of registrant as specified in its charter)
|
|
|
| | |
| |
|
| | |
(
Registrant’s Telephone Number, Including Area Code
N/A
Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report Securities registered pursuant to Section 12(b) of the Act:
Title of each class: |
| Trading Symbol(s) |
| Name of each exchange on which registered: |
| |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ |
| Accelerated filer ☐ |
| | |
| Smaller reporting company | |
| | |
| | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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).
As of November 9, 2023, there were
TABLE OF CONTENTS
| | Page |
| ||
| | |
6 | ||
| | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | |
| | |
32 | ||
| | |
32 | ||
| | |
| ||
| | |
34 | ||
| | |
34 | ||
| | |
Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities | 34 | |
| | |
34 | ||
| | |
34 | ||
| | |
34 | ||
| | |
35 | ||
2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements which reflect our current views with respect to, among other things, our operations and financial performance. Such statements are based upon our current plans, estimates and expectations that are subject to various risks and uncertainties that could cause actual results to differ materially from such statements. The inclusion of forward-looking statements should not be regarded as a representation that such plans, estimates and expectations will be achieved. Words such as “anticipate,” “expect,” “project,” “intend,” “believe,” “may,” “will,” “should,” “plan,” “could,” “continue,” “target,” “contemplate,” “estimate,” “forecast,” “guidance,” “predict,” “possible,” “potential,” “pursue,” “likely,” and words and terms of similar substance used in connection with any discussion of future plans, actions or events identify forward-looking statements. All statements, other than historical facts, including statements regarding estimations of projected cash runway; our future product development plans; the potential, safety, efficacy, and regulatory and clinical progress of our product candidates, including the anticipated timing for initiation of clinical trials and release of clinical trial data and the expectations surrounding potential regulatory submissions, approvals and timing thereof; and any assumptions underlying any of the foregoing, are forward-looking statements. Important factors that could cause actual results to differ materially from our plans, estimates or expectations could include, but are not limited to: (i) our ability and plan to develop and commercialize DKN-01, FL-301 and our preclinical programs; (ii) status, timing and results of our preclinical studies and clinical trials; (iii) the potential benefits of DKN-01, FL-301 and our preclinical programs; (iv) the timing of our development programs and seeking regulatory approval of DKN-01, FL-301 and our preclinical programs; (v) our ability to obtain and maintain regulatory approval; (vi) our estimates of expenses and future revenues and profitability; (vii) our estimates regarding our capital requirements and our needs for additional financing; (viii) our estimates of the size of the potential markets for DKN-01, FL-301 and our preclinical programs; (ix) the benefits to be derived from any collaborations, license agreements, or other acquisition efforts, including the acquisition of Flame Biosciences and the ongoing collaboration with BeiGene; (x) sources of revenues and anticipated revenues, including contributions from any collaborations or license agreements for the development and commercialization of products; (xi) the rate and degree of market acceptance of DKN-01, FL-301 or our preclinical products; (xii) the success of other competing therapies that may become available; (xiii) the manufacturing capacity for our products; (xiv) our intellectual property position; (xv) our ability to maintain and protect our intellectual property rights; (xvi) our results of operations, financial condition, liquidity, prospects, and growth and strategies; (xvii) the industry in which we operate; (xviii) the trends that may affect the industry or us; (xix) the effect of inflation and currency rate fluctuations on our future expenses, (xx) fluctuations in the market price of our traded securities and (xxi) that the initiation, conduct, and completion of clinical trials, laboratory operations, manufacturing campaigns, and other studies may be delayed, adversely affected, or impacted by global conflict or supply chain related issues.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events, competitive dynamics and industry change, and depend on economic circumstances that may or may not occur in the future or may occur on longer or shorter timelines than anticipated. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods. You should carefully read this Quarterly Report and any documents that we have filed as exhibits to this Quarterly Report completely.
3
You should refer to Part II, Item 1A, Risk Factors in this Quarterly Report and Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission on March 24, 2023, for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard any such statement as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified timeframe, or at all. Any forward-looking statement that we make in this Quarterly Report speaks only as of the date of such statement, and, except to the extent required by applicable law, we undertake no obligation to update such statements to reflect events or circumstances after the date of this Quarterly Report or to reflect the occurrence of unanticipated events. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.
DKN-01 and FL-301 are investigational drugs undergoing clinical development and have not been approved by the U.S. Food and Drug Administration (the “FDA”), nor have they been submitted to the FDA for approval. DKN-01 and FL-301 have not been, and may never be, approved by any regulatory agency or marketed anywhere in the world. Statements contained in this Quarterly Report should not be deemed to be promotional.
4
INTRODUCTORY COMMENT
References to Leap
Throughout this Quarterly Report on Form 10-Q, the “Company,” “Leap,” “Leap Therapeutics,” “we,” “us,” and “our,” except where the context requires otherwise, refer to Leap Therapeutics, Inc. and its consolidated subsidiaries, and “Board of Directors” refers to the board of directors of Leap Therapeutics, Inc.
5
Part I – FINANCIAL INFORMATION
Item 1. Financial Statements
LEAP THERAPEUTICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| | September 30, | | December 31, | ||
|
| 2023 |
| 2022 | ||
| | (Unaudited) | | | | |
Assets |
| |
|
| |
|
Current assets: |
| |
|
| |
|
Cash and cash equivalents | | $ | | | $ | |
Research and development incentive receivable | |
| | |
| |
Prepaid expenses and other current assets | |
| | |
| |
Total current assets | |
| | |
| |
| | | | | | |
Property and equipment, net | |
| | |
| |
Right of use assets, net | | | | | | |
Deferred costs | | | — | | | |
Other long term assets | | | — | | | |
Deposits | |
| | |
| |
Total assets | | $ | | | $ | |
| | | | | | |
Liabilities and Stockholders’ Equity | |
| | |
|
|
Current liabilities: | |
| | |
|
|
Accounts payable | | $ | | | $ | |
Accrued expenses | |
| | |
| |
Lease liability - current portion | | | | | | |
Total current liabilities | | | | | | |
| | | | | | |
Non current liabilities: | | | | | | |
Lease liability, net of current portion | | | — | | | |
Total liabilities | | | | | | |
| | | | | | |
Stockholders’ equity: | | | | | | |
Common stock, $ | | | | | | |
Additional paid-in capital | |
| | |
| |
Accumulated other comprehensive income | |
| | |
| |
Accumulated deficit | |
| ( | |
| ( |
Total stockholders’ equity | |
| | |
| |
Total liabilities and stockholders’ equity | | $ | | | $ | |
See notes to condensed consolidated financial statements.
6
LEAP THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
| | Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Operating expenses: | | | | | | | | | | | | |
Research and development | | | | | | | | | | | | |
General and administrative | |
| | |
| | |
| | |
| |
Total operating expenses | |
| | |
| | |
| | |
| |
Loss from operations | |
| ( | |
| ( | |
| ( | |
| ( |
Interest income | |
| | |
| | |
| | |
| |
Interest expense | | | — | | | ( | | | — | | | ( |
Australian research and development incentives | |
| | |
| | |
| | |
| |
Foreign currency loss | | | ( | | | ( | | | ( | | | ( |
Change in fair value of Series X preferred stock warrant liability | | | — | | | — | | | | | | — |
Net loss attributable to common stockholders | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
| | | | | | | | | | | | |
Net loss per share | | | | | | | | | | | | |
Basic & diluted | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
| | | | | | | | | | | | |
Weighted average common shares outstanding | | | | | | | | | | | | |
Basic & diluted | | | | | | | | | | | | |
See notes to condensed consolidated financial statements.
7
LEAP THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Net loss | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Other comprehensive income: | |
| | | | | | | | |
| |
Foreign currency translation adjustments | | | | |
| | | | | |
| |
Comprehensive loss | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
See notes to condensed consolidated financial statements.
8
LEAP THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three and Nine Months Ended September 30, 2022
(In thousands, except share amounts)
| | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | Additional | | Other | | | | | Total | |||
| | Common Stock | | Paid-in | | Comprehensive | | Accumulated | | Stockholders’ | |||||||
|
| Shares |
| Amount |
| Capital |
| Income |
| Deficit |
| Equity | |||||
| | | | | | | | | | | | | | | | | |
Balances at June 30, 2022 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment |
| — | |
| — | |
| — | |
| | |
| — | |
| |
Issuance of common stock upon exercise of prefunded warrants | | | | | | | | ( | | | — | | | — | | | — |
Stock-based compensation |
| | |
| | |
| | |
| — | |
| — | |
| |
Net loss |
| — | |
| — | |
| — | |
| — | |
| ( | |
| ( |
Balances at September 30, 2022 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | Accumulated | | | | | | | |
| | | | | | | Additional | | Other | | | | | Total | |||
| | Common Stock | | Paid-in | | Comprehensive | | Accumulated | | Stockholders’ | |||||||
|
| Shares |
| Amount |
| Capital |
| Income (Loss) |
| Deficit |
| Equity | |||||
| | | | | | | | | | | | | | | | | |
Balances at December 31, 2021 |
| | | $ | | | $ | | | $ | ( | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | |
Foreign currency translation adjustment | | — | | | — | | | — | | | | | | — | | | |
Issuance of common stock upon exercise of prefunded warrants |
| | |
| | |
| ( | |
| — | |
| — | |
| — |
Stock-based compensation |
| — | |
| — | |
| | |
| — | |
| — | |
| |
Net loss |
| — | |
| — | |
| — | |
| — | |
| ( | |
| ( |
Balances at September 30, 2022 |
| | | $ | | | $ | | | $ | | | $ | ( | | $ | |
See notes to condensed consolidated financial statements.
9
LEAP THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
For the Three and Nine Months Ended September 30, 2023
(In thousands, except share amounts)
(Unaudited)
| | Mezzanine Equity | | Stockholders Equity | ||||||||||||||||||
| | | | | | | | | | | | | | | Accumulated | | | | | | | |
| | Series X Non Voting | | | | | | | Additional | | Other | | | | | Total | ||||||
| | Convertible Preferred Stock | | Common Stock | | Paid-in | | Comprehensive | | Accumulated | | Stockholders’ | ||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Income |
| Deficit |
| Equity | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balances at June 30, 2023 |
| — | | $ | — | | | | $ | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | | | | | |
Fractional shares paid in cash | | — | | | — | | — | | | — | | | | | | — | | | — | | | |
Foreign currency translation adjustment |
| — | |
| — | | — | |
| — | |
| — | |
| | |
| — | |
| |
Stock-based compensation |
| — | | | — | | — | |
| — | |
| | |
| — | |
| — | |
| |
Net loss |
| — | | | — | | — | |
| — | |
| — | |
| — | |
| ( | |
| ( |
Balances at September 30, 2023 |
| — | | $ | — | | | | $ | | | $ | | | $ | | | $ | ( | | $ | |
| | Mezzanine Equity | | Stockholders Equity | ||||||||||||||||||
| | | | | | | | | | | | | | | Accumulated | | | | | | | |
| | Series X Non Voting | | | | | | | Additional | | Other | | | | | Total | ||||||
| | Convertible Preferred Stock | | Common Stock | | Paid-in | | Comprehensive | | Accumulated | | Stockholders’ | ||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Income |
| Deficit |
| Equity | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balances at December 31, 2022 |
| — | | $ | — | | | | $ | | | $ | | | $ | | | $ | ( | | $ | |
| | | | | | | | | | | | | | | | | | | | | | |
Issuance of Series X Preferred Stock in connection with Flame merger |
| | |
| | | — | |
| — | |
| — | |
| — | |
| — | |
| — |
Issuance of common stock in connection with Flame merger | | — | | | — | | | | | | | | | | | — | | | — | | | |
Issuance of common stock warrants in connection with Flame merger | | — | | | — | | — | | | — | | | | | | — | | | — | | | |
Redemption of 2019 Warrants |
| — | |
| — | | — | |
| — | |
| ( | |
| — | |
| — | |
| ( |
Issuance of common stock upon vest of restricted stock units |
| — | |
| — | | | |
| — | |
| — | |
| — | |
| — | |
| — |
Conversion of Series X preferred stock to common stock | | ( | | | ( | | | | | | | | | | | — | | | — | | | |
Reclassification of Series X preferred stock warrants to equity | | — | | | — | | — | | | — | | | | | | — | | | — | | | |
Fractional shares paid in cash | | — | | | — | | ( | | | — | | | | | | — | | | — | | | |
Foreign currency translation adjustment | | — | | | — | | — | | | — | | | — | | | | | | — | | | |
Stock-based compensation | | — | | | — | | — | | | — | | | | | | — | | | — | | | |
Net loss |
| — | |
| — | | — | |
| — | |
| — | |
| — | |
| ( | |
| ( |
Balances at September 30, 2023 |
| — | | $ | — | | | | $ | | | $ | | | $ | | | $ | ( | | $ | |
See notes to condensed consolidated financial statements.
10
LEAP THERAPEUTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| | Nine Months Ended September 30, | ||||
|
| 2023 |
| 2022 | ||
Cash flows from operating activities: |
| |
|
| |
|
Net loss | | $ | ( | | $ | ( |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | |
| |
In-process research and development costs acquired in connection with the acquistion of Flame | | | | | | — |
Depreciation expense | |
| | |
| |
Change in right-of-use asset | | | | | | |
Stock-based compensation expense | |
| | |
| |
Foreign currency transaction loss | | | | | | |
Changes in operating assets and liabilities: | |
| | |
| |
Prepaid expenses and other assets | |
| | |
| |
Research and development incentive receivable | |
| | |
| ( |
Accounts payable and accrued expenses | |
| ( | |
| |
Lease liability | | | ( | | | ( |
Other assets | | | | | | ( |
Net cash used in operating activities | |
| ( | |
| ( |
| | | | | | |
Cash flows from investing activities: | |
| | |
| |
Cash acquired in connection with the acquistion of Flame | | | | | | — |
Payment of direct and incremental costs of the asset acquisition | | | ( | | | — |
Net cash provided by investing activities | |
| | |
| — |
| | | | | | |
Cash flows from financing activities: | |
| | |
| |
Payment of redemption of 2019 warrants | |
| ( | |
| — |
Payment of fractional shares | | | ( | | | — |
Payment of deferred costs | | | — | | | ( |
Net cash used in financing activities | |
| ( | |
| ( |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents | |
| ( | |
| ( |
Net increase (decrease) in cash and cash equivalents | |
| | |
| ( |
Cash and cash equivalents at beginning of period | |
| | |
| |
Cash and cash equivalents at end of period | | $ | | | $ | |
| | | | | | |
Supplemental disclosure of non-cash financing activities: | | | | | | |
Issuance and conversion of Series X Preferred Stock issued in connection with the acquisition of Flame to common stock | | $ | | | $ | — |
Reclassification of Series X Preferred Stock Warrants from liability to equity | | $ | | | $ | — |
Issuance of common stock in connection with the acquisition of Flame | | $ | | | $ | — |
Issuance of warrants for the purchase of common stock in connection with the acquisition of Flame | | $ | | | $ | — |
Net liabilities assumed from acquistion of Flame | | $ | | | $ | — |
Remeasurement of right-of-use asset and lease liability | | | — | | | |
See notes to condensed consolidated financial statements.
11
Leap Therapeutics, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share amounts)
(Unaudited)
1. Nature of Business, Basis of Presentation and Liquidity
Nature of Business
Leap Therapeutics, Inc. was incorporated in the state of Delaware on January 3, 2011. During 2015, HealthCare Pharmaceuticals Pty Ltd. was formed and is a wholly owned subsidiary of the Company.
On December 15, 2021, Leap Securities Corp. was formed and is a wholly owned subsidiary of the Company.
On January 17, 2023, the Company entered into a merger agreement with Flame Biosciences, Inc., a privately held, biotechnology corporation (“Flame”), whereby Flame became a wholly owned subsidiary of the Company under the name Flame Biosciences, LLC.
The Company is a biopharmaceutical company developing novel biomarker-targeted antibody therapies designed to treat patients with cancer by inhibiting fundamental tumor-promoting pathways, targeting cancer-specific cell surface molecules, and harnessing the immune system to attack cancer cells. The Company’s strategy is to identify, acquire, and develop molecules that will rapidly translate into high impact therapeutics that generate durable clinical benefit and enhanced patient outcomes. The Company’s lead clinical stage program is DKN-01, a monoclonal antibody that inhibits Dickkopf-related protein 1, or DKK1. The Company is currently studying DKN-01 in multiple ongoing clinical trials in patients with esophagogastric cancer, gynecologic cancers, or colorectal cancer. Its second clinical stage program is FL-301, a monoclonal antibody that targets cells that express Claudin18.2 on their cell surface. The Company also has two preclinical antibody programs, FL-302 and FL-501.
In January 2020, the Company entered into an Option and License Agreement with BeiGene, Ltd., or BeiGene, which granted BeiGene an option to obtain an exclusive license from the Company that would grant to BeiGene the right to develop and commercialize DKN-01 in Asia (excluding Japan), Australia, and New Zealand. In March 2023, BeiGene notified the Company that it did not intend to exercise its option, and the agreement is continuing as a clinical collaboration.
Basis of Presentation
The accompanying condensed consolidated financial statements as of September 30, 2023, and for the three and nine months ended September 30, 2023 and 2022 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2023.
The condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements. In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments which are necessary for the fair presentation of the Company’s financial position as of September 30, 2023, statements of operations and statements of comprehensive loss for the three and nine months ended September 30, 2023, and 2022 and statements of cash flows for the nine months ended September 30, 2023, and 2022. Such adjustments are of a normal and recurring nature. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.
Liquidity
Since inception, the Company has been engaged in organizational activities, including raising capital, and research and development activities. The Company does not yet have a product that has been approved by the FDA, has not generated any product
12
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
(Amounts in thousands, except share and per share amounts)
sales revenues and has not yet achieved profitable operations, nor has it ever generated positive cash flows from operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. Further, the Company’s future operations are dependent on the success of the Company’s efforts to raise additional capital, its research and commercialization efforts, regulatory approval, and, ultimately, the market acceptance of the Company’s products.
In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. As of September 30, 2023, the Company had cash and cash equivalents of $
In addition, to support its future operations, the Company will likely seek additional funding through public or private equity financings or government programs and will seek funding or development program cost-sharing through collaboration agreements or licenses with larger pharmaceutical or biotechnology companies. If the Company does not obtain additional funding or development program cost-sharing, or exceeds its current spending forecasts or fails to receive the research and development tax incentive payment, the Company has the ability and would be forced to delay, reduce or eliminate certain clinical trials or research and development programs, reduce or eliminate discretionary operating expenses, and delay company and pipeline expansion, any of which could adversely affect its business prospects. The inability to obtain funding, as and when needed, could have a negative impact on the Company’s financial condition and ability to pursue its business strategies.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions are eliminated upon consolidation.
Use of Estimates
The presentation of condensed consolidated 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 at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Research and development incentive income and receivable
The Company recognizes other income from Australian research and development incentives when there is reasonable assurance that the income will be received, the relevant expenditure has been incurred, and the consideration can be reliably measured. The research and development incentive is one of the key elements of the Australian government’s support for Australia’s innovation system and is supported by legislative law primarily in the form of the Australian Income Tax Assessment Act 1997, as long as eligibility criteria are met.
Management has assessed the Company’s research and development activities and expenditures to determine which activities and expenditures are likely to be eligible under the research and development incentive regime described above. At each period end, management estimates the refundable tax offset available to the Company based on available information at the time.
Under the program, a percentage of eligible research and development expenses incurred by the Company through its subsidiary in Australia are reimbursed. The percentage was
13
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
(Amounts in thousands, except share and per share amounts)
The research and development incentive receivable represents an amount due in connection with the above program. The Company recorded a research and development incentive receivable of $
The following table shows the change in the research and development incentive receivable from January 1, 2022 to September 30, 2023 (in thousands):
Balance at January 1, 2022 |
| $ | |
Australian research and development incentive income | |
| |
Cash received for 2021 eligible expenses | |
| ( |
Foreign currency translation | |
| ( |
Balance at December 31, 2022 | | | |
Australian research and development incentive income | | | |
Cash received for 2022 eligible expenses | | | ( |
Foreign currency translation | | | ( |
Balance at September 30, 2023 | | $ | |
Foreign Currency Translation
The financial statements of the Company’s Australian subsidiary are measured using the local currency as the functional currency. Assets and liabilities of this subsidiary are translated into U.S. dollars at an exchange rate as of the consolidated balance sheet date. Equity is translated at historical exchange rates. Revenues and expenses are translated into U.S. dollars at average rates of exchange in effect during the period. The resulting cumulative translation adjustments have been recorded as a separate component of stockholders’ equity. Realized and unrealized foreign currency transaction gains and losses are included in the results of operations.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents. All cash and cash equivalents are held in United States or Australian financial institutions and money market funds. At times, the Company may maintain cash balances in excess of the federally insured amount of $250 per depositor, per insured bank, for each account ownership category. Although the Company currently believes that the financial institutions with whom it does business will be able to fulfill their commitments to the Company, there is no assurance that those institutions will be able to continue to do so. The Company has not experienced any credit losses associated with its balances in such accounts for the year ended December 31, 2022 or for the nine months ended September 30, 2023.
Deposits
As of September 30, 2023 and December 31, 2022, there were $
Warrants
The Company will recognize on a prospective basis the value of the effect of the down round feature in the warrants to purchase shares of common stock that were issued in a private placement in November 2017 (the “2017 Warrants”) and in the warrants that were issued in a private placement in March 2020 (the “March 2020 Coverage Warrants”) when it is triggered (i.e., when the exercise price is adjusted downward). This value is measured as the difference between (1) the financial instrument’s fair value (without the down round feature) using the pre-trigger exercise price and (2) the financial instrument’s fair value (with the down round feature)
14
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
(Amounts in thousands, except share and per share amounts)
using the reduced exercise price. The value of the effect of the down round feature will be treated as a dividend and a reduction to income available to common stockholders in the basic EPS calculation.
The Company initially classified the warrants that were exercisable for shares for Series X Non-Voting Convertible Preferred Stock (the “January 2023 Series X Preferred Stock Warrants”) as a liability on its condensed consolidated balance sheet on January 17, 2023 and subsequently remeasured the warrant liability to fair value at each reporting date until the conversion of Series X Non-Voting Convertible Preferred Stock (the “Series X Preferred Stock”) into common stock, which occurred on June 21, 2023. Changes in the fair value of the warrant liability were recognized as gains (losses) in the Company’s condensed consolidated statement of operations.
During the nine months ended September 30, 2023, in connection with obtaining Stockholder Approval to convert shares of Series X Preferred Stock into shares of common stock (“Stockholder Approval”), the January 2023 Series X Preferred Stock Warrants were reclassified from liability to equity.
Fair Value of Financial Instruments
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
| ● | Level 1—Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
| ● | Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
A summary of the assets carried at fair value in accordance with the hierarchy defined above is as follows (in thousands):
|
| Total |
| Level 1 |
| Level 2 |
| Level 3 | ||||
September 30, 2023 | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | |
Cash equivalents | | $ | | | $ | | | $ | — | | $ | — |
Total assets | | $ | | | $ | | | $ | — | | $ | — |
| | | | | | | | | | | | |
December 31, 2022 | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | |
Cash equivalents | | $ | | | $ | | | $ | — | | $ | — |
Total assets | | $ | | | $ | | | $ | — | | $ | — |
Cash equivalents of $
The carrying values of the research and development incentive receivable, accounts payable and accrued liabilities approximate their fair value due to the short-term nature of these assets and liabilities.
15
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
(Amounts in thousands, except share and per share amounts)
Leases
The Company accounts for leases in accordance with Accounting Standards Codification, or ASC, Topic 842, Leases.
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and, if applicable, long-term lease liabilities. The Company has elected not to recognize on the balance sheet leases with terms of one year or less. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. The Company has determined that the rate implicit in the lease is not determinable and the Company does not have borrowings with similar terms and collateral. Therefore, the Company considered a variety of factors, including observable debt yields from comparable companies and the volatility in the debt market for securities with similar terms, in determining that
In accordance with the guidance in Topic 842, components of a lease should be split into three categories: lease components (e.g. land, building, etc.), non-lease components (e.g. common area maintenance, maintenance, consumables, etc.), and non-components (e.g. property taxes, insurance, etc.). Then the fixed and in-substance fixed contract consideration (including any related to non-components) must be allocated based on fair values to the lease components and non-lease components.
Although separation of lease and non-lease components is required, certain practical expedients are available. Entities may elect the practical expedient to not separate lease and non-lease components. Rather, they would account for each lease component and the related non-lease component together as a single component. The Company has elected to account for the lease and non-lease components of each of its operating leases as a single lease component and allocate all of the contract consideration to the lease component only. The lease component results in an operating right-of-use asset being recorded on the consolidated balance sheets and amortized such that lease expense is recorded on a straight line basis over the term of the lease.
Net Loss per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including the assumed exercise of stock options and warrants.
Reverse Stock Split
On June 21, 2023, the Company effected a -for-ten reverse stock split of its issued and outstanding shares of common stock, which also adjusted the conversion ratio of its Series X Preferred Stock such that each share of Series X Preferred Stock became convertible into
Subsequent Events
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required.
Recent Accounting Pronouncements
For a discussion of recent accounting pronouncements please refer to Note 2, “Summary of Significant Accounting Policies” in the Company’s previously filed Annual Report on Form 10-K for the year ended December 31, 2022.
16
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
(Amounts in thousands, except share and per share amounts)
3. Acquisition of Flame Biosciences
Merger
On January 17, 2023 (the “Effective Date”), Leap acquired
Pursuant to the Merger, Leap agreed to issue to the stockholders of Flame (the “Flame Stockholders”)
On June 16, 2023, the Company obtained Stockholder Approval to convert the Series X Preferred Stock into shares of its common stock, which occurred on June 21, 2023.
The Company accounted for the acquisition of Flame as an asset acquisition allocating the purchase price under GAAP of $
Leap primarily acquired cash of $
The following table summarizes the net assets acquired based on their estimated fair values as of January 17, 2023 (in thousands):
17
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
(Amounts in thousands, except share and per share amounts)
Acquired IPR&D |
| $ | |
Cash and cash equivalents | |
| |
Accounts payable and accrued liabilities | |
| ( |
Total acquisition value | | $ | |
The fair value assigned to each component of the purchase consideration, including direct costs of the acquisition of $
|
|
|
| Equivalent common |
|
| |
| | Number of shares | | shares | | Fair Value | |
Leap common stock (par value $0.001 per share) |
| |
| | | $ | |
Leap Series X Preferred Stock (100:1) |
| |
| | |
| |
Warrants on Leap common stock |
| |
| | |
| |
Warrants on Leap Series X Preferred Stock (100:1) |
| |
| | |
| |
Direct and incremental costs of the asset acquisition |
|
|
| | |
| |
| | | | | | | |
Total |
|
|
| | | $ | |
In addition, subject to and upon the terms and conditions set forth in the Merger Agreement, the Company may also (i) pay Contingent Merger Consideration (as defined in the Merger Agreement) that may become payable if, and only if, certain assets of Flame related to Flame’s FL-101 program and/or FL-103 program are sold after the consummation of the Merger pursuant to the FL-101/103 Disposition Agreement (as defined in the Merger Agreement), which Contingent Merger Consideration shall be
Series X Preferred Stock
Pursuant to the Merger, the Company agreed to issue
January 2023 Common Stock Warrants and January 2023 Series X Preferred Stock Warrants
In January 2023, pursuant to the Merger, the warrants held by the Flame Warrant Holders became exercisable for
Also in January 2023, pursuant to the Merger, the warrants held by the Flame Warrant Holders became exercisable for
The Company initially recorded the January 2023 Series X Preferred Stock Warrants as a liability on the Effective Date and the warrant liability was subsequently remeasured to fair value at each reporting date and on the date on which Stockholder Approval to convert shares of Series X Preferred Stock into shares of common stock was obtained. On June 21, 2023, after obtaining stockholder approval for the conversion of the Series X Preferred Stock into common stock, the January 2023 Series X Preferred Stock Warrants were reclassified from liability to equity.
18
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
(Amounts in thousands, except share and per share amounts)
Changes in the fair value of the warrant liability are recognized as gains (losses) in the Company’s consolidated statement of operations. During the nine months ended September 30, 2023, the Company recorded a gain of $
4. Accrued Expenses
Accrued expenses consist of the following:
| | September 30, |
| December 31, | ||
|
| 2023 |
| 2022 | ||
Clinical trials | | $ | | | $ | |
Professional fees | |
| | |
| |
Payroll and related expenses | |
| | |
| |
Accrued expenses | | $ | | | $ | |
5. Leases
The Company has an operating lease for real estate in the United States and does not have any finance leases. The Company’s leases may contain options to renew and extend lease terms and options to terminate leases early. Reflected in the right-of-use asset and lease liability on the Company’s consolidated balance sheets are the periods provided by renewal and extension options that the Company is reasonably certain to exercise, as well as the periods provided by termination options that the Company is reasonably certain to not exercise.
The Company’s existing lease expires in July 2024 and includes variable lease and non-lease components that are not included in the right-of-use asset and lease liability and are reflected as an expense in the period incurred. Such payments primarily include common area maintenance charges and increases in rent payments that are driven by factors such as future changes in an index (e.g., the Consumer Price Index).
In calculating the present value of future lease payments, the Company utilized its incremental borrowing rate based on the lease term. The Company has elected to account for each lease component and its associated non-lease components as a single lease component and has allocated all of the contract consideration across lease components only. This will potentially result in the initial and subsequent measurement of the balances of the right-of-use asset and lease liability for leases being greater than if the policy election was not applied. The Company has existing net leases in which the non-lease components (e.g. common area maintenance, maintenance, consumables, etc.) are paid separately from rent based on actual costs incurred and therefore are not included in the right-of-use asset and lease liability and are reflected as an expense in the period incurred. During the year ended December 31, 2022, the Company extended the term of its operating lease and recorded an additional right-of-use asset and lease of $
Future lease payments under non-cancelable operating leases as of September 30, 2023 are detailed as follows:
Future Operating Lease Payments | |||
2023 |
| | |
2024 | | | |
Total Lease Payments | |
| |
Less: imputed interest | |
| ( |
Total operating lease liabilities | | $ | |
19
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
(Amounts in thousands, except share and per share amounts)
6. Warrants
As of September 30, 2023, the number of shares of common stock issuable upon the exercise of outstanding warrants, consisted of the following:
September 30, 2023 | | | |||||
| | Number of Common Shares | | | | | |
Description |
| Issuable |
| Exercise Price |
| Expiration Date | |
January 23 2017 Warrants | | | | $ | | | Upon M&A Event |
2017 Warrants | | | | $ | | | November 2024 |
2019 Warrants | | | | $ | | | February 2026 |
March 2020 Pre-funded Warrants | | | | $ | | | No Expiry |
March 2020 Coverage Warrants | | | | $ | | | Jan - March 2027 |
September 2021 Pre-funded Warrants | | | | $ | | | No Expiry |
January 2023 Common Stock Warrants | | | | $ | | | February 2025 |
| | | | | | | |
2019 Warrants
During the nine months ended September 30, 2023, the Company redeemed
January 2023 Common Stock Warrants
In January 2023, pursuant to the Merger, the warrants held by the Flame Warrant Holders became exercisable for
January 2023 Series X Preferred Stock Warrants
In January 2023, pursuant to the Merger, the warrants held by the Flame Warrant Holders also became exercisable for
The Company initially recorded the January 2023 Series X Preferred Stock Warrants as a liability on its condensed consolidated balance sheet as of the Effective Date and subsequently remeasured the warrant liability to fair value at each reporting date and on the date Stockholder Approval was obtained to convert shares of Series X Preferred Stock into shares of common stock. Changes in the fair value of the warrant liability were recognized as gains (losses) in the Company’s consolidated statement of operations. During the nine months ended September 30, 2023, the Company recorded a gain of $
During the nine months ended September 30, 2023, upon obtaining Stockholder Approval, the January 2023 Series X Preferred Stock Warrants were converted into common stock warrants and reclassified from liability to equity.
7. Common Stock
Each share of common stock entitles the holder to
Acquisition of Flame – January 2023
20
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
(Amounts in thousands, except share and per share amounts)
On January 17, Leap acquired
8. Equity Incentive Plans
Equity Incentive Plans
In September 2012, the Company adopted the 2012 Equity Incentive Plan, as amended, which provides designated employees of the Company and its affiliates, certain consultants and advisors who perform services for the Company and its affiliates, and nonemployee members of the Board of Directors of the Company and its affiliates with the opportunity to receive grants of incentive stock options, nonqualified stock options and stock awards. During the year ended December 31, 2022, the 2012 Equity Plan expired.
On January 20, 2017, the Company’s stockholders approved the 2016 Equity Incentive Plan (the “2016 Plan”). Beginning on January 1, 2018, the number of shares of common stock authorized for issuance pursuant to the 2016 Plan was increased each January 1 by an amount equal to
On June 16, 2022, the Company’s stockholders approved the 2022 Equity Incentive Plan (the “2022 Plan”), which provides for a total of
As of September 30, 2023, there were
A summary of stock option activity under the Equity Plans is as follows:
|
| |
| Weighted |
| |
| |
| | |
| Average |
| Weighted |
| Aggregate |
| | |
| Exercise Price |
| Average Remaining |
| Intrinsic |
|
| Options |
| Per Share |
| Life in Years |
| Value |
Outstanding at December 31, 2022 |
| | | |
|
| — | |
Granted | | | | | | | | |
Forfeited |
| ( | | |
| | | |
Outstanding at September 30, 2023 |
| | | |
| | — | |
Options exercisable at September 30, 2023 |
| | | |
| | — | |
Options vested and expected to vest at September 30, 2023 |
| | | |
| | — |
The grant date fair value of the options granted during the nine months ended September 30, 2023 and 2022 was estimated at the date of grant using the Black-Scholes option valuation model. The expected life was estimated using the “simplified” method as defined by the SEC’s Staff Accounting Bulletin 107, Share-Based Payment. The expected volatility was based on the historical volatility of the Company. The risk-free interest rate was based on the continuous rates provided by the U.S. Treasury with a term approximating the expected life of the option. The expected dividend yield was
The weighted average grant date fair value for the stock options granted during the nine months ended September 30, 2023 and 2022 was $
21
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
(Amounts in thousands, except share and per share amounts)
The assumptions that the Company used to determine the grant-date fair value of stock options granted to employees and directors during the nine months ended September 30, 2023 and 2022 were as follows, presented on a weighted average basis:
| | Nine Months Ended September 30, | | ||
|
| 2023 |
| 2022 | |
| | | | | |
Expected volatility | | % | | % | |
Weighted average risk-free interest rate | | % | | % | |
Expected dividend yield | | % | | % | |
Expected term (in years) | | | | ||
Stock options generally vest over a or
Restricted Stock Units
During the nine months ended September 30, 2022, the Company granted
The following table presents RSU activity under the 2016 Plan during the nine months ended September 30, 2023:
| | | | Weighted | |
| | | | Average Grant | |
|
| Number of Shares |
| Date Fair Value | |
Outstanding at December 31, 2022 |
| | | $ | |
Vested | | ( | | $ | |
Forfeited | | ( | | $ | |
Outstanding at September 30, 2023 |
| | | $ | |
As of September 30, 2023, there were
The Company recognized stock-based compensation expense related to the issuance of stock option awards and RSUs to employees and non-employees in the condensed consolidated statements of operations during the three and nine months ended September 30, 2023 and 2022 as follows:
Stock Based Compensation Expense
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
| | | | | | | | | | | | |
Research and development |
| $ | | | $ | | | $ | | | $ | |
General and administrative |
| | | |
| | | | | |
| |
Total | | $ | | | $ | | | $ | | | $ | |
22
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
(Amounts in thousands, except share and per share amounts)
9. Net Loss Per Share
Basic and diluted net loss per share for the three and nine months ended September 30, 2023 and 2022 was calculated as follows (in thousands except share and per share amounts).
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
Numerator: |
| |
| | |
| | |
| | |
|
Net loss | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Net loss attributable to common stockholders for basic and diluted loss per share | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
| | | | | | | | | | | | |
Denominator: | |
| | |
| | |
| | |
| |
Weighted average number of common shares outstanding – basic and diluted | |
| | |
| | |
| | |
| |
Net loss per share attributable to common stockholders – basic and diluted | | $ | ( | | $ | ( | | $ | ( | | $ | ( |
Included within weighted average common shares outstanding for the three and nine months ended September 30, 2023 and 2022 are
All warrants exercisable for common stock participate on a one-for-one basis and shares and warrants exercisable for Series X Preferred Stock issued participate on an as converted basis with common stock in the distribution of dividends, if and when declared by the board of directors, on the Company’s common stock. For purposes of computing EPS, these securities are considered to participate with common stock in earnings of the Company. Therefore, the Company calculates basic and diluted EPS using the two-class method. Under the two-class method, net income for the period is allocated between common stockholders and participating securities according to dividends declared and participation rights in undistributed earnings. No income was allocated to the warrants and Series X Preferred Stock for the three and nine months ended September 30, 2023 and 2022, as results of operations were a loss for the period.
The Company’s potentially dilutive securities include RSUs, stock options and warrants. These securities were excluded from the computations of diluted net loss per share for the three and nine months ended September 30, 2023 and 2022, as the effect would be to reduce the net loss per share. The following table includes the potential shares of common stock, presented based on amounts outstanding at each period end, that were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
| | Three Months Ended September 30, | | Nine Months Ended September 30, | ||||
|
| 2023 |
| 2022 |
| 2023 |
| 2022 |
Restricted stock units to purchase common stock | | | | | | | | |
Options to purchase common stock |
| | | | | | | |
Warrants to purchase common stock | | | | | | | | |
|
| | | | | | | |
23
LEAP THERAPEUTICS, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements (Continued)
(Amounts in thousands, except share and per share amounts)
10. Commitments and Contingencies
Manufacturing Agreements—The Company is party to manufacturing agreements with vendors to manufacture DKN-01, its lead product candidate, for use in clinical trials. As of September 30, 2023, there were $
License and Service Agreement—On January 3, 2011, the Company entered into a license agreement with Eli Lilly and Company (“Lilly”), a shareholder, to grant a license to the Company for certain intellectual property rights relating to pharmaceutically active compounds that may be useful in the treatment of bone healing, cancer and, potentially, other medical conditions. As defined in the license agreement, the Company would be required to pay royalties to Lilly based upon a percentage in the low single digits of net sales of developed products, if and when achieved. However, there can be no assurance that clinical or commercialization success of developed products will occur, and
License Agreement—On May 28, 2015, the Company entered into a license agreement with Lonza Sales AG (“Lonza”), pursuant to which Lonza granted the Company a world-wide, non-exclusive license for certain intellectual property relating to a gene expression system for manufacturing DKN-01. As defined in the license agreement, the Company would be required to pay royalties to Lonza based on a percentage in the low single digits of net sales of DKN-01, if and when achieved. However, there can be no assurance that clinical or commercialization success will occur, and
Legal Proceedings—At each reporting date, the Company evaluates whether a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to its legal proceedings. As of the date of this report, the Company is not currently a party to any material legal proceedings.
Indemnification Agreements—In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements, and it has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of September 30, 2023 or December 31, 2022.
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our results of operations and financial condition. This MD&A is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes thereto and other disclosures included in this Quarterly Report on Form 10-Q, including the disclosures under Part II, Item IA “Risk Factors,” and our audited condensed consolidated financial statements and the accompanying notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission, or the SEC, on March 24, 2023. Our condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and, unless otherwise indicated, amounts are presented in U.S. dollars.
Company Overview
We are a biopharmaceutical company developing biomarker-targeted antibody therapies designed to treat patients with cancer by inhibiting fundamental tumor-promoting pathways, targeting cancer-specific cell surface molecules, and harnessing the immune system to attack cancer cells. Our strategy is to identify, acquire, and develop molecules that will rapidly translate into high impact therapeutics that generate durable clinical benefit and enhanced patient outcomes.
Our lead clinical stage program is DKN-01, a monoclonal antibody that inhibits Dickkopf-related protein 1, or DKK1. We are currently studying DKN-01 in multiple ongoing clinical trials in patients with esophagogastric cancer, gynecologic cancers, or colorectal cancer. Our second clinical stage program is FL-301, a monoclonal antibody that targets cells that express Claudin18.2 on their cell surface. We also have two preclinical antibody programs, FL-302 and FL-501.
We intend to apply our extensive experience identifying and developing transformational products to build a pipeline of programs that have the potential to change the practice of cancer medicine.
Recent Developments
Since June 30, 2023, we have continued to make progress with the development of DKN-01 and our business strategy.
DKN-01 Development Update
| ● | Updated data from Part A of the DeFianCe Study of DKN-01 plus bevacizumab and chemotherapy in colorectal cancer patients to be presented at a medical conference in early 2024. The Company expects to present new long-term follow-up data from Part A of the DeFiance study (NCT05480306), a Phase 2, randomized, open-label, multicenter study of DKN-01 in combination with standard of care bevacizumab and chemotherapy in patients with advanced colorectal cancer (CRC) who have received one prior systemic therapy for advanced disease. Initial results from Part A indicated an objective response rate (ORR) above 20% with a high disease control rate, which exceeded the benchmarks expected for this population. Subsequently, the study expanded into a 130-patient Part B randomized controlled trial. |
| ● | Part C of the DisTinGuish Study of DKN-01 plus tislelizumab and chemotherapy in gastric cancer patients is ongoing. The DisTinGuish study (NCT0436380) is a Phase 2, randomized, open-label, multicenter study of DKN-01 in combination with tislelizumab and chemotherapy in first-line patients with advanced gastroesophageal adenocarcinoma (GEA). The Company previously presented long-term follow-up data from Part A of the study in June 2023, showing 73% ORR in the modified intent-to-treat (mITT) population, and 85% ORR in the PD-L1 low-subgroup. The data also demonstrated 19.5 months median overall survival and 11.3 months progression-free survival. |
25
Financial Overview
Research and Development Expenses
Our research and development activities have included conducting nonclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates, primarily DKN-01. We recognize research and development expenses as they are incurred. Our research and development expenses during the nine months ended September 30, 2023 consisted primarily of:
| ● | the fair value of the in-process research and development (“IPR&D”) acquired from Flame; |
| ● | salaries and related overhead expenses for personnel in research and development functions, including costs related to stock-based compensation; |
| ● | fees paid to consultants and CROs for our nonclinical and clinical trials, and other related clinical trial fees, including but not limited to laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis; |
| ● | costs related to acquiring and manufacturing clinical trial material; and |
| ● | costs related to compliance with regulatory requirements. |
We plan to increase our research and development expenses for the foreseeable future as we continue the development of DKN-01 and any other product candidates, subject to the availability of additional funding.
Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of internal and external costs, such as employee costs, including salaries and stock-based compensation, other internal costs, fees paid to consultants, central laboratories, contractors and CROs in connection with our clinical and preclinical trial development activities. We use internal resources to manage our clinical and preclinical trial development activities and perform data analysis for such activities.
We participate, through our subsidiary in Australia, in the Australian government’s research and development (“R&D”) Incentive program (“R&D Incentive Program”), such that a percentage of our eligible research and development expenses are reimbursed by the Australian government as a refundable tax offset and such incentives are reflected as other income.
The table below summarizes our research and development expenses incurred by development program and the R&D Incentive income for the three and nine months ended September 30, 2023 and 2022:
|
| Three Months Ended September 30, |
| Nine Months Ended September 30, | ||||||||
| | 2023 |
| 2022 |
| 2023 |
| 2022 | ||||
| | (in thousands) |
| (in thousands) | ||||||||
Direct research and development by program: |
| |
|
| |
| |
|
| |
| |
DKN‑01 program | | $ | 11,016 | | $ | 12,080 | | $ | 31,153 | | $ | 33,843 |
TRX518 program | |
| — | |
| 22 | |
| 22 | |
| 88 |
FL-101 program | | | 241 | | | — | | | 546 | | | — |
FL-301 program | | | 137 | | | — | | | 137 | | | — |
FL-501 program | | | 109 | | | — | | | 109 | | | — |
In-process research and development acquired from Flame | | | — | | | — | | | 29,582 | | | — |
| | | | | | | | | | | | |
Total research and development expenses | | $ | 11,503 | | $ | 12,102 | | $ | 61,549 | | $ | 33,931 |
| | | | | | | | | | | | |
Australian research and development incentives | | $ | 554 | | $ | 652 | | $ | 1,124 | | $ | 1,276 |
26
The successful development of our clinical product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
| ● | the scope, rate of progress and expense of our ongoing, as well as any additional, clinical trials and other research and development activities; |
| ● | future clinical trial results; and |
| ● | the timing and receipt of any regulatory approvals. |
A change in the outcome of any of these variables with respect to the development of a product candidate could result in a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, 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.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, accounting and audit services.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company.
Interest income
Interest income consists primarily of interest income earned on cash and cash equivalents.
Research and development incentive income
Research and development incentive income includes payments under the R&D Incentive Program from the government of Australia. The R&D Incentive Program is one of the key elements of the Australian government’s support for Australia’s innovation system. It was developed to assist businesses in recovering some of the costs of undertaking research and development. The research and development tax incentive provides a tax offset to eligible companies that engage in research and development activities.
Companies engaged in research and development may be eligible for either:
| ● | a refundable tax offset at a rate of 18.5% above the company’s tax rate for entities with income of less than A$20 million per annum; or |
| ● | a non-refundable tax offset for all other entities which is a progressive marginal tiered R&D intensity threshold. Increasing rates of benefit apply for incremental research and development expenditure by intensity: |
| ● | 0 to 2% intensity: an 8.5% premium to the company’s tax rate |
| ● | Greater than 2% intensity: a 16.5% premium to the company’s tax rate; |
We recognize as income the amount we expect to be reimbursed for qualified expenses.
27
Foreign currency translation adjustment
Foreign currency translation adjustment consists of gains (losses) due to the revaluation of foreign currency transactions attributable to changes in foreign currency exchange rates associated with our Australian subsidiary.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with GAAP. The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K filed with the SEC on March 24, 2023, and the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. We believe that of our critical accounting policies, the following accounting policies involve the most judgment and complexity:
| ● | accrued research and development expenses; |
| ● | research and development incentive receivable; and |
| ● | stock-based compensation. |
Results of Operations
Comparison of the Three Months Ended September 30, 2023 and 2022
The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022:
|
| Three Months Ended September 30, | | | | ||||
| | 2023 |
| 2022 |
| Change | |||
| | (in thousands) | | | | ||||
Operating expenses: | |
| | |
|
| |
|
|
Research and development | | $ | 11,503 | | $ | 12,102 | | $ | (599) |
General and administrative | |
| 3,330 | |
| 3,186 | |
| 144 |
Total operating expenses | |
| 14,833 | |
| 15,288 | |
| (455) |
Loss from operations | |
| (14,833) | |
| (15,288) | |
| 455 |
Interest income | |
| 1,084 | |
| 360 | |
| 724 |
Interest expense | |
| — | |
| (11) | |
| 11 |
Australian research and development incentives | |
| 554 | |
| 652 | |
| (98) |
Foreign currency loss | |
| (501) | |
| (807) | |
| 306 |
Net loss | | $ | (13,696) | | $ | (15,094) | | $ | 1,398 |
28
Research and Development Expenses
| | Three Months Ended September 30, | | | | ||||
| | | | | | | | Increase | |
|
| 2023 |
| 2022 |
| (Decrease) | |||
|
| (in thousands) | | | | ||||
Direct research and development by program: |
| |
|
| |
|
| |
|
DKN‑01 program | | $ | 11,016 | | $ | 12,080 | | $ | (1,064) |
TRX518 program | |
| — | |
| 22 | |
| (22) |
FL-101 program | | | 241 | | | — | | | 241 |
FL-301 program | | | 137 | | | — | | | 137 |
FL-501 program | | | 109 | | | — | | | 109 |
| | | | | | | | | |
Total research and development expenses | | $ | 11,503 | | $ | 12,102 | | $ | (599) |
Research and development expenses were $11.5 million for the three months ended September 30, 2023, compared to $12.1 million for the three months ended September 30, 2022. The decrease of $0.6 million in R&D expenses during the three months ended September 30, 2023 as compared to the same period in 2022, was due to a decrease of $2.5 million in manufacturing costs related to clinical trial material and manufacturing campaigns. This decrease was partially offset by an increase of $1.1 million in clinical trial costs and an increase of $0.8 million in payroll and other related expenses due to an increase in headcount of our R&D full-time employees.
General and Administrative Expenses
General and administrative expenses were $3.3 million for the three months ended September 30, 2023, compared to $3.2 million for the three months ended September 30, 2022. The increase of $0.1 million in general and administrative expenses was due to an increase of $0.1 million increase in payroll and other related expenses due to an increase in headcount of our general and administrative full-time employees.
Interest Income
During the three months ended September 30, 2023, we recorded interest income of $1.1 million. During the three months ended September 30, 2022, we recorded interest income of $0.4 million. The increase during the three months ended September 30, 2023 as compared to the same period in 2022 was due to higher interest rates earned on interest bearing cash accounts.
Australian Research and Development Incentives
We recorded R&D incentive income of $0.6 million and $0.7 million during the three months ended September 30, 2023 and 2022, respectively, based upon the applicable percentage of eligible research and development activities under the R&D Incentive Program, which expenses included the cost of manufacturing clinical trial material.
The R&D incentive receivable has been recorded as “Research and development incentive receivable” in the condensed consolidated balance sheets.
Foreign Currency Gains (loss)
During the three months ended September 30, 2023 and 2022, we recorded foreign currency transaction losses of $0.5 million and $0.8 million, respectively. Foreign currency transaction gains and losses are due to changes in the Australian dollar exchange rate related to activities of the Australian entity.
29
Comparison of the Nine Months Ended September 30, 2023 and 2022
The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022:
| | Nine Months Ended September 30, |
|
| | ||||
|
| 2023 |
| 2022 |
| Change | |||
| | (in thousands) | | | | ||||
Operating expenses: |
| |
|
| |
|
| |
|
Research and development | | $ | 61,549 | | $ | 33,931 | | $ | 27,618 |
General and administrative | |
| 10,672 | |
| 8,889 | |
| 1,783 |
Total operating expenses | |
| 72,221 | |
| 42,820 | |
| 29,401 |
Loss from operations | |
| (72,221) | |
| (42,820) | |
| (29,401) |
Interest income | |
| 3,089 | |
| 404 | |
| 2,685 |
Interest expense | |
| — | |
| (49) | |
| 49 |
Australian research and development incentives | |
| 1,124 | |
| 1,276 | |
| (152) |
Foreign currency loss | |
| (953) | |
| (1,305) | |
| 352 |
Change in fair value of Series X preferred stock warrant liability | |
| 12 | |
| — | |
| 12 |
Net loss | | $ | (68,949) | | $ | (42,494) | | $ | (26,455) |
Research and Development Expenses
| | Nine Months Ended September 30, |
| | | ||||
| | | | | | | | Increase | |
|
| 2023 |
| 2022 |
| (Decrease) | |||
| | (in thousands) | | | | ||||
Direct research and development by program: | |
| | |
| | |
| |
DKN-01 program | | $ | 31,153 | | $ | 33,843 | | $ | (2,690) |
TRX518 program | |
| 22 | |
| 88 | |
| (66) |
FL-101 program | |
| 546 | |
| — | |
| 546 |
FL-301 program | | | 137 | | | — | | | 137 |
FL-501 program | | | 109 | | | — | | | 109 |
In-process research and development acquired from Flame | |
| 29,582 | |
| — | |
| 29,582 |
| | | | | | | | | |
Total research and development expenses | | $ | 61,549 | | $ | 33,931 | | $ | 27,618 |
Research and development expenses were $61.5 million for the nine months ended September 30, 2023, compared to $33.9 million for the nine months ended September 30, 2022. The increase of $27.6 million in R&D expenses during the nine months ended September 30, 2023 as compared to the same period in 2022, was primarily due to $29.6 million of in-process research and development (“IPR&D”) acquired in the Flame merger which the Company expensed during the nine months ended September 30, 2023. There was also an increase of $2.3 million in payroll and other related expenses due to an increase in headcount of our R&D full-time employees, an increase of $1.8 million in clinical trial costs and an increase of $0.3 million in stock-based compensation expense due to new stock options granted to R&D full-time employees. These increases were partially offset by a $6.4 million decrease in manufacturing costs related to clinical trial material and manufacturing campaigns.
General and Administrative Expenses
General and administrative expenses were $10.7 million for the nine months ended September 30, 2023, compared to $8.9 million for the nine months ended September 30, 2022. The increase of $1.8 million in general and administrative expenses was primarily due to an increase of $1.6 million in professional fees due to higher finance and legal costs associated with our business development activities and a $0.6 million increase in payroll and other related expenses due to an increase in headcount of our general and administrative full-time employees. These increases were partially offset by a decrease of $0.4 million in insurance costs.
30
Interest Income
During the nine months ended September 30, 2023, we recorded interest income of $3.1 million. During the nine months ended September 30, 2022, we recorded interest income of $0.4 million. The increase during the nine months ended September 30, 2023 as compared to the same period in 2022 was due to higher interest rates earned on interest bearing cash accounts.
Australian Research and Development Incentives
We recorded R&D incentive income of $1.1 million and $1.3 million during the nine months ended September 30, 2023 and 2022, respectively, based upon the applicable percentage of eligible research and development activities under the R&D Incentive Program, which expenses included the cost of manufacturing clinical trial material.
The R&D incentive receivable has been recorded as “Research and development incentive receivable” in the condensed consolidated balance sheets.
Foreign Currency Gains (loss)
During the nine months ended September 30, 2023 and 2022, we recorded foreign currency transaction losses of $1.0 million and $1.3 million, respectively. Foreign currency transaction gains and losses are due to changes in the Australian dollar exchange rate related to activities of the Australian entity.
Financial Position, Liquidity and Capital Resources
Since our inception, we have been engaged in organizational activities, including raising capital, and research and development activities. We do not yet have a product that has been approved by the Food and Drug Administration (the “FDA”), have not yet achieved profitable operations, nor have we ever generated positive cash flows from operations. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. Further, our future operations are dependent on the success of efforts to raise additional capital, our research and commercialization efforts, regulatory approval, and, ultimately, the market acceptance of our products.
In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, we have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued. As of September 30, 2023, we had cash and cash equivalents of $80.7 million. Additionally, we had an accumulated deficit of $387.1 million at September 30, 2023, and during the nine months ended September 30, 2023, we incurred a net loss of $68.9 million. We expect to continue to generate operating losses in the foreseeable future. We believe that our cash and cash equivalents of $80.7 million as of September 30, 2023 will be sufficient to fund our operating expenses for at least the next 12 months from the issuance of this report on Form 10-Q.
In addition, to support our future operations, we will seek additional funding through public or private equity financings or government programs and will seek funding or development program cost-sharing through collaboration agreements or licenses with larger pharmaceutical or biotechnology companies. If we do not obtain additional funding or development program cost-sharing, we could be forced to delay, reduce or eliminate certain clinical trials or research and development programs, reduce or eliminate discretionary operating expenses, and delay company and pipeline expansion, which could adversely affect our business prospects. The inability to obtain funding, as and when needed, could have a negative impact on Leap’s financial condition and our ability to pursue our business strategies.
31
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
|
| Nine Months Ended September 30, | ||||
| | 2023 |
| 2022 | ||
| | (in thousands) | ||||
Cash used in operating activities | | $ | (33,373) | | $ | (36,030) |
Cash provided by investing activities | | | 48,969 | | | — |
Cash used in financing activities | |
| (30) | |
| (210) |
Effect of exchange rate changes on cash and cash equivalents | |
| (323) | |
| (368) |
Net increase (decrease) in cash and cash equivalents | | $ | 15,243 | | $ | (36,608) |
Operating activities. Net cash used in operating activities for the nine months ended September 30, 2023 was primarily related to our net loss from the operation of our business of $68.9 million and net changes in working capital, including a decrease in accounts payable and accrued expenses of $1.0 million and a decrease in lease liabilities of $0.3 million. These changes were partially offset by a decrease in research and development incentive receivable of $1.3 million, a decrease of $0.8 million in other assets, a decrease of $0.1 million in prepaid expenses and other assets, noncash IPR&D expense of $29.6 million, noncash stock based compensation expense of $3.9 million, foreign currency transaction losses of $1.0 million and change in a right-of-use asset of $0.3 million.
Net cash used in operating activities for the nine months ended September 30, 2022 was primarily related to our net loss from the operation of our business of $42.5 million and net changes in working capital, including an increase in other long term assets of $0.9 million, a decrease in lease liability of $0.3 million and an increase in research and development receivable of $0.2 million. These changes were partially offset by an increase in accounts payable and accrued expenses of $2.2 million and a decrease of $0.4 million in prepaid expenses. During the nine months ended September 30, 2022, there was also noncash stock based compensation expense of $3.7 million, foreign currency losses of $1.3 million and a change in right-of-use asset of $0.3 million.
Investing Activities. Net cash provided by investing activities for the nine months ended September 30, 2023 was related to cash acquired in connection with the acquisition of Flame of $50.4 million and payment of direct and incremental costs of $1.4 million associated with the acquisition of Flame. There were no investing activities during the nine months ended September 30, 2022.
Financing Activities. Net cash used in financing activities for the nine months ended September 30, 2023 primarily consisted of an immaterial amount paid by the Company for the redemption of 10,000 shares of the 2019 warrants. Net cash used in financing activities for the nine months ended September 30, 2022 consisted of payments of deferred offering costs of $0.2 million.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not Applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our President and Chief Executive Officer, who is also serving as Chief Financial Officer and therefore currently serves as both our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
As of September 30, 2023, our management, with the participation of our Chief Executive Officer, who is also serving as Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013 Framework). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our
32
principal executive officer and principal financial officer has concluded, based upon the evaluation described above, that, as of September 30, 2023, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such material information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the three months ended September 30, 2023, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that materially affected, or are reasonably likely to affect, internal control over financial reporting.
33
Part II — OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
An investment in our ordinary shares involves a high degree of risk. You should carefully consider the risk factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 24, 2023, along with those discussed in our definitive proxy statement filed on April 28, 2023 and our Quarterly Report on Form 10-Q filed on May 15, 2023, which could materially affect our business, financial condition, operating results or cash flows.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
(c) Rule 10b5-1 Trading Plan
During the three months ended September 30, 2023, no director or officer of the Company
34
Item 6. Exhibits
See the Exhibit Index immediately prior to the signature page to this Quarterly Report on Form 10-Q for a list of exhibits filed or furnished with this report, which Exhibit Index is incorporated herein by reference.
EXHIBIT INDEX
3.1* | | |
| | |
3.2* | | Certificate of Elimination of the Series X Non-Voting Convertible Preferred Stock of the Company. |
| | |
31.1* |
| |
| | |
32.1** | | |
| | |
101* | | The following materials from Leap Therapeutics, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at September 30, 2023 and December 31, 2022, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022, (iii) Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023 and 2022, (iv) Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022, (v) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022, and (vi) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text. |
| | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
**Furnished with this report.
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LEAP THERAPEUTICS, INC. | |||
|
| | |
Date: November 13, 2023 | | By: | /s/ Douglas E. Onsi |
| | | Douglas E. Onsi |
| | | President, Chief Executive Officer and Chief Financial Officer |
| | | (Principal Executive Officer, Principal Financial Officer and Duly |
| | | Authorized Signatory) |
36
Exhibit 3.1
CERTIFICATE OF
AMENDMENT
TO
FOURTH AMENDED AND
RESTATED CERTIFICATE
OF INCORPORATION
OF
LEAP THERAPEUTICS, INC.
LEAP THERAPEUTICS, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “Corporation”), does hereby certify as follows:
FIRST: The name of the Corporation is Leap Therapeutics, Inc.
SECOND: Article FOURTH of the Fourth Amended and Restated Certificate of Incorporation of the Corporation, as heretofore amended (the “Certificate of Incorporation”), is hereby amended by deleting the first paragraph thereof in its entirety and replacing it with the following two paragraphs:
“FOURTH: The total number of shares of stock which the Corporation shall have authority to issue is two hundred fifty million (250,000,000), consisting of (a) two hundred forty million (240,000,000) shares of common stock, $0.001 par value per share (“Common Stock”), and (b) ten million (10,000,000) shares of preferred stock, $0.001 par value per share (“Preferred Stock”), of which one (1) share shall be designated special voting stock.
At 5:00 PM Eastern Time on June 20, 2023 (the “Effective Time”), each ten (10) shares of the Common Stock, issued and outstanding (or held in treasury) immediately prior to the Effective Time (the “Old Common Stock”) shall automatically without further action on the part of the Corporation or any holder of Old Common Stock, be reclassified, combined, converted and changed into one (1) fully paid and nonassessable share of common stock, par value of $0.001 per share (the “New Common Stock”), subject to the treatment of fractional share interests as described below (the “Reverse Stock Split”). The reclassification, combination, conversion and change of the Old Common Stock into New Common Stock will be deemed to occur at the Effective Time. No fractional shares will be issued, and stockholders otherwise entitled to receive fractional shares shall have no further interest as a stockholder with respect to such fractional shares. Stockholders of record who otherwise would be entitled to receive fractional shares in connection with such combination will instead be entitled to receive, in lieu of such fractional shares, an amount in cash equal to the fraction to which the stockholder would otherwise be entitled multiplied by the closing price of our Common Stock on the Nasdaq Stock Market on the date on which the Effective Time occurs. Each stock certificate or book-entry position that, immediately prior to the Effective Time, represented shares of Old Common Stock shall, from and after the Effective Time, automatically and without the necessity of presenting the same for exchange, represent that number of shares of New Common Stock after the Effective Time into which the shares of Old Common Stock have been reclassified, combined, converted and changed pursuant to this paragraph, until the same shall be surrendered to the Corporation. The Reverse
Stock Split shall also apply to any outstanding securities or rights convertible into, or exchangeable or exercisable for, Old Common Stock of the Corporation and all references to the Old Common Stock in agreements, arrangements, documents and plans relating thereto or any option or right to purchase or acquire shares of Old Common Stock shall be deemed to be references to the New Common Stock or options or rights to purchase or acquire shares of New Common Stock, as the case may be. For clarity, there shall be no change to the number or classes of stock that the Corporation shall have authority to issue pursuant to, and in accordance with, the provisions of the immediately preceding paragraph as a result of or by virtue of the effectiveness or the implementation of the Reverse Stock Split.”
THIRD: The foregoing amendment to the Certificate of Incorporation has been duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: Except to the extent amended in the manner provided above in this Certificate of Amendment, the terms and provisions of the Certificate of Incorporation are hereby ratified and confirmed and remain in full force and effect.
FIFTH: This Certificate of Amendment to the Certificate of Incorporation shall be effective as of 5:00 PM Eastern Time on June 20, 2023.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be duly adopted and executed in its corporate name and on its behalf by its duly authorized officer as of June 20, 2023.
| LEAP THERAPEUTICS, INC. | ||
| | | |
| By: | /s/ Douglas E. Onsi | |
| | Name: | Douglas E. Onsi |
| | Title: | President and Chief Executive Officer |
Exhibit 3.2
CERTIFICATE OF ELIMINATION
OF THE
SERIES X NON-VOTING CONVERTIBLE PREFERRED STOCK
OF
LEAP THERAPEUTICS, INC.
(Pursuant to Section 151(g) of the General Corporation Law of the State of Delaware)
Leap Therapeutics, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), in accordance with the provisions of Section 151(g) of the General Corporation Law of the State of Delaware (“DGCL”), hereby certifies as follows:
FIRST: That, pursuant to Section 151(g) of the DGCL and the authority granted in the Corporation’s Fourth Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), the Board of Directors of the Corporation (the “Board”) previously adopted resolutions that established and authorized the issuance by the Corporation of a series of preferred stock, par value $0.001 per share, of the Corporation designated as Series X Non-Voting Convertible Preferred Stock (the “Series X Preferred Stock”), which series of preferred stock consisted of 136,833 shares in the aggregate and provided for, and was subject to, such powers, preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions, as set forth in such resolutions.
SECOND: That, on January 17, 2023, the Corporation filed with the Office of the Secretary of State of Delaware a Certificate of Designation of Preferences, Rights and Limitations of Series X Preferred Stock, as required by, and in accordance with, the DGCL (the “Certificate of Designations”).
THIRD: That no shares of Series X Preferred Stock are outstanding and no shares of Series X Preferred Stock subject to the Certificate of Designations shall be issued by the Corporation.
FOURTH: That the following resolutions were adopted on August 29, 2023 by the Board pursuant to the authority granted by Section 151(g) of the DGCL for purposes of authorizing the Corporation to file with the Office of the Secretary of State of Delaware a Certificate of Elimination of the Series X Preferred Stock (the “Certificate of Elimination”) in order to eliminate from the Certificate of Incorporation all matters set forth in the Certificate of Designations with respect to the Series X Preferred Stock:
RESOLVED: | That no shares of the Series X Preferred Stock are outstanding, and none will be issued pursuant to the Certificate of Designation of Preferences, Rights and Limitations of Series X Preferred Stock (the “Certificate of Designations”), which Certificate of Designations was filed by the Corporation on January 17, 2023 with the Office of the Secretary of State of Delaware, as required by, and in accordance with, the DGCL; |
RESOLVED: | That the Corporation be and hereby is authorized to cause to be prepared and filed with the Office of the Secretary of State of Delaware a Certificate of Elimination of the Series X Preferred Stock (the “Certificate of Elimination”) in order to eliminate from the Corporation’s Fourth Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), all matters set forth in the Certificate of Designations with respect to the Series X Preferred Stock; and further |
RESOLVED: | That the Authorized Officers, each acting individually in the name and on behalf of the Corporation, be, and each of them hereby is, authorized and directed, for and on behalf of the Corporation, to execute and file the Certificate of Elimination with the Office of the Secretary of State of Delaware and to execute and deliver any and all other certificates, agreements and other documents which such Authorized Officer may deem necessary or advisable in order to effectuate the elimination of the Series X Preferred Stock, as provided by Section 151(g) of the DGCL. |
FIFTH: That, in accordance with Section 151(g) of the DGCL, upon the filing with the Office of the Secretary of State of Delaware and the effectiveness of the Certificate of Elimination, all matters set forth in the Certificate of Designations with respect to the Series X Preferred Stock shall be eliminated from the Certificate of Incorporation, and the shares that were designated as shares of Series X Preferred Stock shall be returned to the status of authorized but unissued shares of preferred stock of the Corporation, without designation as to series.
2
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Elimination to be executed by its duly authorized officers on this 29th day of August 2023.
| LEAP THERAPEUTICS, INC. | |
| | |
| By: | /s/ Douglas E. Onsi |
| | Douglas E. Onsi |
| | President and Chief Executive Officer |
3
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Douglas E. Onsi, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of Leap Therapeutics, Inc.; |
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 13, 2023 |
| /s/ DOUGLAS E. ONSI |
Date | | Douglas E. Onsi |
| | President, Chief Executive Officer and Chief Financial Officer |
| | (Principal Executive Officer and Principal Financial Officer) |
| | |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Leap Therapeutics, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Douglas E. Onsi, as Chief Executive Officer, President and Chief Financial Officer, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 13, 2023 | By: | /s/ DOUGLAS E. ONSI |
| | Douglas E. Onsi |
| | President, Chief Executive Officer and Chief Financial Officer |
| | (Principal Executive Officer and Principal Financial Officer) |
This certification accompanies the Form 10-Q to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of Leap Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Quarterly Report), irrespective of any general incorporation language contained in such filing.