oncr-10q_20210331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

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: 001-39575

 

ONCORUS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

47-3779757

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

50 Hampshire Street, Suite 401

Cambridge, Massachusetts

 

02139

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (857) 320-6400

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

 

Trading

Symbol(s)

 

 

Name of each exchange

on which registered

 

Common Stock, $0.0001 par value per share

 

ONCR

 

The Nasdaq Stock Market LLC

 

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

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).     Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

 

 

 

 

 

Non-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).     Yes      No  

 

As of April 30, 2021, the registrant had 25,626,139 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

 

Table of Contents

 

 

 

Page

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

1

 

SUMMARY RISK FACTORS

3

 

 

 

PART I.

FINANCIAL INFORMATION

5

Item 1.

Financial Statements (Unaudited)

5

 

Condensed Consolidated Balance Sheets

5

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

6

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

7

 

Condensed Consolidated Statements of Cash Flows

8

 

Notes to Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

 

 

 

PART II.

OTHER INFORMATION

28

Item 1.

Legal Proceedings

28

Item 1A.

Risk Factors

28

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

29

Signatures

30

 

 

 

i


 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “hope,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:

 

the impact of the COVID-19 pandemic on our business and operations, results of operations and financial performance, including impacts on initiation, patient enrollment, development and operation of our preclinical studies and clinical trials and manufacturing efforts;

 

the initiation, timing, progress and expected results of our preclinical studies, clinical trials and our research and development programs, including our ongoing Phase 1 clinical trial and the timing of initiation for future clinical trials for our lead product candidate, ONCR-177;

 

our success in identifying and developing future potential candidates from our oncolytic HSV-1 platform, or oHSV Platform, and our synthetic viral RNA immunotherapy platform, or Synthetic vRNA Immunotherapy Platform;

 

our ability to advance product candidates into, and successfully complete, clinical trials;

 

the timing or likelihood of our ability to receive the required regulatory approvals and clearances to successfully market and sell our products in the United States and certain other countries;

 

the commercialization of our product candidates, if approved;

 

our expectations regarding the potential market size and the rate and degree of market acceptance for any product candidates that we develop;

 

the potential benefits of strategic collaboration agreements and our ability to enter into strategic arrangements;

 

the effects of competition with respect to ONCR-177 or any of our other current or future product candidates, as well as innovations by current and future competitors in our industry;

 

our ability to fund our working capital requirements;

 

our intellectual property position, including the scope of protection we are able to establish, maintain and enforce for intellectual property rights covering our product candidates;

 

our financial performance and our ability to effectively manage our anticipated growth;

 

our ability to obtain additional funding for our operations; and

 

other risks and uncertainties, including those listed under Part II, Item 1A. Risk Factors in this report or under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 10, 2021.

These forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions and are not guarantees of future performance or development. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under “Risk Factors” and elsewhere in this Quarterly Report and under similar captions in our periodic reports filed with the SEC from time to time. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

1


 

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this report. While we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q to conform these statements to new information, actual results or changes in our expectations, except as required by law.

 

2


 

 

 

SUMMARY RISK FACTORS

A summary of risks that could materially and adversely affect our business, financial condition, operating results and prospects include the following:

We have a limited operating history. We have incurred significant losses since our inception and anticipate that we will incur significant and increasing losses for the foreseeable future and we may never achieve or maintain profitability.

We will require substantial additional financing to advance the development of our product candidates, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital could force us to delay, limit, reduce or terminate our product development programs, potential commercialization efforts or other operations.

We have never generated any revenue from product sales and may never become profitable.

Our product candidates are in early stages of development, are not approved for commercial sale and might never receive regulatory approval or become commercially viable.

We currently have only one product candidate, ONCR-177, in clinical development. A failure of this product candidate in clinical development would adversely affect our business and may require us to discontinue development of other product candidates based on the same therapeutic approach.

Public health crises such as pandemics, including the coronavirus disease, or COVID-19, or similar outbreaks could materially and adversely affect our business, including the conduct of preclinical studies and clinical trials and our manufacturing efforts.

Preclinical and clinical development involve a lengthy and expensive process with an uncertain outcome, and delays can occur for a variety of reasons outside of our control.

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

Serious adverse events, undesirable side effects or other unexpected properties of our current or future product candidates may be identified during development or after approval, which could halt their development or lead to the discontinuation of our clinical development programs, refusal by regulatory authorities to approve our product candidates or, if discovered following marketing approval, revocation of marketing authorizations or limitations on the use of our product candidates thereby limiting the commercial potential of such product candidate.

We anticipate that many of our product candidates will be used in combination with third-party drugs, some of which may still be in development, and we have limited or no control over the supply, regulatory status or regulatory approval of such drugs.

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

We rely, and expect to continue to rely, on third parties to conduct, supervise, and monitor our preclinical studies and clinical trials. If those third parties do not perform satisfactorily, including failing to meet deadlines for the completion of such trials or failing to comply with regulatory requirements, we may be unable to obtain regulatory approval for our product candidates or any other product candidates that we may develop in the future.

If the manufacturers upon which we rely fail to produce any product candidates in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to biopharmaceutical manufacturers, we may face delays in the development and commercialization of, or be unable to meet demand for, any product candidates, which may have an adverse effect on our business.

If we are unable to successfully commercialize any product candidate for which we receive regulatory approval, or experience significant delays in doing so, our business will be materially harmed.

We face significant competition from other biopharmaceutical and biotechnology companies, academic institutions, government agencies, and other research organizations, which may result in others discovering, developing or commercializing products more quickly or marketing them more successfully than us. If their product candidates are shown to be safer or more effective than ours, our commercial opportunity may be reduced or eliminated.

Even if any of our product candidates receive marketing approval, they may fail to achieve the degree of market acceptance by physicians, patients, hospitals, cancer treatment centers, third-party payors and others in the medical community necessary for commercial success. The revenues that we generate from their sales may be limited, and we may never become profitable.

Negative developments in the field of immuno-oncology could damage public perception of our oHSV and Synthetic vRNA Immunotherapy Platforms and our product candidates, including ONCR-177, and negatively affect our business.  

3


 

If we are unable to obtain, maintain and protect our intellectual property rights for our technology and product candidates, or if our intellectual property rights are inadequate, our competitive position could be harmed.

We are highly dependent on our key personnel, including our Chief Executive Officer, Chief Scientific Officer and Senior Vice President, Clinical Development. If we are not successful in attracting, motivating and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

 

4


 

 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ONCORUS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except for par value data)

(unaudited)

 

 

 

MARCH 31,

2021

 

 

DECEMBER  31,

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

172,622

 

 

$

130,305

 

Prepaid expenses and other current assets

 

 

2,910

 

 

 

3,086

 

Total current assets

 

 

175,532

 

 

 

133,391

 

Property and equipment, net

 

 

5,401

 

 

 

4,173

 

Right-of-use asset

 

 

40,847

 

 

 

41,372

 

Restricted cash

 

 

2,877

 

 

 

2,877

 

Other assets

 

 

450

 

 

 

450

 

Total assets

 

$

225,107

 

 

$

182,263

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,524

 

 

$

1,245

 

Accrued expenses

 

 

3,200

 

 

 

3,738

 

Lease liability - current portion

 

 

1,037

 

 

 

993

 

Other current liabilities

 

 

8

 

 

 

8

 

Total current liabilities

 

 

6,769

 

 

 

5,984

 

Lease liability - net of current portion

 

 

42,083

 

 

 

41,615

 

Total liabilities

 

 

48,852

 

 

 

47,599

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; authorized — 10,000 shares at March 31, 2021 and December 31, 2020; issued and outstanding — no shares at March 31, 2021 and December 31, 2020

 

 

 

 

 

 

Common stock, $0.0001 par value; authorized — 100,000 shares at March 31, 2021 and December 31, 2020; issued and outstanding — 25,627 and 22,599 shares at March 31, 2021 and December 31, 2020, respectively

 

 

3

 

 

 

2

 

Additional paid-in capital

 

 

318,740

 

 

 

264,487

 

Accumulated deficit

 

 

(142,488

)

 

 

(129,825

)

Total stockholders’ equity

 

 

176,255

 

 

 

134,664

 

Total liabilities and stockholders’ equity

 

$

225,107

 

 

$

182,263

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

5


 

 

ONCORUS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

(unaudited)

 

 

 

THREE MONTHS ENDED

MARCH 31,

 

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

8,447

 

 

$

5,892

 

General and administrative

 

 

4,222

 

 

 

2,052

 

Total operating expenses

 

 

12,669

 

 

 

7,944

 

Loss from operations

 

 

(12,669

)

 

 

(7,944

)

Other income (expense):

 

 

 

 

 

 

 

 

Other expense

 

 

 

 

 

(11

)

Interest income

 

 

6

 

 

 

128

 

Total other income (expense), net

 

 

6

 

 

 

117

 

Net loss and comprehensive loss

 

$

(12,663

)

 

$

(7,827

)

Accretion of discount and dividends on redeemable convertible

   preferred stock

 

 

 

 

 

(2,725

)

Net loss attributable to common stockholders

 

$

(12,663

)

 

$

(10,552

)

Net loss per share attributable to common stockholders—basic and

   diluted

 

$

(0.53

)

 

$

(10.59

)

Weighted-average number of common shares outstanding—basic

   and diluted

 

 

24,009

 

 

 

996

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

6


 

 

ONCORUS, INC.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

(unaudited)

 

 

 

SERIES A-1

REDEEMABLE

CONVERTIBLE

PREFERRED

STOCK

 

 

SERIES B

REDEEMABLE

CONVERTIBLE

PREFERRED STOCK

 

 

 

COMMON STOCK

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

 

AMOUNT

 

 

SHARES

 

 

AMOUNT

 

 

 

SHARES

 

 

AMOUNT

 

 

ADDITIONAL

PAID-IN

CAPITAL

 

 

ACCUMULATED

DEFICIT

 

 

TOTAL

STOCKHOLDERS’

EQUITY (DEFICIT)

 

Balance at December 31, 2019

 

 

76,499,992

 

 

$

63,494

 

 

 

62,535,183

 

 

$

53,138

 

 

 

 

988,700

 

 

$

 

 

$

 

 

$

(74,297

)

 

$

(74,297

)

Series A-1 and Series B preferred stock

   dividends and accretion

 

 

 

 

 

1,570

 

 

 

 

 

 

1,155

 

 

 

 

 

 

 

 

 

 

(308

)

 

 

(2,417

)

 

 

(2,725

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

303

 

 

 

 

 

 

303

 

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,855

 

 

 

 

 

 

 

 

 

 

 

 

0

 

Exercise of options to purchase common

   stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,572

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,827

)

 

 

(7,827

)

Balance at March 31, 2020

 

 

76,499,992

 

 

 

65,064

 

 

 

62,535,183

 

 

 

54,293

 

 

 

 

999,127

 

 

 

 

 

 

 

 

 

(84,541

)

 

 

(84,541

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,599,048

 

 

 

2

 

 

 

264,487

 

 

 

(129,825

)

 

 

134,664

 

Proceeds from issuance of common stock, net

   of issuance costs of $4,017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,000,000

 

 

 

 

 

 

52,983

 

 

 

 

 

 

52,983

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,172

 

 

 

 

 

 

1,172

 

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,171

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of options to purchase common

   stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,470

 

 

 

 

 

 

98

 

 

 

 

 

 

98

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,663

)

 

 

(12,663

)

Balance at March 31, 2021

 

 

 

 

$

-

 

 

 

 

 

$

-

 

 

 

 

25,626,689

 

 

$

3

 

 

$

318,740

 

 

$

(142,488

)

 

$

176,255

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

7


 

 

ONCORUS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

THREE MONTHS ENDED

MARCH 31,

 

 

 

2021

 

 

2020

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(12,663

)

 

$

(7,827

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

396

 

 

 

309

 

Stock-based compensation

 

 

1,172

 

 

 

303

 

Changes in:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

176

 

 

 

(922

)

Operating lease right-of-use asset

 

 

525

 

 

 

111

 

Accounts payable

 

 

843

 

 

 

638

 

Accrued expenses and other current liabilities

 

 

(1,340

)

 

 

(953

)

Operating lease liability

 

 

512

 

 

 

(349

)

Net cash used in operating activities

 

 

(10,379

)

 

 

(8,690

)

Investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(385

)

 

 

(233

)

Net cash used in investing activities

 

 

(385

)

 

 

(233

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of options to purchase common stock

 

 

98

 

 

 

5

 

Proceeds from issuance of common stock, net of issuance costs

 

 

52,983

 

 

 

 

Net cash provided by financing activities

 

 

53,081

 

 

 

5

 

Increase (decrease) in cash and cash equivalents

 

 

42,317

 

 

 

(8,918

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

133,182

 

 

 

45,286

 

Cash, cash equivalents and restricted cash at end of period

 

$

175,499

 

 

$

36,368

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment in accrued expenses and accounts payable

 

$

1,238

 

 

$

391

 

Accretion of discount and dividends on preferred stock

 

$

 

 

$

2,725

 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

8


 

ONCORUS INC.

Notes to Unaudited Interim Condensed Consolidated Financial Statements

1. Nature of the Business and Liquidity

Oncorus, Inc. (the “Company”) is a clinical stage biopharmaceutical company focused on developing next-generation viral immunotherapies to transform outcomes for cancer patients. Using its two platforms, the Company is developing a pipeline of intratumorally and intravenously administered product candidates designed to selectively attack and kill tumor cells.

The Company’s operations to date have focused on organization and staffing, business planning, raising capital, acquiring and developing the Company’s technology, establishing the Company’s intellectual property portfolio, identifying potential product candidates and undertaking preclinical studies, commencing a clinical trial and manufacturing scale-up activities. The Company does not have any product candidates approved for sale and has not generated any revenue from product sales. The Company’s product candidates are subject to long development cycles and the Company may be unsuccessful in its efforts to develop, obtain regulatory approval for or market its product candidates.

On September 25, 2020, the Company effected a 1-for-12.0874 reverse stock split of its issued and outstanding common stock and a proportional adjustment to the existing conversion ratios for the outstanding shares of Series A-1 redeemable convertible preferred stock (“Series A-1”), and the Series B redeemable convertible preferred stock (“Series B”). Accordingly, all share and per share amounts for all periods presented in the accompanying unaudited interim condensed consolidated financial statements and notes thereto have been retroactively adjusted, where applicable, to reflect the reverse stock split, including reclassification of par, additional paid-in capital and accumulated deficit amounts as a result of the split adjustment.  

On October 6, 2020, the Company completed an initial public offering (“IPO”), in which the Company issued and sold 5,800,000 shares of its common stock at a public offering price of $15.00 per share. On October 14, 2020, the Company sold an additional 757,991 shares of common stock at $15.00 per share pursuant to the underwriters’ partial exercise of their option to purchase additional shares of common stock. The total gross proceeds from the IPO were $98.4 million and the Company raised approximately $88.3 million in net proceeds after deducting underwriting discounts and commissions and offering expenses payable by the Company.

Upon the closing of the IPO, all of the outstanding shares of convertible preferred stock automatically converted into 14,951,554 shares of common stock at the applicable conversion ratio then in effect. Subsequent to the closing of the IPO, there were no shares of preferred stock outstanding.

In February 2021, the Company completed a follow-on public offering of its common stock in which it sold 3,000,000 shares at an offering price of $19.00 per share, resulting in gross proceeds of $57.0 million and net proceeds of $53.0 million, after deducting underwriting discounts and commissions and estimated offering expenses.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, possible failure of preclinical studies or clinical trials, the need to obtain marketing approval for its product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, the need to successfully commercialize and gain market acceptance of any of the Company’s products that are approved and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing, and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales. The Company expects to continue to incur losses from operations for the foreseeable future and additional capital will be required to fund future operations. The Company expects that its cash and cash equivalents as of March 31, 2021 will be sufficient to fund its operating expenses and capital expenditure requirements through at least the next 12 months from the date these financial statements were issued.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

9


 

In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements include all normal and recurring adjustments (which consist primarily of accruals and estimates that impact the financial statements) which are considered necessary to present fairly the Company’s financial position as of March 31, 2021, its results of operations for the three months ended March 31, 2021 and 2020, its changes in redeemable preferred convertible preferred stock and stockholders’ equity (deficit) for the three months March 31, 2021 and 2020 and its cash flows for the three months ended March 31, 2021 and 2020.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2020, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2021.  The condensed consolidated balance sheet data as of December 31, 2020 presented for comparative purposes was derived from the Company’s audited consolidated financial statements but does not include all disclosures required by GAAP. The results for the three months ended March 31, 2021 are not necessarily indicative of the operating results to be expected for the full year or for any other subsequent interim period.

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2020, included in the Annual Report on Form 10-K and, since that date, there have been no changes to the Company’s significant accounting policies.

COVID-19 Pandemic

With the ongoing COVID-19 global pandemic, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its employees and its business, including its preclinical studies and its ongoing clinical trial. The Company has taken measures to secure its research and development activities, while work in its laboratories and facilities has been re-organized to reduce risks of COVID-19 transmission. Given the global impact and the other risks and uncertainties associated with the pandemic, the Company’s business, financial condition and results of operations could be materially adversely affected. The Company continues to closely monitor the COVID-19 pandemic and evolve its business continuity plans, clinical development plans and response strategy to mitigate any potential impact. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. Actual results could differ from those estimates, and any such differences may be material to the Company’s financial statements.

Going Concern

At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company is required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern.

Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements of the Company include the accounts of its wholly owned subsidiary, Oncorus Securities Corporation. All intercompany transactions have been eliminated in consolidation. The Company has one operating segment.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates, which include, but are not limited to, the estimated fair value of the Company’s common stock and share-based awards utilized for stock-based compensation purposes, the Company’s Series B tranche rights (see Note 6), accrued expenses, and amounts of expenses during the reported period. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.

10


 

Deferred Offering Costs

The Company capitalizes certain legal, professional, accounting and other third-party fees that are directly associated with in-process equity issuances as deferred offering costs until such equity issuances are consummated. After consummation of the equity issuance, these costs are recorded as a reduction in the capitalized amount associated with the equity issuance.

Concentration of Credit Risk and of Significant Suppliers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company has all of its cash at one financial institution, that management believes to be of high credit quality, in amounts that exceed federally insured limits. Cash equivalents consist of money market funds that invest primarily in U.S. government-backed securities and treasuries.

The Company is dependent upon a third-party contract manufacturer and third-party contract research organizations for the performance of portions of its testing for pre-clinical and clinical studies. The Company believes that its relationships with these organizations are satisfactory, and that alternative suppliers of these services are available in the event of the loss of one or more of these suppliers.

Restricted Cash

The Company maintains a balance in a segregated bank account in connection with a letter of credit for the benefit of the landlord in connection with an operating lease. As of March 31, 2021, restricted cash consisted of $2.9 million held for the benefit of the landlord. This amount has been classified as part of non-current assets on the Company's unaudited interim condensed consolidated balance sheets.

The Company includes its restricted cash balance in the cash, cash equivalents and restricted cash reconciliation of operating, investing, and financing activities in the unaudited interim condensed consolidated statements of cash flows. The following table provides a reconciliation of cash, cash equivalents and restricted cash in the unaudited interim condensed consolidated balance sheets that sum to the total of the same such amounts shown in the unaudited interim condensed consolidated statements of cash flows (in thousands):

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Cash and cash equivalents

 

$

172,622

 

 

$

36,368

 

Restricted cash

 

 

2,877

 

 

 

 

Total cash, cash equivalents and restricted cash shown in the unaudited interim consolidated statements of cash flows

 

$

175,499

 

 

$

36,368

 

 

Fair Value Measurements

Certain assets and liabilities of the Company are carried at fair value under GAAP. 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—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly, such as quoted market prices, interest rates, and yield curves.

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent a valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company’s cash equivalents, classified within Level 1, are valued using net asset value per share for the money market funds.

11


 

The tranche rights granted to the Series B stockholders (the “Series B Tranche Rights”) were classified within Level 3 of the fair value hierarchy because they were valued using significant inputs not observable in the market. The valuation of the tranche rights used assumptions the Company believed would be made by a market participant. The Company assessed these estimates on an ongoing basis as additional data impacting the assumptions was obtained. Refer to Note 6 for additional information regarding the valuation of the tranche rights.

The Company believes that the carrying amounts of prepaid expenses, other current assets, accounts payable, and accrued expenses approximate their fair value due to the short-term nature of those instruments.

Operating Leases

 

During the quarter ended December 31, 2020, the Company early adopted ASC Topic 842, “Leases” (“ASC 842”) using the revised modified retrospective approach as of January 1, 2020. The unaudited interim condensed consolidated financial statements for the three months ended March 31, 2020, have been retroactively adjusted to reflect the adoption of ASC 842, including retroactive adjustments to the unaudited interim condensed consolidated statement of cash flows and certain additional footnote disclosures as included herein. The adoption of ASC 842 had no material impact to the Company’s condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2020.

 

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on specific facts and circumstances, the existence of an identified asset(s), if any, and the Company’s control over the use of the identified asset(s), if applicable. The lease liability is measured at the present value of future lease payments, discounted using the discount rate as of the lease commencement date. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company recognizes a corresponding lease right of use (“ROU”) asset, initially measured as the amount of lease liability, adjusted for any initial lease costs or lease payments made before or at the commencement of the lease, and reduced by any lease incentives.

 

The Company’s leases consist of only operating leases. Operating leases are recognized on the balance sheet as ROU lease assets, lease liabilities current and lease liabilities non-current. Fixed rents are included in the calculation of the lease balances while certain variable costs paid for certain operating and pass-through costs are excluded. Lease expense is recognized over the expected term on a straight-line basis.

 

Recently Issued Accounting Pronouncements

There have been no recently issued accounting pronouncements other than those described in the Company’s audited financial statements as of and for the year ended December 31, 2020, and the notes thereto, which are included in the 2020 Annual Report on Form 10-K filed with the SEC on March 10, 2021.

3. Fair Value Measurements

The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis (in thousands):

 

 

 

FAIR VALUE MEASUREMENTS

AS OF MARCH 31, 2021

 

 

 

LEVEL 1

 

 

LEVEL 2

 

 

LEVEL 3

 

 

TOTAL

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (included in cash and cash equivalents)

 

$

169,058

 

 

$

 

 

$

 

 

$

169,058

 

 

 

$

169,058

 

 

$

 

 

$

 

 

$

169,058

 

 

 

 

FAIR VALUE MEASUREMENTS

AS OF DECEMBER 31, 2020

 

 

 

LEVEL 1

 

 

LEVEL 2

 

 

LEVEL 3

 

 

TOTAL

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds (included in cash and cash equivalents)

 

$

126,056

 

 

$

 

 

$

 

 

$

126,056

 

 

 

$

126,056

 

 

$

 

 

$

 

 

$

126,056

 

12


 

 

 

4. Leases

 

The Company has an operating lease in Cambridge, Massachusetts for its corporate headquarters. The lease will expire in January 2024 and includes an optional extension for an additional 3 year period.

 

The Company also has an operating lease for manufacturing and laboratory space in Andover, Massachusetts that expires in December 2036. The Company has two options to extend the term of the lease for a period of 10 years each. As of March 31, 2021, the Company has not exercised its options to extend the lease term for either lease. The Company agreed to provide the landlord with a $2.9 million letter of credit as support for its obligations under the lease. The lease provides a lease incentive related to leasehold improvements of approximately $13.2 million. As construction related to leasehold improvements is performed over the life of the lease, the right-of-use asset and lease liability will be adjusted on a prospective basis to reflect any payments relating to the lease incentive. The lease payments include fixed base rent payments and variable rents for certain shared facility operating and other costs.

During the three months ended March 31, 2021 and 2020, the Company recognized total rent expense of $1.4 million and $0.3 million, respectively, related to office and lab space under the leases described above. The amount of variable rent expense and rent for short-term leases for these periods was $0.3 million and $0.1 million, respectively.

Other supplemental information related to leases was as follows:

 

 

THREE MONTHS ENDED

MARCH 31,

 

 

2021

 

 

2020

 

Weighted average remaining lease term

14.3 years

 

 

3.8 years

 

Weighted average discount rate

8.5%

 

 

12.0%

 

Cash paid for amounts included in the measurement of lease liabilities (in thousands)

$

381

 

 

$

370

 

 

Maturities of operating lease liabilities were as follows as of March 31, 2021 (in thousands):

 

Year

 

Amount

 

2021

 

$

1,767

 

2022

 

 

5,520

 

2023

 

 

5,686

 

2024

 

 

4,240

 

2025

 

 

4,317

 

Thereafter

 

 

56,956

 

Total lease payments

 

 

78,486

 

Less imputed interest

 

 

(35,366

)

Total lease liabilities

 

$

43,120

 

 

 

 

 

 

Current portion

 

 

1,037

 

Long-term portion

 

 

42,083

 

 

5. Accrued Expenses

At March 31, 2021 and December 31, 2020, accrued expenses consisted of the following (in thousands):

 

 

 

MARCH 31,

2021

 

 

DECEMBER 31,

2020

 

Accrued research and development costs

 

$

1,857

 

 

$

1,369

 

Accrued compensation

 

 

594

 

 

 

1,661

 

Accrued professional fees

 

 

532

 

 

 

568

 

Miscellaneous accrued expenses

 

 

217

 

 

 

140

 

Total accrued expenses

 

$

3,200

 

 

$

3,738

 

 

13


 

 

6. Series B Tranche Rights

Included in the terms of the purchase agreement for the Series B (“Series B Purchase Agreement”) entered into in August 2019 were Series B tranche rights (“Series B Tranche Rights”) granted to the purchasers of the Series B.

The Series B Tranche Rights provided the holders with the right to purchase additional shares of Series B, in a second tranche, upon either the achievement by the Company of certain clinical development milestones for the Company’s primary clinical candidate, as set forth in the Series B Purchase Agreement, or upon the election of certain holders of the Series B prior to August 5, 2021. In the second tranche, the Company had the ability to sell up to 41,690,117 shares of Series B at $0.8597 per share. The Company reached the clinical development milestones set forth in the Series B Purchase Agreement in September 2020 and the Company sold 41,690,117 shares of Series B at $0.8597 per share, resulting in total gross proceeds to the Company of $35.8 million.

At the time of issuance, the Series B Tranche Rights met the definition of a freestanding financial instrument, as the Series B Tranche Rights were both legally detachable and separately exercisable from the Series B. In addition, the Company determined at the time of issuance that the Series B Tranche Rights met the definition of a liability (or in some circumstances, an asset) because the Series B Tranche Rights (i) embodied an obligation to repurchase the Company’s equity shares and (ii) may have required the Company to settle the obligation by transferring assets. As a result, upon issuance, the respective Series B Tranche Rights were initially recorded at fair value and were subsequently re-measured at the end of each reporting period until settlement. Changes in the fair value were recognized as a component of other income (expense) in the consolidated statements of operations and comprehensive loss.

At December 31, 2019 and at the end of each reporting period prior to settlement in September 2020, the estimated fair value of the Series B Tranche Rights was determined using a probability weighted present value model that considered the probability of triggering the Series B Tranche Rights through achievement of the clinical development milestones specified in the Series B Purchase Agreement. The Company converted the future values to their present values using a discount rate it considered to be appropriate for probability adjusted cash flows. The estimates were based, in part, on subjective assumptions. Significant assumptions for the Series B Tranche Rights valuation at March 31, 2020 included an 85% probability of achieving the clinical development milestones and a discount rate of 0.2%.  Based upon the valuation performed at March 31, 2020, the estimated fair value of the Series B Tranche Rights was not adjusted during the three months ended March 31, 2020.

 

7. Redeemable Convertible Preferred Stock

Upon the closing of the IPO on October 6, 2020, all of the outstanding shares of Series A-1 and Series B automatically converted into an aggregate of 14,951,554 shares of common stock at the applicable conversion ratio then in effect. Subsequent to the closing of the IPO, there were no shares of preferred stock outstanding. In connection with the closing of the IPO, the Company changed its authorized capital to include 10,000,000 shares of undesignated preferred stock with a par value of $0.0001 per share.

Issuance of Series B Redeemable Convertible Preferred Stock

In August 2019, the Company authorized and agreed to sell 92,477,021 shares of Series B in two tranches. The first tranche closed on dates between August 5, 2019 and August 27, 2019. On those dates, the Company sold a total of 55,486,215 shares of Series B at $0.8597 per share, for gross proceeds to the Company of $47.7 million. In November 2019, the Company authorized and agreed to sell 11,748,279 additional shares of its Series B to new investors on the same terms and conditions as the previous sale of Series B. The first tranche of this sale occurred on November 27, 2019, in which the Company sold 7,048,968 shares of Series B for gross proceeds of $6.1 million. The Company paid $0.4 million of issuance costs related to these sales.

In September 2020, the Company achieved the second tranche milestones related to the clinical development of its lead product candidate, ONCR-177. Upon achievement of the milestones, the Series B investors became obligated to purchase additional shares of Series B in a second tranche closing and the Company issued an aggregate of 41,690,117 shares of Series B at $0.8597 per share, for gross proceeds to the Company of $35.8 million.

A description of the rights and privileges of the Series B and Series A-1 prior to their conversion to common stock upon the IPO in October 2020 can be found in the Company’s Annual Report filed on Form 10-K with the SEC on March 10, 2021.

8. Common Stock

Each share of common stock is entitled to one vote. The holders of shares of common stock are entitled to receive dividends, if and when declared by the Board of Directors. Prior to the IPO, the voting, dividend, and liquidation rights of the holders of common stock were subject to, and qualified by, the rights, powers, and preferences of the holders of Series B and Series A-1.

14


 

Upon the closing of the IPO, Company changed its authorized capital stock to include 100,000,000 shares designated as common stock with a par value of $0.0001 per share.

Restricted Stock

The Company issued restricted stock to its founders and certain officers of the Company. In general, the shares of restricted stock vest over a four-year period, with 25% of the shares vesting after one year, followed by monthly vesting over the remaining three years. A summary of non-vested restricted stock during the three months ended March 31, 2021 is as follows:

 

 

 

AMOUNT

 

 

WEIGHTED-AVERAGE

GRANT DATE FAIR

VALUE

 

Balance at December 31, 2020

 

 

17,234

 

 

$

1.57

 

Repurchases

 

 

 

 

 

 

Issuances

 

 

 

 

 

 

Vested

 

 

(5,171

)

 

 

1.57

 

Balance at March 31, 2021

 

 

12,063

 

 

$

1.57

 

 

Common Stock Warrants

The Company issued warrants to purchase common stock (the “Common Stock Warrants”) in connection with a preferred stock financing in March 2016. The Common Stock Warrants allow for the holders to purchase 71,544 shares of common stock at $1.21 per share. As of March 31, 2021, all of the Common Stock Warrants were fully exercisable. The Common Stock Warrants expire in 2031.

Reserved Shares

The Company had reserved shares of common stock for the conversion or exercise of the following securities:

 

 

 

MARCH 31,

2021

 

Exercise of Common Stock Warrants

 

 

71,544

 

Exercise of options to purchase common stock

 

 

3,423,437

 

Vesting of restricted stock

 

 

12,063

 

Shares available for issuance under the 2020 Plan

 

 

2,599,588

 

Total

 

 

6,106,632

 

 

9. Equity Incentive Plan

The Company adopted the 2016 Equity Incentive Plan, as amended, (the “2016 Plan”) on March 31, 2016. The 2016 Plan provided for the granting of stock options, restricted stock awards, restricted stock units, stock appreciation rights and other stock awards to employees, directors and non-employees. All option awards were granted with an exercise price equal to or greater than the market price of the Company’s stock at the date of grant. Option awards generally vest over three to four years. Certain option awards provide for accelerated vesting if there is a change in control as defined in the 2016 Plan. The provisions of the 2016 Plan allow for early exercises for options that have not yet vested. Early exercises have been de minimis.

On September 23, 2020, the Company adopted the 2020 Equity Incentive Plan (“the 2020 Plan”), which became effective upon the execution of the underwriting agreement related to the IPO and serves as the successor to the 2016 Plan. The 2020 Plan authorizes the award of stock options, restricted stock awards, stock appreciation rights, restricted stock units, cash awards, performance awards and stock bonus awards. The number of shares reserved for issuance under the 2020 Plan will increase automatically on January 1 of each fiscal year, starting on January 1, 2021 and ending on and including January 1, 2030, by the number of shares equal to 5% of the aggregate number of outstanding shares of common stock as of the immediately preceding December 31, or a lesser number of shares as may be determined by the board of directors (or an authorized committee thereof).

At March 31, 2021, there were 2,599,588 shares of common stock available for grant under the 2020 Plan. On January 1, 2021, the number of shares reserved for issuance under the 2020 Plan automatically increased by 1,130,896 shares of common stock.

15


 

On September 23, 2020, the Company adopted the 2020 Employee Stock Purchase Plan, or the ESPP, which became effective upon the execution of the underwriting agreement related to the IPO. The Company initially reserved 280,000 shares of common stock for sale under the ESPP. The aggregate number of shares reserved for sale under the ESPP will increase automatically on January 1st of each fiscal year starting on January 1, 2021 and ending on and including January 1, 2030, by the number of shares equal to the lesser of (a) 1% of the total number of shares of common stock outstanding on the last day of the fiscal year prior to the date of such automatic increase and (b) 560,000 shares, provided that prior to the date of any such increase, the board of directors may determine a less number of shares for such increase.  In December 2020, the board of directors determined that there would be no automatic increase in the number of shares of common stock reserved under the ESPP on January 1, 2021.

Total stock-based compensation (including both stock option awards and restricted stock awards) was classified as follows on the unaudited interim condensed consolidated statements of operations:

 

 

 

THREE MONTHS ENDED

MARCH 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

General and administrative

 

$

739

 

 

$

170

 

Research and development

 

 

433

 

 

 

133

 

Total stock-based compensation

 

$

1,172

 

 

$

303

 

 

Total stock-based compensation by award type was as follows:

 

 

 

THREE MONTHS ENDED

MARCH 31,

 

 

 

2021

 

 

2020

 

 

 

(in thousands)

 

Restricted stock

 

$

8

 

 

$

8

 

Stock options

 

 

1,164

 

 

 

295

 

Total stock-based compensation

 

$

1,172

 

 

$

303

 

 

In December 2020, the Company granted an employee an option to purchase 113,000 shares of the Company’s common stock having an exercise price per share equal to the fair value of the Company’s common stock on the date of grant. This grant is included in the outstanding options in the summary table below. The option grant includes three separate tranches (each representing 33.33% of the total grant) that will each vest four years from the date of grant and are subject to accelerated vesting in the event that the Company achieves certain defined milestones related to the Company’s manufacturing efforts. As of March 31, 2021, the Company determined that the requisite service period of the award is four years and recorded $0.1 million of expense. Accelerated vesting was not considered to be probable at March 31, 2021.

A summary of option activity is presented below:

 

 

 

SHARES

 

 

WEIGHTED

AVERAGE

EXERCISE

PRICE

 

 

WEIGHTED-

AVERAGE

REMAINING

CONTRACTUAL

TERM (YEARS)

 

 

AGGREGATE

INTRINSIC

VALUE

(IN THOUSANDS)

 

Outstanding at December 31, 2020

 

 

2,790,746

 

 

$

8.13

 

 

 

 

 

 

 

 

 

Granted

 

 

689,350

 

 

$

16.25

 

 

 

 

 

 

 

 

 

Exercised

 

 

(22,057

)

 

$

4.29

 

 

 

 

 

 

 

 

 

Canceled, expired or forfeited

 

 

(34,602

)

 

$

11.39

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2021

 

 

3,423,437

 

 

$

9.76

 

 

 

8.66

 

 

$

20,704

 

Vested and expected to vest at March 31, 2021

 

 

3,423,437

 

 

$

9.76

 

 

 

8.66

 

 

$

20,704

 

Exercisable at March 31, 2021

 

 

1,040,347

 

 

$

3.03

 

 

 

7.52

 

 

$

11,352

 

 

The weighted average grant date fair value per share of options granted to employees, directors and non-employee consultants during the three months ended March 31, 2021 and 2020 was $11.62 and $4.67, respectively. The total intrinsic value of options exercised was $0.3 million and $0.01 million for the three months ended March 31, 2021 and 2020, respectively. Total unrecognized compensation expense related to stock options amounted to $20.1 million at March 31, 2021 and is expected to be incurred over a weighted-average period of 3.5 years.

16


 

The total fair value of restricted shares vested was $0.01 million during the three months ended March 31, 2021 and 2020.

10. Commitments and Contingencies

 

The Company is not currently party to any material legal proceedings. At each reporting date, the Company evaluates whether or not 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 such legal proceedings

11. Net Loss Per Share

The following securities that could potentially dilute basic net loss per share in the future were not included in the computation of diluted net loss per share for the periods presented, because to do so would have been antidilutive:

 

 

 

THREE MONTHS ENDED

MARCH 31,

 

 

 

2021

 

 

2020

 

Series A-1

 

 

 

 

 

6,328,894

 

Series B

 

 

 

 

 

5,173,569

 

Outstanding stock options

 

 

3,423,437

 

 

 

2,060,685

 

Restricted stock

 

 

12,063

 

 

 

32,748

 

Common stock warrants

 

 

71,544

 

 

 

71,544

 

Total

 

 

3,507,044

 

 

 

13,667,440

 

 

12. Subsequent Events

The Company has evaluated subsequent events from the balance sheet date through the date on which these financial statements were issued. Subsequent to the issuance of the financial statements, there were no events that occurred that required disclosure in, or revision to, the financial statements.

17


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion of our financial condition and results of operations in conjunction with our unaudited interim condensed consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, this discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations, intentions and belief. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” under Part II, Item 1A below and under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 10, 2021. These forward-looking statements may include, but are not limited to, statements regarding our future results of operations and financial position, the impact of the COVID-19 pandemic, business strategy, market size, potential growth opportunities, preclinical and clinical development activities, efficacy and safety profile of our product candidates, use of net proceeds from our offerings, our ability to maintain and recognize the benefits of certain designations received by product candidates, the timing and results of preclinical studies and clinical trials, commercial collaborations with third parties and the receipt and timing of potential regulatory designations, approvals and commercialization of product candidates. The words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “predict,” “target,” “intend,” “could,” “would,” “should,” “project,” “plan,” “expect,” and similar expressions that convey uncertainty of future events or outcomes are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

Introduction

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is provided in addition to the accompanying unaudited interim condensed consolidated financial statements and notes to assist readers in understanding our results of operations, financial condition, and cash flows. MD&A is organized as follows:

Overview - A discussion of our business and overall analysis of financial and other highlights in order to provide context for the remainder of MD&A.

Results of Operations - An analysis of our financial results comparing the three months ended March 31, 2021 to the three months ended March 31, 2020.

Liquidity and Capital Resources - An analysis of changes in our unaudited interim condensed consolidated balance sheets and cash flows, and discussion of our financial condition and potential sources of liquidity.

Critical Accounting Policies and Significant Judgments and Estimates - A discussion of critical accounting policies and those that require us to make subjective estimates and judgments.

Overview

We are a biopharmaceutical company focused on developing next-generation viral immunotherapies to transform outcomes for cancer patients. Using our two distinct proprietary platforms, we are developing a pipeline of intratumorally and intravenously administered product candidates designed to selectively attack and kill tumor cells and deliver transgenes to stimulate multiple arms of the immune system against tumors. Our lead product candidate, ONCR-177, is an intratumorally administered viral immunotherapy based on our oncolytic HSV-1 platform, referred to as our oHSV Platform, which leverages the Herpes Simplex Virus-1, or HSV-1, a virus which has been clinically proven to effectively treat certain cancers. Utilizing this proprietary platform, we are engineering our product candidates, such as ONCR-177, to carry greater numbers of immunostimulatory transgenes than viral immunotherapies that are either currently approved or in clinical development. These transgenes are designed to drive strong systemic anti-tumor immunity to elicit tumor responses at injected and distant non-injected tumor sites, or abscopal activity. In addition, viruses from our oHSV Platform maintain full viral replication competency in tumors and are designed to be selectively attenuated in normal tissues. We believe this unique combination of features allows us to break the safety versus potency trade-off that has generally limited the viral immunotherapy field to date. In June 2020, we initiated a Phase 1 clinical trial of ONCR-177 in several different tumor types. We are also developing a broad pipeline of product candidates that leverages our second platform, which we refer to as our Synthetic vRNA Immunotherapy Platform, to enable repeat intravenous administration of viral immunotherapies in order to treat cancers that are less amenable to intratumoral injection due to safety and feasibility reasons, such as cancers of the lung.

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Since inception, our operations have focused on organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, establishing our intellectual property portfolio, identifying potential product candidates and undertaking preclinical studies, commencing a clinical trial and manufacturing scale-up activities. We do not have any products approved for sale and have not generated any revenue from product sales.  We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities.

We have funded our operations primarily through the sale of redeemable convertible preferred stock, including Series A-1 redeemable convertible preferred stock, or Series A-1, and Series B redeemable convertible preferred stock, or Series B, the initial public offering, or IPO, of our common stock and a follow-on public offering, or the Follow-on Offering, of our common stock.  In 2019, we conducted a Series B financing, with the funding occurring in two tranches. We closed the first tranche of the Series B financing in August 2019 and November 2019, raising $53.8 million of gross proceeds. In September 2020, we achieved the clinical development milestones that triggered the second and final tranche of the Series B financing, and as a result, we received an additional $35.8 million of gross proceeds. In October 2020, we completed our IPO, in which we issued an aggregate of 6,557,991 shares of common stock for aggregate net proceeds of $88.3 million, after deducting underwriting discounts and commissions and offering expenses payable by us of $3.2 million. Our shares of common stock began trading on the Nasdaq Global Market under the ticker symbol “ONCR” on October 2, 2020. Upon closing of our IPO, all outstanding shares of Series A-1 and Series B converted into an aggregate of 14,951,554 shares of common stock.  In February 2021, we completed the Follow-on Offering, in which we issued 3,000,000 shares of common stock for aggregate net proceeds of approximately $53.0 million, after deducting underwriting discounts and commissions and offering expenses of $4.0 million.

From inception through March 31, 2021, we have raised an aggregate of $306.3 million of gross proceeds through the issuance of redeemable convertible preferred stock, the IPO and the Follow-on Offering.

Since inception, we have incurred significant operating losses. Our net losses were $12.7 million and $7.8 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, we had an accumulated deficit of $142.5 million. We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company.

We will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to raise capital or enter into such agreements as, and when needed, could have a material adverse effect on our business, results of operations and financial condition.

As of March 31, 2021, we had cash and cash equivalents of $172.6 million. We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into late 2023.

Impact of the COVID-19 Pandemic on Our Business

In March 2020, the World Health Organization declared COVID-19 a global pandemic and the United States declared a national emergency with respect to COVID-19. In response to the COVID-19 pandemic, a number of governmental orders and other public health guidance measures have been implemented across much of the United States, including in the locations of our office, clinical trial sites and third parties on whom we rely. We anticipate that our clinical development timelines could be negatively affected by COVID-19, which could materially and adversely affect our business, financial condition and results of operations. Further, we have implemented a work-from-home policy allowing employees who can work from home to do so, while those needing to work in laboratory facilities work in shifts to reduce the number of people gathered together at one time. Business travel has been suspended, and online and teleconference technology is used to meet virtually rather than in person. We have taken measures to secure our research and development project activities, while work in laboratories has been organized to reduce risk of COVID-19 transmission. Our increased reliance on personnel working from home may negatively impact productivity, or disrupt, delay or otherwise adversely impact our business. For example, with our personnel working from home, some of our research activities that require our personnel to be in our laboratories could be delayed.

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Components of Operating Results

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research and development activities, including our product candidate discovery efforts, preclinical and clinical studies under our research programs, which include:

 

employee-related expenses, including salaries, benefits and stock-based compensation expense for our research and development personnel;

 

costs of funding research performed by third parties that conduct research and development and preclinical and clinical activities on our behalf;

 

costs of manufacturing drug product and drug supply related to our current or future product candidates;

 

costs of conducting preclinical studies and clinical trials of our product candidates;

 

consulting and professional fees related to research and development activities, including equity-based compensation to non-employees;

 

costs of maintaining our laboratory, including purchasing laboratory supplies and non-capital equipment used in our preclinical studies;

 

costs related to compliance with clinical regulatory requirements;

 

facility costs and other allocated expenses, which include expenses for rent and maintenance of facilities, insurance, depreciation and other supplies; and

 

fees for maintaining licenses and other amounts due under our third-party licensing agreements.

Research and development costs are expensed as incurred. Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and analyzing the progress of our preclinical and clinical studies or other services performed. Significant judgment and estimates are made in determining the accrued expense balances at the end of any reporting period.

We track external research and development costs on a program-by-program basis beginning, with respect to each program, upon our internal nomination of a candidate in that program for further preclinical and clinical development. External costs include fees paid to consultants, contractors and vendors, including contract manufacturing organizations, or CMOs, and clinical research organizations, or CROs, in connection with our preclinical, clinical and manufacturing activities and license milestone payments related to candidate development. We do not allocate employee costs, costs associated with our discovery efforts, costs incurred for laboratory supplies, and facilities, including depreciation, or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.

The successful development of our product candidates is highly uncertain. We cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete development of our current or future product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from the sale of our product candidates, if they are approved. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

 

the scope, rate of progress, and expenses of our ongoing research activities as well as any preclinical studies and clinical trials and other research and development activities;

 

establishing an appropriate safety profile;

 

successful enrollment in and completion of clinical trials;

 

whether our product candidates show safety and efficacy in our clinical trials;

 

receipt of marketing approvals from applicable regulatory authorities;

 

establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;

 

obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

 

commercializing product candidates, if and when approved, whether alone or in collaboration with others; and

 

continued acceptable safety profile of the products following any regulatory approval.

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A change in the outcome of any of these variables with respect to the development of our current and future product candidates would significantly change the costs and timing associated with the development of those product candidates.

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect research and development costs to increase significantly for the foreseeable future as we commence clinical trials and continue the development of our current and future product candidates. However, we do not believe that it is possible at this time to accurately project expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.

General and Administrative Expenses

General and administrative expenses include salaries and other compensation-related costs, including stock-based compensation, for personnel in executive, finance and accounting, business development, operations and administrative roles. Other significant costs include professional service and consulting fees including legal fees relating to intellectual property and corporate matters, accounting fees, recruiting costs, costs for consultants who we utilize to supplement our personnel and insurance costs.  Also included are travel costs, facility and office-related costs not included in research and development expenses and depreciation and amortization.

We anticipate that our general and administrative expenses will increase in the future as our business expands to support expected growth in research and development activities, including our future clinical programs. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside service providers, among other expenses. We also anticipate increased expenses associated with being a public company, including costs for audit, legal, regulatory and tax-related services related to compliance with the rules and regulations of the Securities and Exchange Commission, or the SEC, and listing standards applicable to companies listed on a national securities exchange, director and officer insurance premiums, and investor relations costs. In addition, if we obtain regulatory approval for any of our product candidates and do not enter into a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support product sales, marketing and distribution activities.

Other Income (Expense)

Other income (expense) primarily includes changes in fair value of the Series B tranche rights and interest income, net.

Included in the terms of the Series B stock purchase agreement in August 2019 were tranche rights granted to the holders of the Series B. The tranche rights provided the Series B holders with the right to purchase additional shares of Series B in an additional tranche under certain events. The tranche rights met the definition of a freestanding financial instrument as the tranche rights were legally detachable and separately exercisable from the Series B. The tranche rights were initially recorded at fair value as a liability on our consolidated balance sheet. The tranche rights were subsequently re-measured at fair value at the end of each reporting period and at settlement, which occurred in September 2020, when the second and final tranche of the Series B financing closed. Changes in the fair value were recognized as a component of other income (expense).  There was no change to the fair value of the Series B tranche rights during the three months ended March 31, 2020, based upon the valuation performed at March 31, 2020.

Interest income primarily consists of interest income from our cash and cash equivalents.

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Results of Operations

The following table summarizes our results of operations for the periods indicated.

 

 

 

THREE MONTHS

ENDED

MARCH 31,

 

 

CHANGE

 

 

 

2021

 

 

2020

 

 

$

 

 

%

 

 

 

(in thousands, except percentages)

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and

   development

 

$

8,447

 

 

$

5,892

 

 

$

2,555

 

 

 

43

%

General and

   administrative

 

 

4,222

 

 

 

2,052

 

 

 

2,170