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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
_________________________________________________________
FORM 10-Q
_________________________________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File Number: 001-38096
_________________________________________________________
G1 THERAPEUTICS, INC.
(Exact Name of Registrant as Specified in its Charter)
_________________________________________________________
Delaware26-3648180
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
700 Park Offices Drive, Suite 200
 Research Triangle Park, NC 27709
(Address of principal executive offices including zip code)
Registrant’s telephone number, including area code: (919) 213-9835
_________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per shareGTHXThe Nasdaq Stock Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
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 x No o
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 filerAccelerated filer
Non-accelerated filerSmaller 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No x
As of July 29, 2022 the registrant had 42,746,806 shares of common stock, $0.0001 par value per share, outstanding.


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PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
G1 Therapeutics, Inc.
Condensed Balance Sheets (unaudited)
(in thousands, except share and per share amounts)
June 30, 2022December 31, 2021
Assets
Current assets
Cash and cash equivalents$143,957 $221,186 
Restricted cash63 63 
Accounts Receivable10,787 5,688 
Inventories14,014 3,471 
Prepaid expenses and other current assets8,279 13,157 
Total current assets177,100 243,565 
Property and equipment, net2,265 2,013 
Restricted cash312 312 
Operating lease assets6,508 7,035 
Other assets694 1,169 
Total assets$186,879 $254,094 
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable$9,349 $2,897 
Accrued expenses26,599 23,180 
Deferred revenue10 31 
Other current liabilities1,294 1,505 
Total current liabilities37,252 27,613 
Loan payable76,102 75,190 
Deferred revenue1,000 1,000 
Operating lease liabilities6,200 6,750 
Total liabilities120,554 110,553 
Stockholders’ equity
Common stock, $0.0001 par value, 120,000,000 shares authorized as of June 30, 2022, and December 31, 2021; 42,754,143 and 42,588,814 shares issued as of June 30, 2022, and December 31, 2021, respectively; 42,727,477 and 42,562,148 shares outstanding as of June 30, 2022, and December 31, 2021, respectively
4 4 
Treasury stock, 26,666 shares as of June 30, 2022, and December 31, 2021
(8)(8)
Additional paid-in capital739,426 728,004 
Accumulated deficit(673,097)(584,459)
Total stockholders’ equity66,325 143,541 
Total liabilities and stockholders' equity$186,879 $254,094 
The accompanying notes are an integral part of these condensed financial statements.
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G1 Therapeutics, Inc.
Condensed Statements of Operations (unaudited)
(in thousands, except share and per share amounts)
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Revenues
Product sales, net$8,718 $2,532 $14,198 $3,141 
License revenue1,855 4,072 3,277 17,681 
Total revenues10,573 6,604 17,475 20,822 
Operating expenses  
Cost of goods sold976 808 1,645 1,051 
Research and development20,843 18,752 47,148 35,292 
Selling, general and administrative25,716 25,236 52,425 48,206 
Total operating expenses47,535 44,796 101,218 84,549 
Loss from operations(36,962)(38,192)(83,743)(63,727)
Other income (expense)  
Interest income50 9 59 28 
Interest expense(2,407)(927)(4,672)(1,675)
Other income (expense)(127)(92)(282)(132)
Total other income (expense), net(2,484)(1,010)(4,895)(1,779)
Loss before income taxes(39,446)(39,202)(88,638)(65,506)
Income tax expense 220  358 
Net loss$(39,446)$(39,422)$(88,638)$(65,864)
Net loss per share, basic and diluted$(0.92)$(0.94)$(2.08)$(1.59)
Weighted average common shares outstanding, basic and diluted42,707,703 42,119,850 42,697,508 41,414,254 
The accompanying notes are an integral part of these condensed financial statements.
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G1 Therapeutics, Inc.
Condensed Statements of Stockholders’ Equity (unaudited)
(in thousands, except share and per share amounts)
Common stockTreasury stock Additional
paid-in
capital
Accumulated
deficit
Total stock-
holders'
equity
SharesAmountShares Amount
Balance at December 31, 202142,588,814 $4 (26,666)$(8)$728,004 $(584,459)$143,541 
Exercise of common stock options27,333 — — — 18 — 18 
Restricted stock units vested116,051 — — — — —  
Stock-based compensation— — — — 5,765 — 5,765 
Net loss during quarter— — — — — (49,192)(49,192)
Balance at March 31, 202242,732,198 $4 (26,666)$(8)$733,787 $(633,651)$100,132 
Exercise of common stock options — — —  —  
Restricted stock units vested21,945 — — — — —  
Stock-based compensation— — — — 5,639 — 5,639 
Net loss during quarter— — — — — (39,446)(39,446)
Balance at June 30, 202242,754,143 $4 (26,666)$(8)$739,426 $(673,097)$66,325 

Common stockTreasury stock Additional
paid-in
capital
Accumulated
deficit
Total stock-
holders'
equity
SharesAmountShares Amount
Balance at December 31, 202038,140,756 $4 (26,666)$(8)$613,462 $(436,107)$177,351 
Public offering (ATM)3,513,027 — — — 86,378 — 86,378 
Exercise of common stock options388,857 — — — 2,264 — 2,264 
Stock-based compensation— — — — 5,892 — 5,892 
Net loss during quarter— — — — — (26,442)(26,442)
Balance at March 31, 202142,042,640 $4 (26,666)$(8)$707,996 $(462,549)$245,443 
Exercise of common stock options230,347 — — — 1,481 — 1,481 
Stock-based compensation— — — — 5,694 — 5,694 
Net loss during quarter— — — — — (39,422)(39,422)
Balance at June 30, 202142,272,987 $4 (26,666)$(8)$715,171 $(501,971)$213,196 
The accompanying notes are an integral part of these condensed financial statements.
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G1 Therapeutics, Inc.
Condensed Statements of Cash Flows (unaudited)
(amounts in thousands)
Six Months Ended June 30,
20222021
Cash flows from operating activities
Net loss$(88,638)$(65,864)
Adjustments to reconcile net loss to net cash used in operating activities
Stock-based compensation11,404 11,586 
Depreciation and amortization254 238 
Amortization of debt issuance costs1,084 473 
Non-cash interest expense642 236 
Non-cash equity interest, net303 146 
Change in operating assets and liabilities
Accounts receivable(5,099)(4,725)
Inventories(10,543)(1,402)
Prepaid expenses and other assets5,759 (5,456)
Accounts payable6,098 (456)
Accrued expenses and other liabilities2,016 1,408 
Deferred revenue(21)448 
Net cash used in operating activities(76,741)(63,368)
Cash flows from investing activities
Purchases of property and equipment(506) 
Net cash provided/used in investing activities(506) 
Cash flows from financing activities
Proceeds from stock options exercised18 3,745 
Proceeds from loan agreement 10,000 
Payments of debt issuance costs (100)
Proceeds from public offering, net of underwriting fees and commissions 86,429 
Payment of public offering costs (51)
Net cash provided by financing activities18 100,023 
Net change in cash, cash equivalents and restricted cash(77,229)36,655 
Cash, cash equivalents and restricted cash
Beginning of period221,561 207,806 
End of period$144,332 $244,461 
Supplemental disclosure of cash flow information
Cash paid for interest$3,537 $1,132 
Non-cash operating, investing and financing activities
Upfront project costs and other current assets in accounts payable and accrued expenses$354 $522 
The accompanying notes are an integral part of these condensed financial statements.
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G1 Therapeutics, Inc.
Notes to financial statements
(unaudited)
1. Business Description
G1 Therapeutics, Inc. (the “Company” or “G1”) is a commercial-stage biopharmaceutical company focused on the development and commercialization of novel small molecule therapeutics for the treatment of patients with cancer. The Company’s first U.S. Food and Drug Administration (“FDA”)-approved product, COSELA® (trilaciclib), is the first and only therapy indicated to proactively help protect bone marrow from the damage of chemotherapy (myeloprotection) and is the first innovation in managing myelosuppression in decades. Trilaciclib was developed from a technology platform that targets key cellular pathways, including transient arrest of the cell cycle at the G1 phase, prior to the beginning of DNA replication. Controlled administration and clean G1 arrest reduce hematologic adverse events (“AEs”) caused by cytotoxic therapy and may increase the ability to receive longer treatment durations. Transient cyclin-dependent kinase 4/6 (“CDK4/6") inhibition also modulates multiple immune functions while allowing beneficial T cell proliferation which may improve patients’ anti-tumor immune responses. The Company is exploring the use of trilaciclib in a variety of trials across multiple tumor types and treatment combinations to optimize these dual benefits of myeloprotection and improved anti-tumor efficacy for patients globally. The Company was incorporated on May 19, 2008 in the state of Delaware.
The Company uses “COSELA” when referring to its FDA approved drug and “trilaciclib” when referring to the development of COSELA for additional indications.
Product Portfolio
The Company’s lead compound, trilaciclib, is a first-in-class therapy designed to help protect against chemotherapy-induced myelosuppression. Trilaciclib helps protect hematopoietic stem and progenitor cells (“HSPCs”) in the bone marrow by transiently inhibiting CDK4/6 leading to a temporary arrest of susceptible host cells during chemotherapy in patients. This reduces the duration and severity of neutropenia and other myelosuppressive consequences of chemotherapy. In addition, trilaciclib may improve anti-tumor efficacy when administered as combination treatment in patients by increasing their ability to receive more cytotoxic therapy, protecting their immune systems from damage caused by cytotoxic therapy, and improving their immune responses by modulating multiple immune functions while also allowing beneficial T cell proliferation. On February 12, 2021, trilaciclib (COSELA) was approved by the FDA to decrease the incidence of chemotherapy-induced myelosuppression in adult patients when administered prior to a platinum/etoposide-containing regimen or topotecan-containing regimen for extensive small cell lung cancer (“ES-SCLC”). The Company continues to explore these dual benefits of myeloprotection and anti-tumor efficacy across multiple clinical trials.
The Company is also executing on its tumor-agnostic strategy to evaluate the potential benefits of trilaciclib to patients with other tumors and to generate new data for trilaciclib in a variety of cytotoxic settings and treatment combinations to maximize its potential for patients in existing and future treatment paradigms. The Company currently has five on-going clinical trials: a Phase 3 pivotal trial in 1L colorectal cancer (“CRC”), a Phase 3 pivotal trial in 1L metastatic triple negative breast cancer (“mTNBC”), a Phase 2 trial in 1L bladder cancer with chemotherapy induction and checkpoint inhibitor maintenance, a Phase 2 trial in combination with an antibody-drug conjugate (“ADC”) in 2L/3L mTNBC, and a Phase 2 trial in neoadjuvant TNBC designed to validate trilaciclib’s immune-based mechanism of action (“MOA”). These studies will evaluate trilaciclib’s dual benefits of proactive multi-lineage myeloprotection and anti-tumor efficacy across tumor types and treatment combinations and will help inform the design of future additional pivotal studies. The Company is also conducting extensive preclinical work to assess the additive/synergistic potential of trilaciclib with a variety of new and emerging therapeutic agents that may be pursued as combination treatments in future clinical trials.
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Trilaciclib Product Portfolio
CandidateIndicationCurrent StatusTiming of
Initial
Results
EndpointsDevelopment &
Commercialization Rights
(all indications)
trilaciclib1L metastatic Colorectal cancer (CRC)Registrational trial (enrollment completed in June 2022)1Q 2023Primary: myeloprotection*
Secondary: ORR, PFS/OS, PRO
G1 Therapeutics owns all global development and commercial rights across all indications, with the exception of Greater China (Simcere)
1L metastatic Triple negative breast cancer (mTNBC)Registrational trial (enrolling)2H 2023Primary: OS*
Secondary: PRO, myeloprotection, PFS/ORR
1L Bladder cancer (mUC)Phase 2 trial
(target enrollment achieved in July 2022)
4Q 2022Primary: PFS
Secondary: ORR, OS, myeloprotection*, others
Antibody-drug conjugate (ADC) combination trial in mTNBCPhase 2 trial (enrolling)4Q 2022Primary: PFS
Secondary: ORR, OS, myeloprotection*, others
Mechanism of action trial in early stage neoadjuvant TNBCPhase 2 trial (enrollment completed in August 2022)4Q 2022Primary: Immune-based MOA*
Secondary: pCR, immune response, others
PFS=progression-free survival; OS=overall survival; PRO=patient reported outcome; ORR=overall response rate; pCR=pathological complete response; MOA=mechanism of action.
*Initial results: (i) Phase 3 colorectal cancer trial: myeloprotection and ORR endpoints; (ii) Phase 3 1L mTNBC trial: interim OS analysis; if the trial meets the interim analysis stopping rule, it will terminate and we will report the topline results. If it does not, the trial will continue to the final analysis; (iii) Phase 2 bladder cancer trial: ORR and myeloprotection endpoints; (iv) Phase 2 trial in combination with the ADC Trodelvy: preliminary safety data; (v) Phase 2 trial to confirm the immune-based mechanism of action (MOA) of trilaciclib in early-stage neoadjuvant TNBC: immune endpoints (e.g., CD8+ / Treg ratio)
The Company also has an active investigator Initiated Studies (“ISS”) program. An ISS is a study that is developed and conducted by a qualified physician external to the Company who assumes full responsibility for the conduct of the study. The Company supports investigator sponsored studies that align with its areas of scientific interest.
The Company has partnered with Nanjing Simcere Dongyuan Pharmaceutical Co., Ltd (“Simcere”) to develop trilaciclib in all indications in Greater China (mainland China, Hong Kong, Macau and Taiwan) since August 2020. On July 13, 2022, the China National Medical Products Administration (NMPA) conditionally approved COSELA (trilaciclib hydrochloride for injection) for marketing in China. COSELA is currently indicated in China to decrease the incidence of chemotherapy-induced myelosuppression in adult patients when administered prior to a platinum/etoposide-containing regimen for ES-SCLC. As a result of receiving approval in China, Simcere is obligated to pay the Company a $13.0 million milestone payment, which the Company anticipates receiving in the third quarter of 2022. In total, G1 may receive up to $156.0 million in milestone payments. G1 will also receive double-digit royalties on annual net sales of COSELA in China.
The Company out-licensed global rights to lerociclib, an internally discovered and differentiated oral CDK4/6 inhibitor designed to enable more effective combination treatment strategies across multiple oncology indications. In addition, the company out-licensed global rights to an internally discovered cyclin-dependent kinase 2 (“CDK2”) inhibitor for all human and veterinary uses. After completing the evaluation of the Company’s rintodestrant partnering options and recent data in the highly competitive oral SERD space, the Company made the strategic decision to discontinue the program. The Company is in the process of responsibly winding down all remaining clinical efforts for rintodestrant by the end of this year and will revert the rights back to the originator (University of Illinois Chicago); there are no additional financial obligations due to the originator resulting from the reversion. The Company also has intellectual property focused on cyclin-dependent kinase targets.
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2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). In the opinion of management, the Company has made all necessary adjustments, which include normal recurring adjustments necessary for a fair statement of the Company’s financial position and results of operations for the interim periods presented.
The information presented in the condensed financial statements and related notes as of June 30, 2022, and for the three and six months ended June 30, 2022, and 2021, is unaudited. The results for the three and six months ended June 30, 2022, are not necessarily indicative of the results expected for the full fiscal year or any future period. These interim financial statements should be read in conjunction with the financial statements and notes set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 23, 2022, (the “2021 Form 10-K”). The December 31, 2021 condensed balance sheet included herein was derived from the audited financial statements as of that date, but does not include all disclosures, including notes, required by U.S. GAAP for complete financial statements. Certain amounts have been reclassified to conform to current presentation.
The Company’s financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company has experienced net losses since its inception and has an accumulated deficit of $673.1 million and $584.5 million as of June 30, 2022 and December 31, 2021, respectively. The Company expects to incur losses and have negative net cash flows from operating activities as it executes on its strategy including engaging in further research and development activities, particularly conducting non-clinical studies and clinical trials. The success of the Company depends on the ability to successfully commercialize its technologies to support its operations and strategic plan. Based on management’s cash flow projections the Company believes that its cash and cash equivalents are sufficient to fund the Company’s planned operations and remain in compliance with its financial covenants for at least the next 12 months from the date of issuance of these financial statements. Until such time, if ever, as we can generate substantial revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. There can be no assurances that the Company will be able to secure such additional financing if at all, or on terms that are satisfactory to the Company, and that it will be sufficient to meet its needs. In the event the Company is not successful in obtaining sufficient funding, this could force us to delay, limit, or reduce our product development, commercialization efforts or other operations.
In connection with the Loan Payable described in Note 8, the Company is required to remain in compliance with a minimum cash covenant and a minimum monthly net product revenue covenant (determined in accordance with U.S. GAAP), measured on a trailing six-month basis. The lender also has the ability to call debt based on a material adverse change clause, which is subjectively defined. If the Company is not in compliance with the monthly net revenue covenants, the minimum cash covenant, or the subjective acceleration clauses are triggered under the agreement, then the lender may call the debt resulting in the Company immediately needing additional funds. As of June 30, 2022, the Company was in compliance with all covenants.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates which include, but are not limited to, estimates related to accrued expenses, accrued external clinical costs, net product sales, common stock valuation, stock-based compensation expense and deferred tax asset valuation allowance. Actual results could differ from those estimates.
Accounts Receivable
The Company’s accounts receivable consists of amounts due from specialty distributors in the U.S. (collectively, its “Customers”) related to sales of COSELA and have standard payment terms. Trade receivables are recorded net of the estimated variable consideration for chargebacks based on contractual terms and the Company’s expectation regarding the utilization and earnings of the chargebacks and discounts as well as the net amount expected to be collected from its customers. Estimates of the Company’s credit losses are determined based on existing contractual payment terms, individual customer circumstances, and any changes to the economic environment.
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In addition, the Company’s accounts receivable consists of open invoices issued to its license partners for services rendered by the Company or receivables with its license partners for invoices related to milestones that were completed and recognized as revenue.
Inventories
Inventories are stated at the lower of cost or net realizable value and recognized on a weighted-average cost method. The Company uses actual cost to determine the cost basis for inventory. Inventory is capitalized based on when future economic benefit is expected to be realized. Due to the nature of the Company’s supply chain process, inventory that is owned by the Company, is physically stored at third-party warehouses, logistics providers, and contract manufacturers. The Company began capitalizing inventory upon receiving FDA approval for COSELA on February 12, 2021. Prior to FDA approval of COSELA, expenses associated with the manufacturing of the Company's products were recorded as research and development expense.
Inventory valuation reserves are established based on a number of factors including, but not limited to, finished goods not meeting product specifications, product excess and obsolescence, or application of the lower of cost or net realizable value concepts. The determination of events requiring the establishment of inventory valuation, together with the calculation of the amount of such reserves may require judgment. The Company analyzes its inventory levels on a periodic basis to determine if any inventory is at risk for expiration prior to sale or has a cost basis that is greater than its estimated future net realizable value. Any adjustments are recognized through cost of sales in the period in which they are incurred. No inventory valuation reserves have been recorded for any periods presented.
Revenue Recognition
For elements of those arrangements that the Company determines should be accounted for under ASC 606, Revenue from Contracts with Customers (“ASC 606”), the Company assesses which activities in its license or collaboration agreements are performance obligations that should be accounted for separately and determines the transaction price of the arrangement, which includes the assessment of the probability of achievement of future milestones and other potential consideration. For arrangements that include multiple performance obligations, such as granting a license or performing manufacturing or research and development activities, the Company allocates the transaction price based on the relative standalone selling price and recognizes revenue that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied. Accordingly, the Company develops assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. These key assumptions may include revenue forecasts, clinical development timelines and costs, discount rates and probabilities of clinical and regulatory success.
License Revenue
Licenses of Intellectual Property
If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue associated with the bundled performance obligation. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of progress and related revenue recognition.
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Milestone Payments
At the inception of each arrangement that includes developmental and regulatory milestone payments, the Company evaluates whether the achievement of each milestone specifically relates to the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service within a performance obligation. The Company evaluates each milestone to determine when and how much of the milestone to include in the transaction price. The Company first estimates the amount of the milestone payment that the Company could receive using either the expected value or the most likely amount approach. The Company primarily uses the most likely amount approach as that approach is generally most predictive for milestone payments with a binary outcome. Then, the Company considers whether any portion of that estimated amount is subject to the variable consideration constraint (that is, whether it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty). The Company updates the estimate of variable consideration included in the transaction price at each reporting date which includes updating the assessment of the likely amount of consideration and the application of the constraint to reflect current facts and circumstances. For regulatory milestones, the Company recognizes revenue at a point in time upon approval, as that is when achievement of the milestone is considered probable. The Company assesses milestones as they are achieved to determine whether they are tied to any other performance obligations in the respective license agreements.
Royalties
For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any revenue related to sales-based royalties or milestone payments based on the level of sales.
Product Sales, Net
The Company sells COSELA to specialty distributors in the U.S. and, in accordance with ASC 606, recognizes revenue at the point in time when the customer is deemed to have obtained control of the product. The customer is deemed to have obtained control of the product at the time of physical receipt of the product at the customers’ distribution facilities, or Free on Board (“FOB”) destination, the terms of which are designated in the contract.
Product sales are recorded at the net selling price, which includes estimates of variable consideration for which reserves are established for (a) rebates and chargebacks, (b) co-pay assistance programs, (c) distribution fees, (d) product returns, and (e) GPO fees. Where appropriate, these estimates take into consideration a range of possible outcomes which are probability-weighted for relevant factors such as current contractual and statutory requirements, and forecasted customer buying and payment patterns. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the applicable contract. The amount of variable consideration may be constrained and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company's estimates. If actual results in the future vary from estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known.
Liabilities related to co-pay assistance, rebates, and GPO fees are classified as “Accrued Expenses” in the Condensed Balance Sheets. Discounts such as chargebacks, returns, and specialty distributor fees are recorded as a reduction to trade accounts receivable, which is included in “Accounts Receivable” in the Condensed Balance Sheets.
Forms of Variable Consideration
Rebates and Chargebacks: The Company estimates reductions to product sales for Public Health Service Institutions, such as Medicaid, Medicare and Veterans’ Administration (“VA”) programs, as well as certain other qualifying federal and state government programs, and other group purchasing organizations. The Company estimates these reductions based upon the Company’s contracts with government agencies and other organizations, statutorily defined discounts and estimated payor mix. These organizations purchase directly from the Company’s specialty distributors at a discount and the specialty distributors charge the Company back the difference between the wholesaler price and the discounted price. The Company’s liability for Medicaid rebates consists of estimates for claims that a state will make. The Company’s reserve for this discounted pricing is based on expected sales to qualified healthcare providers and the chargebacks that customers have already claimed.
Co-pay assistance: Eligible patients who have commercial insurance may receive assistance from the Company to reduce the patient’s out of pocket costs. Liabilities for co-pay assistance are calculated by actual program participation from third-party administrators.
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Distribution Fees: The Company has written contracts with its customers that include terms for distribution fees and costs for inventory management. The Company estimates and records distribution fees due to its customers based on gross sales.
Product Returns: The Company generally offers a right of return based on the product’s expiration date and certain spoilage and damaged instances. The Company estimates the amount of product sales that may be returned and records the estimate as a reduction of product sales in the period the related product sales are recognized. The Company’s estimates for expected returns are based primarily on an ongoing analysis of sales information and visibility into the inventory remaining in the distribution channel.
Cost of Goods Sold
Cost of goods sold includes direct and indirect costs related to the manufacturing and distribution of COSELA, including third-party manufacturing costs, packaging services, freight-in, third-party logistics costs associated with COSELA, and Company personnel costs. Cost of goods sold may also include period costs related to certain inventory manufacturing services and inventory adjustment charges. In connection with the FDA approval of COSELA on February 12, 2021, the Company subsequently began capitalizing inventory manufactured or purchased after this date. As a result, certain manufacturing costs associated with product shipments of COSELA were expensed prior to FDA approval and, therefore, are not included in cost of goods sold during the current period.
Research and Development
Research and development expenses consist of costs incurred to further the Company’s research and development activities and include salaries and related employee benefits, manufacturing of pharmaceutical active ingredients and drug products, costs associated with clinical trials, nonclinical activities, regulatory activities, research-related overhead expenses and fees paid to expert consultants, external service providers and contract research organizations which conduct certain research and development activities on behalf of the Company. Costs incurred in the research and development of products are charged to research and development expense as incurred.
Each reporting period, management estimated and accrued research and development expenses, including external clinical study costs associated with clinical trial activities. The process of estimating and accruing expenses involves reviewing contracts and purchase orders, identifying services that have been provided on the Company’s behalf, and estimating the level of service performed and the associated cost incurred for the service when the Company has not yet been invoiced or otherwise notified of the actual costs.
Costs for clinical trial activities were estimated based on an evaluation of vendors’ progress towards completion of specific tasks, using data such as patient enrollment, clinical site activations or information provided by vendors regarding their actual costs incurred. Payments for these activities are based on the terms of individual contracts and payment timing may differ significantly from the period in which the services were performed. The Company determines accrual estimates through reports from and discussions with applicable personnel and outside service providers as to the progress or state of completion of trials, or the services completed. The estimates of accrued external clinical study costs as of each balance sheet date are based on the facts and circumstances known at the time.
Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statements carrying amounts of assets and liabilities and their respective tax bases, operating loss carryforwards, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
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In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Accounting for Income Taxes, the Company reflects in the financial statements the benefit of positions taken in a previously filed tax return or expected to be taken in a future tax return only when it is considered ‘more-likely-than-not’ that the position taken will be sustained by a taxing authority. As of June 30, 2022, and December 31, 2021, the Company had no unrecognized income tax benefits and correspondingly there is no impact on the Company’s effective income tax rate associated with these items. The Company’s policy for recording interest and penalties relating to uncertain income tax positions is to record them as a component of income tax expense in the accompanying statements of operations. As of June 30, 2022, and December 31, 2021, the Company had no such accruals.
There was no income tax expense recognized during the three and six months ended June 30, 2022. Income tax expense recognized during the three and six months ended June 30, 2021 related to the foreign withholding taxes incurred as a result of the Simcere milestone payments received during the period.
Stock-Based Compensation
The primary type of stock-based payments utilized by the Company are stock options. The Company accounts for stock-based employee compensation arrangements by measuring the cost of employee services received in exchange for all equity awards granted based on the fair value of the award on the grant date. The fair value of each employee stock option is estimated on the date of grant using an options pricing model. The Company currently uses the Black-Scholes valuation model to estimate the fair value of its share-based payments. The model requires management to make a number of assumptions including expected volatility, expected life, risk-free interest rate and expected dividends.
The Company also incurs stock-based compensation expense related to restricted stock units (“RSUs”) granted to employees. The fair value of RSUs is determined by the closing market price of the Company’s common stock on the date of grant and then recognized over the requisite service period of the award.
Debt Issuance Costs
Debt issuance costs are amortized to interest expense over the estimated life of the related debt based on the effective interest method. In accordance with ASC 835, Interest, the Company presents debt issuance costs on the condensed balance sheet as a direct deduction from the associated debt.
3. Fair Value Measurements
The Company provides disclosure of financial assets and financial liabilities that are carried at fair value based on the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements may be classified based on the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities using the following three levels:
Level 1Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3Unobservable inputs that reflect the Company’s estimates of the assumptions that market participants would use in pricing the asset or liability. The Company develops these inputs based on the best information available, including its own data.
The carrying amounts of cash, cash equivalents, accounts payable and accrued liabilities approximate fair value because of their short-term nature.
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At June 30, 2022, and December 31, 2021, these financial instruments and respective fair values have been classified as follows (in thousands):
Quoted prices
in active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
other
unobservable
inputs
(Level 3)
Balance at June 30,
2022
Assets
Money market funds$33,319 $ $ $33,319 
Total assets at fair value$33,319 $ $ $33,319 
Quoted prices
in active
markets for
identical
assets
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
other
unobservable
inputs
(Level 3)
Balance at December 31,
2021
Assets
Money market funds$110,443 $ $ $110,443 
Total assets at fair value$110,443 $ $ $110,443 
During the three and six months ended June 30, 2022, and the year ended December 31, 2021, there were no changes in valuation methodology.
The Loan Payable (discussed in Note 8), which was recorded using Level 3 inputs, has a variable interest rate and the carrying value approximates its fair value. As of June 30, 2022, the carrying value was $76.1 million.
4. Inventories
Inventories as of June 30, 2022, and December 31, 2021 consist of the following (in thousands):
June 30, 2022December 31, 2021
Raw materials$7,516 $2,105 
Work in process3,061 1,342 
Finished goods3,437 24 
Inventories$14,014 $3,471 
The Company uses third party contract manufacturing organizations for the production of its raw materials, active pharmaceutical ingredients, and finished drug product which the Company owns. Costs incurred by the Company for manufacturing of initial commercial product of COSELA in preparation of commercial launch were expensed prior to FDA approval.
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5. Property and Equipment
Property and equipment consists of the following (in thousands):
June 30, 2022December 31, 2021
Computer equipment$327 $327 
Laboratory equipment334 334 
Furniture and fixtures866 866 
Leasehold improvements1,782 1,782 
Manufacturing equipment506  
Accumulated depreciation(1,550)(1,296)
Property and equipment, net$2,265 $2,013 
Depreciation expense relating to property and equipment was $139 thousand and $254 thousand for the three and six months ended June 30, 2022, respectively, and $118 thousand and $238 thousand for the three and six months ended June 30, 2021, respectively.
6. Patent License Agreement
On November 23, 2016, the Company entered into a license agreement with the Board of Trustees of the University of Illinois (the “University”), which was amended on March 24, 2017. In May 2022, the Company notified the University that it was terminating the license agreement.
7. Accrued Expenses
Accrued expenses are comprised as follows (in thousands):
June 30, 2022December 31, 2021
Accrued external research$483 $773 
Accrued professional fees and other4,460 8,058 
Accrued external clinical study costs18,283 9,579 
Accrued compensation expense3,373 4,770 
Accrued expenses$26,599 $23,180 
8. Loan Payable
On May 29, 2020, the Company entered into a loan and security agreement (the “Loan Agreement”) with Hercules Capital, Inc. (“Hercules”), under which Hercules agreed to lend the Company up to $100.0 million, to be made available in a series of tranches, subject to certain terms and conditions. The first tranche totals $30.0 million, of which the Company received $20.0 million at closing. Upon initiation of the Phase 3 trial of COSELA for metastatic colorectal cancer and receiving FDA approval for COSELA for small cell lung cancer (“Performance Milestone”), the second tranche of $20.0 million became available to the Company for drawdown through December 15, 2021. The third tranche of $30.0 million will be available through December 31, 2022. The fourth tranche of $20.0 million will be available at Hercules’ approval through December 31, 2022. On March 31, 2021, the Company entered into a First Amendment to Loan and Security Agreement (the “First Amendment”) with Hercules whereby the Company drew the remaining $10.0 million of the first tranche and the interest rate and financial covenants were amended. Unless loan advances exceeded $40.0 million, no financial covenants were required.
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Amounts borrowed under the Loan Agreement will bear an interest rate equal to the greater of either (i) (a) the prime rate as reported in The Wall Street Journal, plus (b) 6.40%, and (ii) 9.65%. Based on original terms of the Loan Agreement, the Company will make interest only payments through June 1, 2022 and following the interest only period, the Company will repay the principal balance and interest of the advances in equal monthly installments through June 1, 2024. Based on the original terms of the Loan Agreement, upon satisfaction of the Performance Milestone, the interest only period was extended through January 1, 2023 and the maturity date was extended to June 1, 2025. Upon entering into the First Amendment on March 31, 2021, the interest rate was amended to the greater of either (i) (a) the prime rate as reported in The Wall Street Journal, plus (b) 6.20%, and (ii) 9.45%.
The Company may prepay advances under the Loan Agreement, in whole or in part, at any time subject to a prepayment charge equal to (a) 3.0% of the prepayment amount in the first year; (b) 2.0% of the prepayment amount in the second year; and (c) 1.0% of the prepayment amount in the third year.
Upon prepayment or repayment of all or any of the advances under the Loan Agreement, the Company will pay (in addition to the prepayment charge) an end of term charge of 6.95% of the aggregate funded amount. With respect to the first tranche, the end of term charge of $2.1 million will be payable upon any prepayment or repayment. To the extent that the Company is provided additional advances under the Loan Agreement, the 6.95% end of term charge will be applied to such additional amounts. These amounts have been accrued over the term of the loan using effective-interest method.
On November 1, 2021, the Company entered into a Second Amendment to Loan and Security Agreement (the “Second Amendment”) under which Hercules agreed to lend the Company up to $150.0 million, to be made available in a series of tranches, subject to certain terms and conditions. The first tranche was increased to $100.0 million. At close of the Second Amendment, the Company borrowed an additional $45.0 million from tranche 1 with $25.0 million remaining to be borrowed through September 15, 2022. The second tranche of $20.0 million will become available to the Company upon achievement of $50.0 million trailing six-month net product revenue of COSELA no later than June 30, 2023 and will be available through December 15, 2023. The third tranche of $15.0 million will become available upon achievement of certain development performance milestones and available through December 15, 2023. The fourth tranche of $15.0 million will be available at Hercules’ approval through June 30, 2024.
Amounts borrowed under the Second Amendment will bear an interest rate equal to the greater of either (i) (a) the prime rate as reported in The Wall Street Journal, plus (b) 5.90%, and (ii) 9.15%. The Company will make interest only payments through December 1, 2024 and may be extended through December 1, 2025, in quarterly increments, subject to compliance with covenants of the Second Amendment. Following the interest only period, the Company will repay the principal balance and interest of the advances in equal monthly installments through November 1, 2026.
The Company may prepay advances under the Second Amendment, in whole or in part, at any time subject to a prepayment charge equal to (a) 3.0% of the prepayment amount in the first year from the closing of the Second Amendment; (b) 2.0% of the prepayment amount in the second year from the closing of the Second Amendment; and (c) 1.0% of the prepayment amount in the third year from the closing of the Second Amendment.
Upon prepayment or repayment of all or any of the advances under the Second Amendment, the Company will pay (in addition to the prepayment charge) an end of term charge of 6.75% of the aggregate amount funded. The Company will be required to make a final payment to Hercules in the amount of 6.75% of the amounts funded, less any amount previously paid. In addition, the Company will be required to make a payment to the lender for $2.1 million on the earliest occurrence of (i) June 1, 2025, (ii) the date the Company repays the outstanding principal amount in full, or (iii) the date that the principal amount becomes due and payable in full.
The Second Amendment is secured by substantially all of the Company’s assets, including intellectual property, subject to certain exemptions. The Company out-licensed lerociclib as permitted in the Loan Agreement and the Company may out-license rintodestrant upon approval of the licensing terms by Hercules.
The Second Amendment contains a minimum revenue covenant. Beginning August 15, 2022, with the reporting of the financial results for the second fiscal quarter ended June 30, 2022, and tested monthly, the Company must have achieved net product revenue of COSELA of at least 65% of the amounts projected in the Company’s forecast. Testing of the minimum revenue covenant shall be waived at any time in which either (a) the Company’s market capitalization exceeds $750.0 million and the Company maintains unrestricted cash equal to at least 50% of the total amounts funded, or (b) the Company maintains unrestricted cash equal to at least 100% of the total amounts funded.
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The Company evaluated the Second Amendment under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the previous debt under the Loan Agreement was extinguished based on the difference in present value of the cash flows of the Loan Agreement and the Second Amendment. Accordingly, the difference between the carrying value of the Loan Agreement as of November 1, 2021, including the unamortized debt issuance costs, and the fair value of the Second Amendment was recorded as a $0.2 million loss on extinguishment of debt for the twelve months ended December 31, 2021. Fees paid to third parties directly related to the funded portion of the Second Amendment have been capitalized as debt issuance costs and will be amortized to interest expense over the life of the Second Amendment using the effective interest method. Fees paid that were directly related to the unfunded portion is accounted for as a deferred financing charge and amortized to interest expense over the period the unfunded portions are available. The end of term charges associated with the Second Amendment are being accreted through interest expense using the effective interest method over the related term of the debt.
On June 24, 2022, the Company entered into a Third Amendment to Loan and Security Agreement (the “Third Amendment”) with Hercules which extends the time for drawing the remainder of the tranche 1 advance of up to $25.0 million from September 15, 2022 to December 31, 2022. The Third Amendment also adds a minimum cash covenant whereby the Company must maintain unrestricted cash equal to at least 50% of the outstanding debt, and such percentage shall decrease upon the Company achieving specified net product revenue of COSELA. It further provides for a minimum revenue covenant that, beginning August 15, 2022 with the reporting of the financial results for the second fiscal quarter ended June 30, 2022, and tested monthly, the Company must have achieved net product revenue of COSELA of at least 80% of the amounts projected in the Company’s forecast. Testing of the minimum revenue covenant shall be waived at any time in which either (a) the Company’s market capitalization exceeds $750.0 million and the Company maintains unrestricted cash equal to at least 50% of the total amounts funded, or (b) the Company maintains unrestricted cash equal to at least 100% of the total amounts funded. The Company evaluated the Third Amendment under the guidance found in ASC 470-50 Modification and Extinguishment. The Company concluded that the Amendment was a modification and there was no impact to the financial statements.
During the six months ended June 30, 2022, the Company recognized $4.7 million of interest expense related to the debt, which is reflected in other income (expense), net on the statement of operations.
As of June 30, 2022, the future principal payments due under the Loan Agreement, excluding interest, is as follows (in thousands):
Amount
2022$ 
2023 
20242,818 
202535,744 
202636,438 
Total principal outstanding75,000 
End of term charge1,916 
Unamortized debt issuance costs(815)
Total$76,102 
9. Stockholders’ Equity
Common Stock
The Company is authorized to issue 120.0 million shares of common stock. Holders of common stock are entitled to one vote per share. Holders of common stock are entitled to receive dividends, as, if and when declared by the Company’s Board of Directors.
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On June 15, 2018, the Company entered into a sales agreement for “at the market offerings” with Cowen and Company, LLC (“Cowen”), which allowed the Company to issue and sell shares of common stock pursuant to a shelf registration statement for total gross sales proceeds of up to $125.0 million from time to time through Cowen, acting as its agent. Between January 14, 2021 and February 9, 2021, the Company sold 3,513,027 shares of common stock pursuant to this agreement, resulting in $86.4 million in net proceeds. As of February 9, 2021, the Company used the entirety of the remaining availability under the 2018 sales agreement with Cowen.
On July 2, 2021, the Company filed an automatic shelf registration statement on Form S-3 with the Securities and Exchange Commission (the “SEC”), which became effective upon filing, pursuant to which the Company registered for sale an unlimited amount of any combination of its common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that the Company may determine, so long as the Company continued to satisfy the requirements of a “well-known seasoned issuer” under SEC rules (the “2021 Form S-3”).
In connection with the 2021 Form S-3, on July 2, 2021, the Company entered into a sales agreement for “at the market offerings” with Cowen, which allowed the Company to issue and sell shares of common stock pursuant to the 2021 Form S-3 for total gross sales proceeds of up to $150.0 million from time to time through Cowen, acting as its agent (the “2021 Sales Agreement”). The Company did not sell any shares of common stock under the 2021 Sales Agreement.
Since the Company no longer qualifies as a “well-known seasoned issuer” as such term is defined in Rule 405 under the Securities Act of 1933, as amended, at the time of the filing of the Company’s 2021 Form 10-K in February 2022, the Company filed an automatic post-effective amendment to the 2021 Form S-3 on Form POSASR prior to filing of the Company’s 2021 Form 10-K, which became effective upon filing, to register for sale up to $300.0 million of any combination of its common stock, preferred stock, debt securities, warrants, rights and/or units from time to time and at prices and on terms that the Company may determine and, as required by SEC rules, and another post-effective amendment to the 2021 Form S-3 on Form POS AM after the filing of the Company’s 2021 Form 10-K. The post-effective amendment to the 2021 Form S-3 on Form POS AM was declared effective by the SEC on May 3, 2022 and the 2021 Form S-3 will remain in effect for up to three years from the date it originally became effective, which was July 2, 2021. The 2021 Form S-3 also includes a prospectus covering up to an aggregate of $100.0 million in common stock that the Company may issue and sell from time to time, through Cowen acting as its sales agent, pursuant to that certain sales agreement that the Company entered into with Cowen on February 23, 2022 (the “2022 Sales Agreement”). In connection with the Company entering into the 2022 Sales Agreement with Cowen, the Company terminated the 2021 Sales Agreement. As of the date hereof, we have not sold any shares of common stock or other securities under the 2022 Sales Agreement for our “at the market offerings.”
Preferred Stock
The Company is authorized to issue 5.0 million shares of undesignated preferred stock in one or more series. As of June 30, 2022, no shares of preferred stock were issued or outstanding.
Shares Reserved for Future Issuance
The Company has reserved authorized shares of common stock for future issuance at June 30, 2022, and December 31, 2021 as follows:
June 30, 2022December 31, 2021
Common stock options outstanding7,859,681 6,701,727 
RSUs outstanding642,898 414,991 
Options and RSUs available for grant under Equity Incentive Plans2,066,998 1,771,635 
10,569,577 8,888,353 
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10. Stock-Based Compensation
2011 Equity Incentive Plan
In March 2011, the Company adopted the 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan provided for the direct award or sale of the Company’s common stock and for the grant of stock options to employees, directors, officers, consultants and advisors of the Company. The 2011 Plan was subsequently amended in August 2012, October 2013, February 2015, December 2015, April 2016 and November 2016 to allow for the issuance of additional shares of common stock. In connection with the adoption of the 2017 Plan (as defined below), the 2011 Plan was terminated and no further awards will be made under the 2011 Plan.
2017 Equity Incentive Plan
In May 2017, the Company adopted the 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan provided for the direct award or sale of the Company’s common stock and for the grant of up to 1,932,000 stock options to employees, directors, officers, consultants and advisors of the Company. The 2017 Plan provides for the grant of incentive stock options, non-statutory stock options or restricted stock. Effective January 1, 2022, and in accordance with the “evergreen” provision of the 2017 Plan, an additional 1,096,553 shares were made available for issuance.
Under both the 2011 Plan and the 2017 Plan, options to purchase the Company’s common stock may be granted at a price no less than the fair market value of a share of common stock on the date of grant. The fair value shall be the closing sales price for a share as quoted on any established securities exchange for such grant date or the last preceding date for which such quotation exists. Vesting terms of options issued are determined by the Board of Directors or Compensation Committee of the Board. The Company’s stock options vest based on terms in the stock option agreements. Stock options have a maximum term of ten years.
Beginning in January 2021, the Company began granting Restricted Stock Units (“RSUs”) under the 2017 Plan. RSUs are granted at the fair market value of a share of common stock on the date of grant.
As of June 30, 2022, there were a total of 1,363,418 shares of common stock available for future issuance under the 2017 Plan.
Amended and Restated 2021 Inducement Equity Incentive Plan
In February 2021, the Company adopted the 2021 Inducement Equity Incentive Plan (the “2021 Inducement Plan”). The 2021 Inducement Plan provides for the grant of up to 500,000 non-qualified options, stock grants, and stock-based awards to employees and directors of the Company. The 2021 Inducement Plan does not include an evergreen provision.
In September 2021, the Company adopted the 2021 Sales Force Inducement Equity Incentive Plan (the “2021 Sales Force Inducement Plan”). The 2021 Sales Force Inducement Plan provides for the grant of up to 500,000 non-qualified options, stock grants, and stock-based awards to sales force individuals and support staff that were not previously employees or directors of the Company. The 2021 Sales Force Inducement Plan does not include an evergreen provision.
In March 2022, the Company merged the 2021 Sales Force Inducement Plan into the 2021 Inducement Plan and amended and restated the 2021 Inducement Plan to create the Amended and Restated 2021 Inducement Equity Incentive Plan (the “Amended and Restated 2021 Plan”). In addition, the number of shares reserved for issuance under the Amended and Restated 2021 Plan was increased by 750,000 shares of the Company’s common stock, for an aggregate of 1,750,000 shares of the Company’s common stock authorized to issue under the Amended and Restated 2021 Plan. The Amended and Restated 2021 Plan does not include an evergreen provision.
As of June 30, 2022, there was a total of 703,580 shares of common stock available for future issuance under the Amended and Restated 2021 Plan.
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Stock-Based Compensation
The Company recognizes compensation costs related to stock options granted to employees based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures. The grant date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. Share-based awards granted to non-employee directors as compensation for serving on the Company’s Board of Directors are accounted for in the same manner as employee share-based compensation awards.
The Company calculates the fair value of stock options using the Black-Scholes option pricing model. The Black-Scholes option-pricing model requires the use of subjective assumptions, including the expected volatility of the Company’s common stock, the assumed dividend yield, the expected term of the Company’s stock options and the fair value of the underlying common stock on the date of grant.
The Company also incurs stock-based compensation expense related to RSUs. The fair value of RSUs is determined by the closing market price of the Company’s common stock on the date of grant and then recognized over the requisite service period of the award.
The table below summarizes the stock-based compensation expense recognized in the Company’s statement of operations by classification (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Cost of goods sold$52 $126 $103 $169 
Research and development1,020 1,228 2,169 2,633 
Selling, general and administrative4,567 4,340 9,132 8,784 
Total stock-based compensation expense$5,639 $5,694 $11,404 $11,586 
Stock options— Black-Scholes inputs
The fair value of stock options was estimated using the following weighted-average assumptions for the three and six months ended June 30, 2022, and June 30, 2021:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Expected volatility
77.4% - 79.3%
78.6% - 79.6%
76.7% - 79.3%
78.3% - 79.6%
Weighted-average risk free rate
2.5% - 3.2%
1.0% - 1.2%
1.4% - 3.2%
0.4% - 1.2%
Dividend yield%%%%
Expected term (in years)5.725.806.005.98
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Stock Option Activity
The following table is a summary of the Stock option activity for the six months ended June 30, 2022:
Weighted average
Options
outstanding
Weighted
average
exercise
price
Remaining
contractual
life (Years)
Aggregate
intrinsic
value
(in thousands)
Balance as of December 31, 20216,701,727 $17.88 7.2$10,427 
Granted1,574,439 9.63 
Cancelled(27,333)0.67 
Exercised(389,152)20.70 
Balance as of June 30, 20227,859,681 $16.15 7.3$3,468 
Exercisable at December 31, 20213,660,578 $16.72 5.9$10,422 
Vested at December 31, 2021 and expected to vest6,701,727 $17.88 7.2$10,427 
Exercisable at June 30, 20224,345,044 $17.43 5.9$3,467 
Vested at June 30, 2022 and expected to vest7,859,681 $16.15 7.3$3,468 
As of June 30, 2022, unrecognized compensation expense related to unvested stock options totaled $31.0 million, which the Company expects to be recognized over a weighted-average period of approximately 2.4 years.
Restricted Stock Units
The Company’s restricted stock units (“RSUs”) are considered nonvested share awards and require no payment from the employee. For each RSU, employees receive one common share at the end of the vesting period. Compensation cost is recorded based on the market price of the Company’s common stock on the grant date and is recognized on a straight-line basis over the requisite service period.
The following table is a summary of the RSU activity for six months ended June 30, 2022:
Number of
RSUs
Weighted – Average
Fair Value
per Share
Balance as of December 31, 2021414,991 $18.24 
Granted428,031 9.50 
Cancelled(137,996)18.65 
Vested(62,128)12.06 
Balance as of June 30, 2022642,898 $12.92 
As of June 30, 2022, there was $6.9 million of total unrecognized compensation cost related to Company RSUs that are expected to vest. These costs are expected to be recognized over a weighted-average period of approximately 2.6 years.
11. License Revenue
Incyclix License Agreement
On May 22, 2020, the Company entered into an exclusive license agreement with Incyclix Bio, LLC (“Incyclix”), formerly ARC Therapeutics, LLC, a company primarily owned by a former board member, whereby the Company granted to Incyclix an exclusive, worldwide, royalty-bearing license, with the right to sublicense, solely to make, have made, use, sell, offer for sale, import, export, and commercialize products related to its CDK2 inhibitor compounds. At close, the Company received consideration in the form of an upfront payment of $1.0 million and an equity interest in Incyclix equal to 10% of its issued and outstanding units valued at $1.1 million. In addition, the Company may receive a future development milestone payment totaling $2.0 million and royalty payments in the mid-single digits based on net sales of the licensed compound after commercialization. The Company has right of first negotiation to re-acquire these assets.
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The Company assessed the license agreement in accordance with ASC 606 and identified one performance obligation in the contract, which is the transfer of the license, as Incyclix can benefit from the license using its own resources. The Company recognized $2.1 million in license revenue consisting of the upfront payment and the 10% equity interest in Incyclix upon the effective date as the Company determined the license was a right to use the intellectual property and the Company had provided all necessary information to Incyclix to benefit from the license.
The Company considers the future potential development milestones and sales-based royalties to be variable consideration. The development milestone is excluded from the transaction price because it determined the payment to be fully constrained under ASC 606 due to the inherent uncertainty in the achievement of such milestone due to factors outside of the Company’s control. As sales-based royalties are all related to the license of the intellectual property, the Company will recognize revenue in the period when subsequent sales are made pursuant to the sales-based royalty exception. The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
There was no revenue recognized during the six months ended June 30, 2022.
Genor License Agreement
On June 15, 2020, the Company entered into an exclusive license agreement with Genor Biopharma Co. Inc. (“Genor”) for the development and commercialization of lerociclib in the Asia-Pacific region, excluding Japan (the “Genor Territory”). Under the license agreement, the Company granted to Genor an exclusive, royalty-bearing, non-transferable license, with the right to grant sublicenses, to develop, obtain, hold and maintain regulatory approvals for, and commercialize lerociclib, in the Genor Territory.
Under the license agreement, Genor agreed to pay the Company a non-refundable, upfront cash payment of $6.0 million with the potential to pay an additional $40.0 million upon reaching certain development and commercial milestones. In addition, Genor will pay the Company tiered royalties ranging from high single to low double-digits based on annual net sales of lerociclib in the Genor Territory. In September 2020, the Company transferred to Genor the related technology and know-how that is necessary to develop, seek regulatory approval for, and commercialize lerociclib in the Genor Territory, which resulted in the recognition of $6.0 million in revenue in accordance with ASC 606.
There was no milestone revenue recognized during the six months ended June 30, 2022.
EQRx License Agreement
On July 22, 2020, the Company entered into an exclusive license agreement with EQRx, Inc. (“EQRx”) for the development and commercialization of lerociclib in the U.S., Europe, Japan and all other global markets, excluding the Asia-Pacific region (except Japan) (the “EQRx Territory”). Under the license agreement, the Company granted to EQRx an exclusive, royalty-bearing, non-transferable license, with the right to grant sublicenses, to develop, obtain, hold and maintain regulatory approvals for, and commercialize lerociclib in the EQRx Territory.
Under the license agreement, EQRx agreed to pay the Company a non-refundable, upfront cash payment of $20.0 million with the potential to pay an additional $290.0 million upon reaching certain development and commercial milestones. In addition, EQRx will pay the Company tiered royalties ranging from mid-single digits to mid-teens based on annual net sales of lerociclib in the EQRx Territory. In September 2020, the Company transferred to EQRx the related technology and know-how that is necessary to develop, seek regulatory approval for, and commercialize lerociclib in the EQRx Territory which resulted in the recognition of $20.0 million in revenue in accordance with ASC 606. EQRx will be responsible for the development of the product in the EQRx Territory. The Company will continue until completion, as the clinical trial sponsor, its two primary clinical trials at EQRx’s sole cost and expense. EQRx will reimburse the Company for all of its out-of-pocket costs incurred after the effective date of the license agreement in connection with these clinical trials. The Company will invoice EQRx within 30 days following the end of the quarter, and EQRx will pay within 30 days after its receipt of such invoice.
For the six months ended June 30, 2022, the Company recognized revenue of $1.4 million for the reimbursement of clinical trials costs. No development and commercial milestones, as defined by the license agreement, have been achieved through June 30, 2022.
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Simcere License Agreement
On August 3, 2020, the Company entered into an exclusive license agreement with Nanjing Simcere Dongyuan Pharmaceutical Co., Ltd (“Simcere”) for the development and commercialization of trilaciclib in all indications in Greater China (mainland China, Hong Kong, Macau, and Taiwan) (the “Simcere Territory”). Under the license agreement, the Company granted to Simcere an exclusive, royalty-bearing, non-transferable license, with the right to grant sublicenses, to develop, obtain, hold and maintain regulatory approvals for, and commercialize trilaciclib in the Simcere Territory.
Under the license agreement, Simcere agreed to pay the Company a non-refundable, upfront cash payment of $14.0 million with the potential to pay an additional $156.0 million upon reaching certain development and commercial milestones. In addition, Simcere will pay the Company tiered low double-digit royalties on annual net sales of trilaciclib in the Simcere Territory. In accordance with ASC 606, the Company recognized the non-refundable, upfront cash payment of $14.0 million (less applicable withholding taxes of $1.4 million) in 2020 as the Company had transferred the license and related technology and know-how to Simcere.
For the six months ended June 30, 2022, the Company recognized $1.3 million for reimbursement of clinical trial costs and $0.4 million for license revenue supply. There was no milestone revenue recognized during the six months ended June 30, 2022.
12. Net Loss per Common Share
Basic net loss per common share is computed using the weighted average number of common shares outstanding during the period including nominal issuances of common stock warrants. Diluted net loss per common share is computed using the sum of 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, stock warrants and unvested restricted common stock. For the three and six months ended June 30, 2022, and 2021, the following potentially dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding because the effect would be anti-dilutive:
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Stock options issued and outstanding7,760,860 7,114,398 7,748,660 7,281,645 
Unvested RSUs623,932 462,610 615,201 464,106 
Total potential dilutive shares8,384,792 7,577,008 8,363,861 7,745,751 
Amounts in the table above reflect the common stock equivalents of the noted instrument.
13. Income Taxes
The Company’s effective income tax rate was 0.0% and (0.6%) for the three months ended June 30, 2022 and 2021 and 0.0% and (0.5%) for the six months ended June 30, 2022, and 2021, respectively. The Company continues to recognize losses in the United States and therefore, has recorded no tax benefit associated with these losses. The only income tax expense recognized related to the foreign withholding taxes incurred as a result of the Simcere licensing agreement. See Note 11 for further discussion on this transaction.
14. Related Party Transactions
The Company entered into a senior advisor agreement on September 29, 2020 with Mark A. Velleca, M.D., Ph.D., a member of the Board of Directors, with an effective date of January 1, 2021. Pursuant to the terms of the agreement, Dr. Velleca will receive $200,000 annually, paid in equal quarterly installments, for his services. The senior advisor agreement will expire on December 31, 2023.
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15. Subsequent Event
On July 13, 2022, NMPA conditionally approved COSELA (trilaciclib hydrochloride for injection) for marketing in China. COSELA is currently indicated in China to decrease the incidence of chemotherapy-induced myelosuppression in adult patients when administered prior to a platinum/etoposide-containing regimen for ES-SCLC. As a result of receiving approval in China, Simcere is obligated to pay the Company a $13.0 million milestone payment, which the Company anticipates receiving in the third quarter of 2022.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included elsewhere in this quarterly report. This discussion and other parts of this quarterly report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of our 2021 Form 10-K, and in our subsequently filed Quarterly Reports on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
In this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” the “Company” and “G1” mean G1 Therapeutics, Inc.
Overview
We are a commercial-stage biopharmaceutical company focused on the development and commercialization of novel small molecule therapeutics for the treatment of patients with cancer. Our first product approved by the U.S. Food and Drug Administration (“FDA”), COSELA® (trilaciclib), is the first and only therapy indicated to proactively help protect bone marrow from the damage of chemotherapy (myeloprotection) and is the first innovation in managing myeloprotection in decades. Trilaciclib was developed from a technology platform that targets key cellular pathways including transient arrest of the cell cycle at the G1 phase, prior to the beginning of DNA replication. Controlled administration and clean G1 arrest reduce hematologic adverse events (“AEs”) caused by cytotoxic therapy and may increase the ability to receive longer treatment durations. Transient CDK4/6 inhibition also modulates multiple immune functions while allowing beneficial T cell proliferation which may improve patients’ anti-tumor immune responses. We are exploring the use of trilaciclib in a variety of trials across multiple tumor types and treatment combinations to optimize these dual benefits of myeloprotection and improved anti-tumor efficacy for patients globally.
We use “COSELA” when referring to our FDA approved drug and “trilaciclib” when referring to our development of COSELA for additional indications.
COSELA is a prescription medicine used to help reduce the occurrence of low blood cell counts caused by damage to bone marrow from chemotherapy. COSELA is used to treat adults taking certain chemotherapies (platinum/etoposide or topotecan) for extensive-stage small cell lung cancer.
COSELA is an injection for intravenous (IV) use given within four hours before chemotherapy.
Commercial Product
https://cdn.kscope.io/a49a3eb8ce682c45bd7c81ac8cb3146e-gthx-20220630_g1.jpg
On February 12, 2021, COSELA was approved by the FDA to decrease the incidence of chemotherapy-induced myelosuppression in adult patients treated with a platinum/etoposide-containing regimen or topotecan-containing regimen for ES-SCLC. COSELA became commercially available through our specialty distributor network on March 2, 2021.
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We announced on March 25, 2021 that COSELA had been included in two updated National Comprehensive Cancer Network® (“NCCN”) Clinical Practice Guidelines in Oncology (NCCN Guidelines®): The Treatment Guidelines for Small Cell Lung Cancer and the Supportive Care Guidelines for Hematopoietic Growth Factors. These guidelines document evidence-based, consensus-driven management to ensure that all patients receive preventive, diagnostic, treatment, and supportive services that are most likely to lead to optimal outcomes. On October 1, 2021, we announced that the permanent J-code for COSELA that was issued in July 2021 by the Centers for Medicare & Medicaid Services (CMS) is now effective for provider billing for all sites of care. All hospital outpatient departments, ambulatory surgery centers and physician offices in the United States have one consistent Healthcare Common Procedure Coding System (HCPCS) code to standardize the submission and payment of COSELA insurance claims across Medicare, Medicare Advantage, Medicaid and commercial plans. Our new technology add-on payment (NTAP) for COSELA which provides additional payment to inpatient hospitals above the standard Medicare Severity Diagnosis-Related Group (MS-DRG) payment amount also became effective for provider billing on October 1, 2021.
We are also exploring potential use of trilaciclib in a variety of tumors, including colorectal cancer (“CRC”), breast cancer, bladder cancer, and in trials designed to inform the design of future additional pivotal studies across multiple tumor types and treatment combinations including checkpoint inhibitors and targeted chemotherapy medicines called antibody-drug conjugates (ADCs).
In June 2020, we entered into a three-year co-promotion agreement for COSELA in the United States and Puerto Rico with Boehringer Ingelheim Pharmaceuticals, Inc. In December 2021, the Company and Boehringer Ingelheim mutually agreed to end the co-promotion agreement for COSELA, effective March 2022. At that time, we announced that we would hire and deploy a total of 34 oncology sales representatives to allow us to target all accounts to accelerate sales activities and help maximize the adoption of COSELA. As of February 21, 2022, all 34 sales representatives have been hired, trained, and deployed into their respective regions. The second quarter of 2022 was the first full quarter of sales solely by the G1 COSELA sales team.
On August 3, 2020, we entered into an exclusive license agreement with Nanjing Simcere Dongyuan Pharmaceutical Co., Ltd (“Simcere”) for the development and commercialization of trilaciclib in all indications in Greater China (mainland China, Hong Kong, Macau and Taiwan). On July 13, 2022, the China National Medical Products Administration (NMPA) conditionally approved COSELA (trilaciclib hydrochloride for injection) for marketing in China. COSELA is indicated in China to decrease the incidence of chemotherapy-induced myelosuppression in adult patients when administered prior to a platinum/etoposide-containing regimen for ES-SCLC. As a result of receiving approval in China, Simcere is obligated to pay us a $13.0 million milestone payment, which we anticipate receiving in the third quarter of 2022. In total, we may receive up to $156.0 million in milestone payments. We will also receive double-digit royalties on annual net sales of COSELA in China.
Product Portfolio
Trilaciclib is a first-in-class therapy designed to help protect against chemotherapy-induced myelosuppression. Trilaciclib, a novel transient IV CDK4/6 inhibitor has unique attributes including rapid onset from IV administration, potent and selective CDK4 and CDK6 inhibition and a short half-life. Controlled administration and clean G1-phase arrest reduce hematologic AEs caused by cytotoxic therapy and may increase patients’ abilities to receive longer treatment durations. Transient CDK4/6 inhibition also modulates multiple immune functions while allowing beneficial T cell proliferation which may improve patients’ anti-tumor immune responses.
Trilaciclib transiently blocks progression through the cell cycle. This provides benefits which manifest depending on the tumor type and therapeutic backbone, including: (1) proactive multi-lineage myeloprotection, and (2) potentially improved anti-tumor efficacy.
First, trilaciclib provides proactive multi-lineage myeloprotection by transiently arresting hematopoietic stem and progenitor cells (“HSPCs”), helping to protect them from damage caused by cytotoxic therapy thereby minimizing cytopenias across neutrophils, erythrocytes, and platelets. These proactive multi-lineage myeloprotection benefits were seen in our three double-blind, placebo-controlled clinical trials in ES-SCLC, where highly myelosuppressive chemotherapy regimens are administered multiple days in a row. This myeloprotection benefit is being explored as the primary endpoint in our ongoing PRESERVE 1 trial in 1L colorectal cancer.
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Second, trilaciclib may have the ability to improve anti-tumor efficacy through a combination of potential factors, including increasing patients’ ability to receive more cytotoxic therapy, protecting the immune system from damage caused by cytotoxic therapy, and favorably modulating multiple immune functions while also allowing beneficial T cell proliferation. In particular, these immune function improvements may include: (1) enhancing T cell activation (via increased antigen presentation and secretion of IL-2 and IFNγ), (2) favorably altering the tumor microenvironment (via increased chemokines responsible for trafficking T cells to tumors and reducing the number and function of immunosuppressive cell populations), and (3) improving long-term immune surveillance (via increased generation of memory CD8+ T cells). A meaningful anti-tumor efficacy benefit was observed in our Phase 2 mTNBC study in which trilaciclib led to a significant improvement in overall survival when administered in combination with chemotherapy compared to chemotherapy alone. We are exploring these dual benefits of myeloprotection and anti-tumor efficacy across a variety of ongoing Phase 2 and Phase 3 clinical trials.
We are executing on our tumor-agnostic strategy to evaluate the potential benefits of trilaciclib to patients with other tumors to continuously develop new data with trilaciclib in a variety of chemotherapeutic settings and in combination with other agents to maximize the applicability of the drug to potential future treatment paradigms. We currently have five ongoing clinical trials: a pivotal Phase 3 trial in 1L colorectal cancer (“CRC”), a pivotal Phase 3 trial in 1L mTNBC, a Phase 2 trial in 1L bladder cancer with chemotherapy induction and a checkpoint inhibitor maintenance, a Phase 2 trial in combination with an antibody-drug conjugate (“ADC”) in 2L/3L mTNBC, and a Phase 2 trial in neoadjuvant TNBC designed to validate trilaciclib’s immune-based mechanism of action (“MOA”). These studies across treatment settings and tumor types will evaluate trilaciclib’s dual benefits of proactive multi-lineage myeloprotection and anti-tumor efficacy across tumor types. In addition, the MOA and ADC trials will inform the design of future additional pivotal studies across multiple tumor types and treatment combinations. We are also conducting significant preclinical work to assess the additive/synergistic potential of trilaciclib with a variety of novel and emerging therapeutic agents to identify synergies to evaluate in future clinical trials. Our overall development approach includes monitoring and anticipating the evolving future standards of care across tumor types in order to design or support studies that generate important data for trilaciclib across relevant future treatment settings and maximize future usage.
Trilaciclib Product Portfolio
CandidateIndicationCurrent StatusTiming of
Initial Results
EndpointsDevelopment &
Commercialization Rights
(all indications)
trilaciclib
1L metastatic Colorectal cancer (CRC)
Registrational Phase 3 trial (enrollment completed in June 2022)1Q 2023Primary: myeloprotection*
Secondary: ORR, PFS/OS, PRO
G1 Therapeutics owns all global development and commercial rights across all indications, with the exception of Greater China (Simcere)
1L metastatic Triple negative breast cancer (mTNBC)
Registrational Phase 3 trial (enrolling)2H 2023Primary: OS*
Secondary: PRO, myeloprotection, PFS/ORR
1L Bladder cancer (mUC)
Phase 2 trial
(target enrollment achieved in July 2022)
4Q 2022Primary: PFS
Secondary: ORR, OS, myeloprotection*, others
Antibody-drug conjugate (ADC) combination trial in mTNBC
Phase 2 trial (enrolling)4Q 2022Primary: PFS
Secondary: ORR, OS, myeloprotection*, others
Mechanism of action trial in early stage neoadjuvant TNBC
Phase 2 trial (enrollment completed in August 2022)4Q 2022Primary: Immune-based MOA*
Secondary: pCR, immune response, others
PFS=progression-free survival; OS=overall survival; PRO=patient reported outcome; ORR=overall response rate; pCR=pathological complete response; MOA=mechanism of action.
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*Initial results: (i) Phase 3 colorectal cancer trial: myeloprotection and ORR endpoints; (ii) Phase 3 1L mTNBC trial: interim OS analysis; if the trial meets the interim analysis stopping rule, it will terminate and we will report the topline results. If it does not, the trial will continue to the final analysis; (iii) Phase 2 bladder cancer trial: ORR and myeloprotection endpoints; (iv) Phase 2 trial in combination with the ADC Trodelvy: preliminary safety data; (v) Phase 2 trial to confirm the immune-based mechanism of action (MOA) of trilaciclib in early-stage neoadjuvant TNBC: immune endpoints (e.g., CD8+ / Treg ratio)
Lerociclib
Lerociclib is a differentiated clinical-stage oral CDK4/6 inhibitor being developed for use in combination with other targeted therapies in multiple oncology indications. In 2020, we entered into separate, exclusive agreements with EQRx, Inc. (rights for U.S., Europe, Japan and all markets outside Asia-Pacific) and Genor Biopharma Co. Inc. (rights for Asia-Pacific, excluding Japan) for the development and commercialization of lerociclib in all indications. Combined, these agreements provide $26.0 million in upfront payments, along with sales-based royalties, and the opportunity for up to $330.0 million in potential milestone payments. EQRx, Inc. and Genor Biopharma Co. Inc. are responsible for all costs related to the development and commercialization of lerociclib in their respective territories.
Rintodestrant
Rintodestrant is an oral SERD for use as a monotherapy and in combination with CDK4/6 inhibitors, initially Ibrance® (palbociclib), for the treatment of ER+, HER2- breast cancer. After completing the evaluation of our rintodestrant partnering options and recent data in the highly competitive oral SERD space, we made the strategic decision to discontinue the program. We are responsibly winding down all remaining clinical efforts for rintodestrant by the end of this year and will revert the rights back to the originator (University of Illinois Chicago); there are no additional financial obligations due to the originator resulting from the reversion.
CDK2 Inhibitor
In 2020, we entered into a global license agreement with Incyclix Bio, LLC (“Incyclix”), formerly ARC Therapeutics, LLC, for the development and commercialization of an internally discovered cyclin-dependent kinase 2 (“CDK2”) inhibitor for all human and veterinary uses. Incyclix is currently granted an exclusive, royalty-bearing, license with the right to grant sublicenses to one of our solely owned patent families.
Coronavirus (COVID-19) impact on operations
We have implemented business continuity plans to address the COVID-19 pandemic and minimize disruptions to ongoing operations. Enrollment of patients in current and future clinical trials may be impacted by COVID-19. Although we have not had any significant supply chain delays or shortages as a result of the COVID-19 pandemic to date, we have experienced delays in the delivery of our investigational product to certain investigative sites due to shortages of ancillary materials and the delay of governmental inspections. If the COVID-19 pandemic continues or increases in severity, we could experience disruptions to our clinical development timelines. If we experience delays in patient enrollment, we could incur increased clinical program expense if it is deemed necessary or advisable to improve patient recruitment by opening additional clinical sites. COVID-19 travel limitations and government-mandated work-from-home or shelter-in-place orders may reduce the number of in-person meetings with prescribers and fewer patient visits with physicians, potentially resulting in fewer new prescriptions.
We established a COVID-19 response team which continually monitors the impact of COVID-19 on our operations. The COVID-19 response team manages our workplace protocols that govern our employees’ use of our office. To mitigate the impact of COVID-19 on our business, we put in place the following safety measures for our employees, patients, healthcare professionals, and suppliers to limit exposure: we substantially restricted travel, supplied personal protective equipment to employees, limited access to our headquarters and asked most of our staff to work remotely.
As of June 30, 2022, the majority of our employees are still working remotely, which may negatively impact our ability to conduct research and development activities, engage in sales-related initiatives, or efficiently conduct day-to-day operations. In addition, we added bandwidth and VPN capacity to our infrastructure to facilitate remote work arrangements. We will continue to monitor the impact of COVID-19 on our operations, including how it will impact our employees, clinical trials, development programs, supply chain, and other aspects of our operations, and report to our Board of Directors regularly on the progress of our response to the COVID-19 outbreak.
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Financial Overview
Since our inception in 2008, we have devoted substantially all of our resources to synthesizing, acquiring, testing and developing our product candidates, including conducting preclinical studies and clinical trials and providing selling, general and administrative support for these operations as well as securing intellectual property protection for our products. Currently, COSELA is our only product approved for sale. We began generating revenue for the net product sales from COSELA in March of 2021. We recorded $14.2 million and $11.1 million of net product sales from COSELA for six months ended June 30, 2022, and the year ended December 31, 2021, respectively. We recorded $3.3 million and $20.4 million of license revenue for the six months ended June 30, 2022, and the year ended December 31, 2021, respectively. To date, we have financed our operations primarily through the sale of equity securities, our loan agreement with Hercules Capital, Inc., and licensing arrangements. Under our licensing arrangements, we are eligible to receive certain development and sales-based milestones. Our ability to earn these milestones and the timing of achieving these milestones is primarily dependent upon the outcome of the licensee’s activities and is uncertain at this time.
As of June 30, 2022, we had cash and cash equivalents of $144.0 million. Since inception we have incurred net losses. As of June 30, 2022, we had an accumulated deficit of $673.1 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs, our commercial launch of COSELA, and from selling, general and administrative expenses associated with our operations. We expect to continue to incur significant expenses and increasing operating losses. We expect our research and development, commercial activities, and selling, general and administrative expenses will continue to increase in connection with our ongoing and future activities as we:
continue development of trilaciclib, including initiation of additional clinical trials;
identify and develop new product candidates;
seek additional marketing approvals for trilaciclib upon successful completion of clinical trials;
grow our sales, marketing and distribution infrastructure to commercialize COSELA and any future products for which we may obtain marketing approval;
achieve market acceptance of our product in the medical community and with third-party payors;
maintain, expand and protect our intellectual property portfolio;
hire additional personnel;
enter into collaboration arrangements, if any, for the development of our product or in-license other products and technologies;
identify and develop new product candidates;
add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and
continue to incur increased costs as a result of operating as a public company.
Components of our Results of Operations
Revenue
On February 12, 2021, COSELA was approved by the FDA and we began generating revenue for the product sales of COSELA in March 2021. Prior to the approval of COSELA, our revenues have been derived from our license agreements.
We entered into an exclusive license agreement with Nanjing Simcere Dongyuan Pharmaceutical Co., Ltd (“Simcere”) in August 2020 and granted them the rights to develop and commercialize trilaciclib in Greater China (mainland China, Hong Kong, Macau, and Taiwan) (the “Simcere Territory”). We received an upfront payment of $14.0 million (less applicable withholding taxes of $1.4 million) in September 2020. This was recognized as revenue once the transfer of the related technology and know-how was completed in the fourth quarter of 2020. On July 13, 2022, the China National Medical Products Administration (NMPA) conditionally approved COSELA (trilaciclib hydrochloride for injection) for marketing in China. As a result of receiving approval in China, Simcere is obligated to pay us a $13.0 million milestone payment, which we anticipate receiving in the third quarter of 2022. We have the potential to receive a total of $156.0 million upon reaching development and commercial milestones, and receive tiered low double-digit royalties on annual net sales of trilaciclib in the Simcere Territory. We did not receive any development milestones during the six months ended June 30, 2022.
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We entered into an exclusive license agreement with EQRx, Inc. (“EQRx”) in July 2020 and granted them the rights to develop and commercialize lerociclib in the U.S, Europe, Japan and all other global markets, excluding the Asia-Pacific region (except Japan) (the “EQRx Territory”). We received an upfront payment of $20.0 million in August 2020. This was recognized as revenue in September 2020 when we transferred the license and related technology and know-how. We have the potential to receive $290.0 million upon reaching development and commercial milestones, and receive tiered royalties ranging from mid-single digits to mid-teens based on annual net sales of lerociclib in the EQRx Territory. We did not receive any development milestones during the six months ended June 30, 2022.
We entered into an exclusive license agreement with Genor Biopharma Co. Inc. (“Genor”) in June 2020 and granted them the rights to develop and commercialize lerociclib in the Asia-Pacific Region, excluding Japan (the “Genor Territory”). We received an upfront payment of $6.0 million in July 2020. This was recognized as revenue in September 2020 when we transferred the license and related technology and know-how. We have the potential to receive $40.0 million upon reaching development and commercial milestones, and receive tiered royalties ranging from high single to low double-digits based on annual net sales of lerociclib in the Genor Territory. We did not receive any development milestones during the six months ended June 30, 2022.
We entered into an exclusive license agreement with Incyclix Bio, LLC (“Incyclix”), formerly ARC Therapeutics, LLC, a company primarily owned by a former board member, in May 2020. We granted Incyclix an exclusive, worldwide, royalty-bearing license of its CDK2 inhibitor compounds in exchange for an upfront payment and equity in Incyclix with a total value of approximately $2.1 million, which resulted in the recognition of related party revenue. We are entitled to receive additional milestone payments and sales-based royalties, and has right of first negotiation to re-acquire these assets.
Operating expenses
We classify our operating expenses into three categories: cost of goods sold, research and development and selling, general and administrative expenses. Personnel costs, including salaries, benefits, bonuses, and stock-based compensation expense, comprise a significant component of each of these expense categories. We allocate expenses associated with personnel costs based on the nature of work associated with these resources. In addition, costs to sell and market COSELA are included within selling, general and administrative expense categories.
Cost of goods sold
Cost of goods sold includes direct and indirect costs related to the manufacturing and distribution of COSELA, including third-party manufacturing costs, packaging services, freight-in, third-party logistics costs associated with COSELA, and personnel costs. Cost of goods sold may also include period costs related to certain inventory manufacturing services and inventory adjustment charges.
Research and development expenses
The largest component of our total operating expenses since inception has been research and development activities, including the preclinical and clinical development of our product candidates.
Research and development costs are expensed as incurred. Our research and development expense primarily consists of:
salaries and personnel-related costs, including bonuses, benefits and any stock-based compensation, for our scientific personnel performing or managing out-sourced research and development activities;
costs incurred under agreements with contract research organizations and investigative sites that conduct preclinical studies and clinical trials;
costs related to manufacturing pharmaceutical active ingredients and drug products for preclinical studies and clinical trials;
costs related to upfront and milestone payments under in-licensing agreements;
fees paid to consultants and other third parties who support our product development; and
allocated facility-related costs and overhead.
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The successful development of our products is highly uncertain. Products 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. Accordingly, we expect research and development costs to increase as we conduct later stage clinical trials. However, we do not believe that it is possible at this time to accurately project total program-specific expenses. Our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs and timing of clinical trials and development of our products will depend on a variety of factors, including:
the scope, rate of progress, and expenses of our ongoing as well as any additional clinical trials and other research and development activities;
future clinical trial results;
achievement of milestones requiring payments under our in-licensing agreements;
uncertainties in clinical trial enrollment rates or drop-out or discontinuation rates of patients;
potential additional studies requested by regulatory agencies;
significant and changing government regulation; and
the timing and receipt of any regulatory approvals.
We track research and development expenses on a program-by-program basis only for clinical-stage product candidates. Preclinical research and development expenses and chemical manufacturing research and development expenses are not assigned or allocated to individual development programs.
Selling, general and administrative expenses
Selling, general and administrative expenses consist of personnel costs, allocated expenses and other expenses for outside professional services, including legal, audit and accounting services. Personnel costs consist of salaries, bonuses, benefits and stock-based compensation. Other selling, general and administrative expenses include facility-related costs not otherwise allocated to research and development expense, professional fees, commercialization costs, expenses associated with obtaining and maintaining patents and costs of our information systems. We anticipate that our selling, general and administrative expenses will continue to increase in the future as we increase our headcount to support our continued research and development and commercialization of COSELA.
Total other income (expense), net
Total other income (expense), net consists of interest income earned on cash and cash equivalents and interest expenses incurred under our loan and security agreement with Hercules.
Income taxes
To date, we have not been required to pay U.S. federal or state income taxes because we have not generated taxable income. Income tax expense recognized in 2021 related to the foreign withholding taxes incurred as a result of the milestone payments received from the Simcere license agreement during the quarter. We did not recognize any income tax expense for the three and six months ended June 30, 2022.
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Results of Operations
Comparison of the three months ended June 30, 2022 and June 30, 2021
Three Months Ended June 30,Change
20222021$
(in thousands)
Revenues
Product sales, net $8,718 $2,532 $6,186 
License revenue1,855 4,072 (2,217)
Total revenues10,573 6,604 3,969 
Operating expenses
Cost of goods sold976 808 168 
Research and development20,843 18,752 2,091 
Selling, general and administrative25,716 25,236 480 
Total operating expenses47,535 44,796 2,739 
Loss from operations(36,962)(38,192)1,230 
Other income (expense)
Interest income50 41 
Interest expense(2,407)(927)(1,480)
Other income (expense)(127)(92)(35)
Total other income (expense), net(2,484)(1,010)(1,474)
Loss before income taxes(39,446)(39,202)(244)
Income tax expense— 220 (220)
Net loss$(39,446)$(39,422)$(24)
Product sales, net
Product sales, net was $8.7 million and $2.5 million for the three months ended June 30, 2022 and 2021, respectively. The increase of $6.2 million, or 244%, was primarily due to increased sales volume as we continued our commercialization efforts.
License Revenue
License revenue was $1.9 million and $4.1 million for the three months ended June 30, 2022 and 2021, respectively. The decrease of $2.2 million, or -54%, was primarily due to the $3.0 million in revenue recognized in the prior period from a development milestone related to the Simcere license agreement, partially offset by the $0.8 million more in revenue recognized in the current period related to reimbursements from EQRx and Simcere for cost associated with the lerociclib and trilaciclib clinical trials.
Cost of goods sold
Cost of goods sold was $1.0 million and $0.8 million for the three months ended June 30, 2022 and 2021, respectively. The increase of $0.2 million, or 21%, was primarily due to an increase in units sold during the current period partially offset by a decrease in overhead and personnel costs.
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Research and development
Research and development expenses were $20.8 million for the three months ended June 30, 2022, compared to $18.8 million for the three months ended June 30, 2021. The increase of $2.0 million, or 11%, was primarily due to an increase of $3.0 million in clinical trial costs offset by a decrease of $0.8 million in costs for manufacturing of active pharmaceutical ingredients and drug product to support clinical trials, and a decrease of $0.2 million in pre-clinical and discovery costs. The following table summarizes our research and development expenses allocated to trilaciclib, rintodestrant, lerociclib and unallocated research and development expenses for the periods indicated:
Three Months Ended June 30,
20222021
(in thousands)
Clinical Program Expenses—trilaciclib$18,054 $14,973 
Clinical Program Expenses—rintodestrant581 531 
Clinical Program Expenses—lerociclib862 968 
Chemical Manufacturing and Development721 1,505 
Discovery, Pre-Clinical and Other Expenses625 775 
Total Research and Development Expenses$20,843 $18,752 
Selling, general and administrative
Selling, general and administrative expenses were $25.7 million for the three months ended June 30, 2022, compared to $25.2 million for the three months ended June 30, 2021. The increase of $0.5 million, or 2%, was primarily due to an increase of $4.4 million in personnel costs due to increased headcount, of which $0.1 million related to non-cash stock compensation expense, and an increase of $0.1 million in insurance and other administrative costs. The increase is offset by a decrease of $0.3 million in medical affairs costs, $2.5 million in commercialization activities, $0.4 million in professional and legal fees, and $0.8 million in IT-related costs.
Total other income (expense), net
Total other income (expense), net was $(2.5) million for the three months ended June 30, 2022, as compared to $(1.0) million for the three months ended June 30, 2021. The change of $1.5 million, or 146%, was primarily due to an increase in interest expense recognized on our loan payable.
Income tax expense
There was no income tax expense recognized for the three months ended June 30, 2022, as compared to $0.2 million for the three months ended June 30, 2021. Income tax expense in the prior period related to the foreign withholding taxes incurred as a result of the development milestone payments received from the Simcere license agreement during the quarter.
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Results of Operations
Comparison of the six months ended June 30, 2022 and June 30, 2021
Six Months Ended June 30,Change
20222021$
(in thousands)
Revenues
Product sales, net$14,198 $3,141 $11,057 
License revenue3,277 17,681 (14,404)
Total revenues17,475 20,822 (3,347)
Operating expenses— 
Cost of goods sold1,645 1,051 594 
Research and development47,148 35,292