The following information should be read in conjunction with the unaudited interim condensed consolidated statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited annual consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2021, which was filed with the Securities and Exchange Commission, or SEC, on March 24, 2022. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed in "Risk Factors" and in other parts of this Quarterly Report on Form 10-Q.
We are a biopharmaceutical company focused on the development and commercialization of innovative cardiovascular medicines. Our lead product candidate etripamil is a novel, potent and short-acting calcium channel blocker that we designed as a rapid-onset nasal spray to be self-administered by patients. We are developing etripamil for the treatment of specific arrhythmias with a lead indication to treat paroxysmal supraventricular tachycardia, or PSVT, with subsequent indications to treat atrial fibrillation and rapid ventricular rate, or AFib-RVR, and other indications.
Etripamil – Phase III clinical program in PSVT
PSVT is a rapid heart rate condition characterized by episodes of supraventricular tachycardia, or SVT, that start and stop without warning. Episodes of SVT are experienced by patients with symptoms often including palpitations, sweating, chest pressure or pain, shortness of breath, sudden onset of fatigue, lightheadedness or dizziness, fainting and anxiety. Calcium channel blockers have long been approved for the treatment of PSVT as well as other cardiac conditions. Calcium channel blockers available in oral form are frequently used prophylactically to control the frequency and duration of future episodes of SVT. For treatment of episodes of SVT, approved calcium channel blockers are administered intravenously under medical supervision, usually in the emergency department. The combination of convenient nasal-spray delivery, rapid-onset and short duration of action of etripamil has the potential to shift the current treatment paradigm for episodes of SVT away from the burdensome and costly emergency department setting. If approved, we believe that etripamil will be the first self-administered therapy for the rapid termination of episodes of SVT wherever and whenever they occur. Our late-stage etripamil clinical program for the treatment of PSVT is currently executing on two ongoing Phase 3 safety and efficacy trials, RAPID and NODE-303. The RAPID study is our pivotal global randomized-controlled Phase 3 safety and efficacy trial. This study enrolled its first patient in
October 2020and in July 2022reached its target of 180 confirmed PSVT events treated with double-blind study medication, marking the achievement of the event data required for the study's primary statistical efficacy analysis. The Company expects to report topline data from RAPID in mid-second half of 2022. NODE-303 is an open-label global safety trial enrolling patients to collect safety data that when combined with the safety data from the rest of the program will form the safety dataset to be evaluated by the FDA and other regulatory agencies to form the basis for marketing approval. We have also completed our first Phase 3 safety and efficacy trial of etripamil, NODE-301, and its open-label safety extension trial, NODE-302. In March 2020, we reported topline results of the NODE-301 pivotal trial of etripamil for the treatment of PSVT, which is a placebo-controlled Phase 3 safety and efficacy trial. NODE-301, which enrolled a total of 431 patients across 65 sites in the United Statesand Canada, did not meet its primary endpoint of time to conversion of SVT to sinus rhythm compared to placebo over the five hour period in which patients wore a cardiac monitor following study drug administration.
The FDA has indicated that both trials, the proposed RAPID trial and the completed NODE-301 Part 1 trial, could potentially meet the efficacy requirement of our planned NDA for etripamil in patients with PSVT.
Under an updated analysis plan, the primary efficacy endpoint for both the RAPID and NODE-301 trials will be defined as time to conversion over the first 30 minutes, with a target p-value of less than 0.05 for each trial. This endpoint supports the desire of patients to rapidly address their PSVT symptoms during an episode and ideally avoid visiting the emergency department. Later and earlier time points will also be assessed as part of secondary analyses to fully characterize the efficacy profile of etripamil. When employing the updated analysis retrospectively to the NODE-301 data, results in 54% of etripamil patients vs. 35% of placebo patients converted within 30 minutes (HR 1.87, p=0.02). Applying the same primary endpoint to the RAPID study, powering the study at 90% and using alpha of 0.05 to detect a 19% difference of etripamil versus placebo in 30 minute time to conversion that was observed in the NODE-301 study results in the size of 180 confirmed PSVT events. The RAPID study was designed to be similar to NODE-301 however it introduced a new treatment regimen to the program. Based on discussions with the FDA regarding maximizing the treatment effect of etripamil, the RAPID trial allowed for repeat administration of study drug (either 70 mg of etripamil or placebo) for patients who had not experienced symptom relief within ten minutes of the first study drug administration. This repeat dose regimen, which is similar to current PSVT treatment practices in the emergency department setting, was tailored to the pharmacokinetic profile of etripamil to deliver increased exposure over approximately the first 30 minutes following initial administration. We believe that the repeat administration could benefit a broader group of patients, including those with more persistent episodes. For the primay efficacy analysis for RAPID, the FDA agreed that the single and repeat administrations of etripamil could be pooled and compared to placebo. In the NODE-301 study, 32% of etripamil patients and 14% of placebo patients converted to sinus rhythm within 10 minutes. NODE-302 was the Phase 3 open-label safety extension of the NODE-301 trial. Patients who completed NODE-301 enrolled in NODE-302 and could receive up to an additional 11 doses of etripamil. NODE-302 was a multi-center, open label study designed to evaluate the safety of etripamil nasal spray when self-administered by patients without medical supervision for spontaneous episodes of SVT in an outpatient setting. Efficacy assessments were also performed. Eligibility was contingent on satisfying all inclusion and exclusion criteria, including not experiencing a serious adverse event related to the study drug or the study procedure that precludes the self-administration of etripamil. We announced the top line data from the NODE-302 study which were presented at a late-breaking session of the
Heart Rhythm Society'sHeart Rhythm 2022 Annual conference. Of 198 eligible NODE-301 patients, 169 (85%) enrolled in NODE-302 and 105 (62%) experienced a perceived episode of PSVT, self-administered etripamil and were included in the safety population. Overall, the PSVT conversion rate at 30 minutes following etripamil administration was 60.2% with a median time to conversion of 15.5 minutes (95% CI, 11.3-22.1 minutes). Among 40 patients who self-treated two consecutive episodes, 21 of 26 (81%) who converted on their first episode were also successfully converted on their second. Moreover, the need for emergency department (ED) intervention to terminate a PSVT episode was low (13% of patients and 8.5% of positively adjudicated PSVT episodes). Etripamil was generally well-tolerated, with adverse events consistent with those observed in previous trials; the majority of adverse events related to treatment were localized to the nasopharynx administration site, and were mild and brief. NODE-303 is a Phase 3, multi-center, open-label safety trial, evaluating the safety of etripamil when self-administered without medical supervision, and evaluating the treatment safety and efficacy of etripamil on multiple SVT episodes. The study initiated with the etripamil 70 mg single dose regimen and the 70 mg repeat dose regimen was introduced into the trial starting in the second half of 2021 following FDA acceptance of the protocol change. The trial is designed to add to the safety data from the remainder of the development program, including both the NODE-301 and RAPID trials, in order to fulfill the safety data set needed for NDA filing. Our plan is to ascertain the final sizing of the trial following future discussions with the FDA and other regulatory authorities. We are conducting patient access programs to provide further access to etripamil to patients who have participated in the clinical development registration trials to treat future SVT episodes. These programs are tailored to meet the regulatory requirements in the territories in which the clinical sites are located.
(JIXING), a clinical-stage biopharmaceutical company committed to bringing innovative medicines to underserved Chinese patients with serious and life-threatening illnesses, announced the first patient recruitment at
of etripamil in
Chinafor the treatment of paroxysmal supraventricular tachycardia (PSVT). The study is currently being carried out in more than 40 leading clinical centers across China. The study is designed to evaluate the efficacy and safety of self-administered etripamil nasal spray as treatment of PSVT and to provide clinical data to support a new drug application in China.
Etripamil: atrial fibrillation and rapid ventricular rate
In addition to our PSVT clinical program, we began enrollment of patients in a Phase 2 proof-of-concept clinical trial in patients with atrial fibrillation titled ReVeRA in the first quarter of 2021 to evaluate the potential effectiveness of etripamil to reduce ventricular rate during AFib-RVR episodes. As with PSVT, calcium channel blockers are also approved for use in intravenous form for the treatment of some episodes of atrial fibrillation in which patients experience rapid ventricular rates. The Phase 2 double blind, placebo controlled, proof-of-concept, which is being conducted in
Canadain collaboration with the Montreal Heart Instituteand other research centers, is expected to enroll approximately 50 patients randomized 1:1 to receive either 70 mg of etripamil nasal spray or placebo. The primary endpoint will assess maximum reduction in ventricular rate, with key secondary endpoints including the time to achieve maximum reduction in ventricular rate and the duration of the effect. The trial is to be conducted in the hospital or emergency department setting under medical supervision. Operations Overview Since the commencement of our operations in 2003, we have devoted substantially all of our resources to performing research and development activities in support of our product development efforts, hiring personnel, raising capital to support and expand such activities, providing general and administrative support for these operations and, more recently preparing for commercialization. We operate our business using a significant outsourcing model. As such, our team is composed of a relatively smaller core of employees who direct a significantly larger number of team members who are outsourced in the forms of vendors and consultants to enable execution of our operational plans. We do not currently have any products approved for sale, and we continue to incur significant research and development and general administrative expenses related to our operations. Since inception, we have incurred significant operating losses. For the three months ended June 30, 2022and 2021 we recorded net loss of $16.6 millionand we had net earnings of $0.8 milliondue to the receipt of a $15 millionupfront payment under our License and Collaboration Agreement, or the License Agreement, with Ji Xing Pharmaceuticals, Limited, or Ji Xing, respectively. For the six months ended June 30, 2022and 2021, we recorded net losses of $30.7 millionand $11.7 million, respectively. As of June 30, 2022, we had an accumulated deficit of $237.0 million. We expect to continue to incur significant losses for the foreseeable future. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the necessary development activities required for obtaining regulatory approval and preparing for potential commercialization of our product candidates. We had $86.2 millionof cash, cash equivalents and short-term investments at June 30, 2022. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures on other research and development activities. We expect our expenses will increase substantially over time as we:
continue the ongoing and planned development of etripamil, including our Phase
? 3 clinical trials of etripamil for the treatment of PSVT and our phase 2
clinical trial of etripamil for the treatment of AFib-RVR;
? seek marketing authorizations for etripamil for the treatment of PSVT, AFib-RVR and
other cardiovascular indications; 16 Table of Contents
establish a sales, marketing, manufacturing and distribution capability, either
? directly or indirectly through third parties, to market etripamil or any
future product candidate for which we may obtain marketing approval;
? build a portfolio of product candidates through the development, or acquisition
or in-license of drugs, product candidates or technologies; initiate preclinical studies and clinical trials for etripamil for any
additional indications that we may pursue, including clinical trials for the
? treatment of atrial fibrillation and rapid ventricular rate as well as other
areas of unmet medical need, and for any additional product candidates that we
may continue in the future;
? maintain, protect and develop our intellectual property portfolio;
? hire additional clinical, commercial, regulatory and scientific staff;
add operational, financial and management information systems and personnel,
? including personnel to support the development of our products and the planned future
marketing efforts; and
? incur additional legal, accounting, insurance and other associated costs
with operation as a public company.
COVID-19 Business Update
The periods of reduced global economic activity and volatility, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospectsWe continue to monitor the pandemic as we evolve our business continuity plans
and response strategy. Clinical Development With respect to clinical development, we have taken measures to maintain patient safety and trial continuity and to preserve study integrity. While COVID-19 resurgences around the world impact different geographies and clinical sites to varying degrees and at different times, the PSVT clinical program average overall enrollment rate has stabilized, compared to 2020. Enrollment rates are still slower than expected as a result of COVID-19. During 2021 and 2020, the COVID-19 pandemic delayed the initiation of many proposed RAPID clinical trial sites as some health care institutions prioritized their resources for pandemic related activities with some precluding the initiation of new clinical trials or conduct of existing trials. It also delayed the initiation of clinical trial sites and the enrollment of patients into our ReVeRA trial of etripamil for AFib-RVR performed in the acute care hospital setting in
Canada, due to closures of clinical sites as well as to the increased stress that COVID-19 places on Emergency Departments logistics and staff. Given the uncertainty and differing and evolving restrictions applicable to clinical trial sites and participants, additional disruptions and delays are possible. We will continue to monitor the impact of COVID-19 on our planned clinical sites and patient enrollment activities. We could also see an impact on the ability to supply study drug, report trial results, or interact with regulators, ethics committees or other important agencies due to limitations in regulatory authority employee resources or otherwise. In addition, we rely on contract research organizations or other third parties to assist us with clinical trials, and we cannot guarantee that they will continue to perform their contractual duties in a timely and satisfactory manner as a result of the COVID-19 pandemic. If the COVID-19 pandemic continues and persists for an extended period of time, we could experience further significant disruptions to our clinical development timelines, which would adversely affect our business, financial condition, results of operations and growth prospects.
Other financial and corporate impacts
While we expect the COVID-19 pandemic to continue to affect our business operations and financial results, the extent of the impact on our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common shares, will depend on future developments that are highly uncertain and cannot be predicted with 17
confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, business closure requirements in
the United States, Canada, Europeand other countries, the timing and unpredictability of achieving widespread vaccination rates, the effectiveness of any vaccines against new variants, and the timing of the return of the global economy to pre-pandemic levels. In addition, we may be impacted by general economic, political, and market conditions, including deteriorating market conditions due to investor concerns regarding inflation and Russian hostilities in Ukraineand overall fluctuations in the financial markets in the United Statesand abroad.
Components of operating results
We have not generated any revenues from product sales to date and we do not expect to generate revenues from product sales in the near future. Our revenues for the six months ended
June 30, 2021are from the license and collaboration agreement with Ji Xing and are comprised of upfront payments.
Research and development
Research and development expenses consist primarily of salaries and fees paid to external service providers and also include personnel costs, including share-based compensation expense and other related compensation expenses. We expense research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators and third-party service providers. To date, substantially all of our research and development expenses have been related to the preclinical and clinical development of etripamil. As we advance etripamil or other product candidates for other indications, we expect to allocate our direct external research and development costs across each of the indications or product candidates. Further, while we expect our research and development costs for the development of etripamil in atrial fibrillation with rapid ventricular rate to increase for the ReVeRA clinical trial as we continue to expand this trial, we expect our research and development expenses related to the development of etripamil for PSVT to remain a very large majority of our total research and development expenses. We expect our research and development expenses to increase as we continue the development of etripamil and prepare to pursue regulatory approval. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming and is subject to uncertainties and delays, including as a result of the ongoing COVID-19 pandemic. COVID-19 has adversely affected enrollment rates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates, if at all. We recognize the benefit of Canadian research and development tax credits as a reduction of research and development costs for fully refundable investment
tax credits. 18 Table of Contents General and Administrative General and administrative expenses include personnel and related compensation costs, expenses for outside professional services, lease expense, insurance expense and other general administrative expenses. Personnel costs consist of salaries, bonuses, benefits, related payroll taxes and share-based compensation. Outside professional services consist of legal, accounting and audit services and other consulting fees. We expect to continue to incur expenses as a public company, including expenses related to compliance with the rules and regulations of the
Securities and Exchange Commission, or SEC, and those of any national securities exchange on which our securities are traded, additional insurance expenses, investor relations activities, and other administrative and professional services.
Commercial expenses consist primarily of personnel and related compensation costs, market and health economic research, and market development activities for PSVT and, to a lesser extent, AFib-RVR. The focus of these expenses is three-fold: first, we want to leverage rigorous primary and secondary research to fully understand our target disease states from the perspective of the patient, healthcare provider, and payer; second, we want to understand and document the burden of disease posed by PSVT and AFib-RVR from an epidemiology, healthcare resource use, and cost perspective; and third, we want to engage our target patient, physician, and payer stakeholders with evidence-based and compliant educational materials that serve to increase the awareness and understanding of the impact of PSVT and AFib-RVR on patients and the overall healthcare system. Starting approximately six months to one year before we file our new drug application, or NDA with the FDA, we anticipate our commercial expenses will increase substantially as we invest in the infrastructure, personnel, and operational expenses required to launch our first product in
the United States, if approved. Interest Income
Interest income consists primarily of interest income from our cash equivalents and short-term investments.
Results of Operations
Comparison of three and six month periods ended
The following table summarizes our operating results and their variations:
Three months ended June 30, (in thousands) 2022 2021 $ Change % Change Revenue $ -
$ 15,000 $ (15,000)100.0% Operating expenses
Research and development, net of tax credits 10,657 9,427
1,230 13.1% General and administrative 3,918 3,018 900 29.8% Commercial 2,231 1,843 388 21.1% Total operating expenses 16,806 14,288 2,518 17.6%
Earnings (loss) from operations (16,806) 712
(17,518) (2460.4)% Interest income, net 158 58 100 172.4% Net earnings (loss)
$ (16,648) $ 770 $ (17,418)(2262.1)% 19 Table of Contents Six months ended June 30, (in thousands) 2022 2021 $ Change % Change Revenue $ - $ 15,000 $ (15,000)100.0% Operating expenses
Research and development, net of tax credits 19,425 18,022 1,403 7.8% General and administrative 7,561 5,651
1,910 33.8% Commercial 3,867 3,209 658 20.5% Total operating expenses 30,853 26,882 3,971 14.8% Loss from operations (30,853) (11,882) (18,971) 159.7% Interest income, net 198 138 60 43.5% Net loss
$ (30,655) $ (11,744) $ (18,911)161.0% Revenue
We have not generated any revenue for the three months and six months ended
compared to the income of
Research and development costs
The following table presents our research and development expenses by type of activity for the three and six months ended
Three months ended June 30, Six months ended June 30, (in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change Clinical
$ 9,118 $ 7,677 $ 1,44118.8% $ 15,818 $ 14,466 $ 1,3529.4% Drug manufacturing and formulation 1,123 1,237 (114) (9.2)% 2,175 2,653 (478) (18.0)% Regulatory and other costs 543 600 (57) (9.5)% 1,615 1,081 534 49.4% Less: R&D tax credits (127) (87) (40) 46.0% (183) (178) (5) 2.8% Total R&D expenses $ 10,657 $ 9,427 $ 1,23013.1% $ 19,425 $ 18,022 $ 1,4037.8%
Research and development expenses increased by
$1.2 million, or 13.1%, for the three months ended June 30, 2022compared to the three months ended June 30, 2021. The increase in clinical personnel related costs, clinical consulting fees and CRO costs due to advancing RAPID Phase 3 efficacy and safety trials in etripamil for the treatment of PSVT. These increases were offset by lower drug formulation and manufacturing costs. Research and development expenses increased by $1.4 million, or 7.8% for the six months ended June 30, 2022compared to the six months ended June 30, 2021. The increase in clinical personnel related costs, clinical consulting fees and CRO costs due to advancing RAPID Phase 3 efficacy and safety trials in etripamil for the treatment of PSVT. These increases were offset by lower drug formulation and manufacturing costs. Regulatory costs increased due to personal related costs. We recognize the benefit of Canadian research and development tax credits as a reduction of research and development costs for fully refundable investment
tax credits. 20 Table of Contents General and Administrative
General and administrative expenses increased by
$0.9 million, or 29.8% for the three months ended June 30, 2022compared to the three months ended June 30, 2021. The primary contributor was an increase of $0.8 millionin personnel-related costs and consulting fees for general and administrative expenses. General and administrative expenses increased by $1.9 million, or 33.8% for the six months ended June 30, 2022compared to the six months ended June 30, 2021. The primary contributor was an increase of $1.7 millionin personnel-related costs and consulting fees for general and administrative expenses.
For the three months ended
Commercial expenses increased by
Starting approximately six months to one year before we file our new drug application, or NDA with the FDA, we anticipate our commercial expenses will increase substantially as we invest in the infrastructure, personnel and operational expenses required to launch our first product in
the United States, if approved. Interest Income, net Interest income, net, was $0.2 millionand $0.1 millionfor the three months ended June 30, 2022and 2021, respectively. Interest income, net of bank charges, was $0.2 millionand $0.1 millionfor the six-month periods ended June 30, 2021and 2020, respectively. The increase in interest income was due to higher interest rates earned on investments in 2022 when compared to 2021.
Cash and capital resources
Sources of liquidity
We have incurred operating losses and experienced negative operating cash flows since our inception, and we anticipate continuing to incur losses for at least the next several years. As of
June 30, 2022, we had cash, cash equivalents and short-term investments of $86.2 millionand an accumulated deficit of $237.0 million. We have evaluated whether material uncertainties exist relating to clinical trials, the COVID-19 pandemic and the impact on market conditions. The COVID-19 pandemic has had an impact on our business, operations and clinical development timelines. Government orders and restrictions in order to control the spread of the disease have impacted patient recruitment, enrollment and follow-up visits at clinical sites. At the date of the publication of our quarterly report on form 10-Q, it is not possible to reliably estimate the length and severity of these developments. We expect that our current operating plan, existing cash and cash equivalents and access to financing sources to be sufficient to fund our operations and determined that there are no events or conditions that may cast substantial doubt on our ability to continue as a going concern for at least the next 12 months from the date of this filing. Based on our cash and cash equivalents as of June 30, 2022, we expect to be able to support our ongoing operations into second-half of 2023.
We use our cash primarily to fund research and development expenditures. We expect our total research and development expenses to increase as we continue the development of etripamil and prepare to pursue regulatory approval. We expect to incur an increase in general and administrative expenses, and a continued increase in expenses related to commercial activities in 2022 as we focus our efforts on the clinical pathway and potential commercialization of etripamil. We expect to incur increasing operating losses for the foreseeable future as we continue the clinical development of our product 21
candidate. At this time, due to the inherently unpredictable nature of clinical development, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval, and commercialize etripamil or any future product candidates, if at all. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we have exclusive development and commercialization rights for etripamil for all indications that we may pursue and as such have the potential to license development and or commercialization rights for etripamil to a potential partner. We plan to establish commercialization and marketing capabilities using a direct sales force to commercialize etripamil in
the United States. Outside of the United States, we are considering commercialization strategies that may include collaborations with other companies. For other new product candidates, our efforts are focused on licensing development and/or commercialization rights from potential partners. In the case of either in-licensing or out-licensing, we cannot forecast when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development and commercialization plans and capital requirements. The timing and amount of our operating expenditures will depend largely on:
the timing, progress and results of our ongoing and planned clinical trials and
? other etripamil development activities in PSVT, AFib-RVR and other
the scope, progress, results and costs of preclinical development, laboratory
? etripamil clinical tests and trials for additional indications or
future product candidates we may pursue;
? our ability to enter into collaborations on favorable terms, if at all;
? the ability of third-party vendors and service providers to accurately predict
spending and meeting expectations;
? the costs, timing and results of the regulatory review of etripamil and any
costs and timing of future marketing activities, including products
? manufacturing, marketing, sales and distribution, for etripamil and any future
product candidates for which we receive marketing approval;
? revenue, if any, from commercial sales of etripamil and any future
product candidates for which we receive marketing approval;
the costs and delays of preparing, filing and prosecuting patent applications,
? maintain and enforce our intellectual property rights and defend all
intellectual property claims; and
? the extent to which we acquire or license other product candidates and
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to fund our operations and capital funding needs through equity and/or debt financing. We may also consider entering into collaboration arrangements, similar to the collaboration agreement entered into with Ji Xing, or selectively partnering for clinical development and commercialization. The sale of additional equity would result in additional dilution to our shareholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that restrict our operations or our ability to incur additional indebtedness or pay dividends, among other items. In addition, the COVID-19 pandemic, the Russian invasion of
Ukraineand the implementation of a tightening monetary policy has contributed to periods of reduced global economic activity and 22 Table of Contents volatility. If these and other events contributes to future periods of disruption of the global financial markets, we could experience an inability to access additional capital, which could in the future negatively affect our operations. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially and adversely affect our business, financial condition and results of operations.
Cash flow discussion
The following table summarizes our cash flows for the periods indicated:
Six months ended June 30, (in thousands) 2022 2021 $ Change % Change Net cash (used in) provided by: Operating activities
$ (28,034) $ (11,455)(16,579) 144.7% Investing activities (23,059) 32,000 (55,059) (172.1)% Financing activities 189 4,939 (4,750) (96.2)% Net decrease in cash and cash equivalents during the period $ (50,904) $ 25,484(76,388) Operating Activities
Net cash used in operating activities during the six months ended
Net cash used in operating activities during the six months ended
June 30, 2021was $11.5 million, which consisted of a net loss of $11.7 millionand a net change of $3.0 millionin our operating assets and liabilities offset by non-cash charges of $3.3 millionrelated to share-based compensation expense for grants to employees, board directors and consultants. The change in our net operating assets and liabilities was mainly due to a decrease of $0.8 millionfor accounts payable and accrued liabilities and an increase of $2.0 millionfor prepaid expenses. Investing Activities
In the six months ended
In the six months ended
June 30, 2022, our financing activities provided a de minimis amount of proceeds from the exercise of share options. In the six months ended June 30, 2021, our financing activities provided $4.9 million, consisting of net proceeds from the Private Placement and a de minimis amount of proceeds from the exercise of share options.
We have not entered into any off-balance sheet arrangements.
During the six months ended
June 30, 2022, there were no material changes to our contractual obligations and commitments described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K, filed with the SECon March 24, 2022.
Critical accounting estimates
Our MD&A and discussion of our financial condition and results of operations are based on our unaudited interim consolidated financial statements as of
23 Table of Contents generally accepted accounting principles, or
U.S.GAAP and on a basis consistent with those accounting principles followed by us. The preparation of these consolidated financial statements requires our management to make judgments and estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Significant estimates and judgments include, but are not limited to:
Estimates of percent work complete of total work over lifetime
? the individual test in accordance with the agreements established with the CROs,
CMOs and clinical trial sites which in turn impact research and development
Estimated date of grant of stock options granted at fair value to employees,
? consultants and direct, and the resulting stock-based compensation expense,
using the Black-Scholes option pricing model.
Accordingly, actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
a) Research and development costs – Adjustment accounts
Research and development costs are charged to revenue in the expenditure period. Our research and development expenses consist primarily of salaries and fees paid to CROs and CMOs.
Clinical trial expenses include direct costs associated with CROs, direct CMO costs for the formulation and packaging of clinical trial material, as well as investigator and patient-related costs at sites at which our trials are being conducted. Direct costs associated with our CROs and CMOs are generally payable on a time-and-materials basis, or when milestones are achieved. The invoicing from clinical trial sites can lag several months. We record expenses for our clinical trial activities performed by third parties based upon estimates of the percentage of work completed of the total work over the life of the individual trial in accordance with agreements established with CROs and clinical trial sites. We determine the estimates through discussions with internal clinical personnel, CROs and CMOs as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services based on facts and circumstances known to us as of each consolidated balance sheet date. The actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan. If the actual timing of the performance of services of the level of effort varies from the estimate, we will adjust the accrual accordingly. Adjustments to prior period estimates have not been material. We recognize the benefit of Canadian research and development tax credits as a reduction of research and development costs for fully refundable investment tax credits and as a reduction of income taxes for investment tax credits that can only be claimed against income taxes payable when there is reasonable assurance that the claim will be recovered.
b) Stock-based compensation
We recognize compensation costs related to share options granted to employees, consultants and directors based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value, and the resulting share-based compensation expense, using the Black-Scholes option-pricing model. This Black-Scholes option pricing model uses various inputs to measure fair value, including estimated fair value of our underlying common shares at the grant date, expected term, estimated volatility, risk-free interest rate and expected dividend yields of our common shares. The estimated volatility creates a critical estimate because we have not been a public company long enough to demonstrate our own historical volatility. The grant date fair value of the share-based awards is recognized on a straight-line basis over the requisite service periods, which are generally the vesting period of the respective awards. Forfeitures are accounted for as they occur. 24
Recent accounting pronouncements
Refer to Note 2, "Summary of Significant Accounting Policies", for a discussion of recent accounting pronouncements and to the notes to our audited consolidated financial statements as of
December 31, 2021appearing in our Annual Report on Form 10-K, filed with the SECon March 24, 2022.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to "opt out" of this provision and, as a result, we comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
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