Crinetics Pharmaceuticals, Inc. (CRNX) FY 2023 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with all of the other information included in this Annual Report on Form 10-K, including the consolidated financial statements and the related notes thereto and “Risk Factors”. This section of this Annual Report on Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Overview
We are a clinical-stage pharmaceutical company focused on the discovery, development and commercialization of novel therapeutics for endocrine diseases and endocrine-related tumors. Endocrine pathways function to maintain homeostasis and commonly use peptide hormones acting through GPCRs to regulate many aspects of physiology, including growth, energy, metabolism, gastrointestinal function and stress responses. We have built a highly productive drug discovery and development organization with extensive expertise in endocrine GPCRs. We have discovered a pipeline of oral nonpeptide (small molecule) new chemical entities that target peptide GPCRs to treat a variety of rare endocrine diseases where treatment options have significant efficacy, safety and/or tolerability limitations. Our product candidates include paltusotine (formerly CRN00808), which is in clinical development for the treatment of acromegaly and carcinoid syndrome associated with NETs, and CRN04894, which is in clinical development for CAH and Cushing’s disease. We are advancing additional product candidates through preclinical discovery and development studies in parallel. Our vision is to build a premier, fully integrated, endocrine-focused pharmaceutical company that consistently pioneers new therapeutics to help patients better control their disease and improve their daily lives.
We focus on the discovery and development of oral nonpeptide therapeutics that target peptide GPCRs with well-understood biological functions, validated biomarkers and the potential to substantially improve the treatment of endocrine diseases and endocrine-related tumors.
To date, we have devoted substantially all of our resources to drug discovery, conducting preclinical studies and clinical trials, obtaining and maintaining patents related to our product candidates, licensing activities, and the provision of general and administrative support for these operations. We have recognized revenues from various research and development grants and license and collaboration agreements, but do not have any products approved for sale and have not generated any product sales. We have funded our operations primarily through our grant and license revenues and offerings of our preferred and common stock. As of December 31, 2023, we had unrestricted cash, cash equivalents and investment securities of $558.6 million.
We have incurred cumulative net losses since our inception and, as of December 31, 2023, we had an accumulated deficit of $653.7 million. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and preclinical studies and our expenditures on other research and development activities. We expect our expenses and operating losses will increase substantially as we conduct our ongoing and planned clinical trials, continue our research and development activities and conduct preclinical studies, hire additional personnel, protect our intellectual property and incur costs associated with being a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission, or SEC, requirements, director and officer insurance premiums, and investor relations costs.
We do not expect to generate any revenues from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially, collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, scale back or discontinue the development of our existing product candidates or our efforts to expand our product pipeline.
Australian operations
In January 2017, we established Crinetics Australia Pty Ltd, or CAPL, a wholly-owned subsidiary which was formed to conduct various preclinical and clinical activities for our product and development candidates. CAPL is eligible for certain financial incentives made available by the Australian government for research and development expenses. Specifically, the Australian Taxation Office provides a refundable tax credit in the form of a cash refund equal to 43.5% of qualified research and development expenditures under the Australian Research and Development Tax Incentive Program, or the Australian Tax
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Incentive, to Australian companies that operate the majority of their research and development activities associated with such projects in Australia. A wholly-owned Australian subsidiary of a non-Australian parent company is eligible to receive the refundable tax credit, provided that the Australian subsidiary retains the rights to the data and intellectual property generated in Australia, and provided that the total revenues of the parent company and its consolidated subsidiaries during the period for which the refundable tax credit is claimed are less than $20.0 million Australian dollars. If we lose our ability to operate CAPL in Australia, or if we are ineligible or unable to receive the research and development tax credit, or the Australian government significantly reduces or eliminates the tax credit, the actual refund amounts we receive may differ from our estimates. See "Note 2" to the consolidated financial statements for further information on the reductions we have recognized in connection with the Australian Tax Incentive.
Recent Developments
Product Candidates
In August 2023, we announced the suspension of further investment into our product candidate CRN047777, an investigational, oral, nonpeptide somatostatin receptor type 5, or SST5, agonist designed for the treatment of congenital hyperinsulinism, or HI. While developing our response to the clinical hold issued by the FDA, results from additional nonclinical studies became available. These studies uncovered findings at exposure levels that eroded anticipated therapeutic margins for CRN04777. These other findings were not related to those originally cited by the FDA for the clinical hold and, importantly, were not present in nonclinical studies that have been conducted with other Crinetics product candidates under development. We believe them to be specific to CRN04777 and not associated with its somatostatin receptor type 5 (SST5) mechanism of action.
In September 2023, we reported positive topline data from the randomized controlled portion of the PATHFNDR-1 study, where the primary endpoint and all secondary endpoints of the study were achieved.
In December 2023, we announced positive initial findings from our ongoing open-label, parallel group, multi-center Phase 2 study to assess the safety, and pharmacokinetics of multiple doses of paltusotine in people living with carcinoid syndrome.
See other updates in the business overview section above.
Licenses
On March 24, 2023, we and Cellular Longevity Inc., doing business as Loyal, entered into the Loyal License, pursuant to which we granted Loyal an exclusive license to develop and commercialize CRN01941, a somatostatin receptor type 2 agonist, for veterinary use.
In August 2023, the Radionetics License was amended to include additional sales milestones of up to $15.0 million. Following the amendment to the Radionetics License, we are eligible to receive total potential sales milestones in excess of $1.0 billion and single-digit royalties on net sales.
Equity Offerings
On September 15, 2023, we completed an underwritten public offering of 11,441,648 shares of our common stock at a price to the public of $30.59 per share. Net proceeds from the offering were approximately $328.5 million, after underwriting discounts and commissions and offering costs of approximately $21.5 million.
Financial operations overview
Revenues
To date, our revenues have been mainly derived from research grant awards and licenses, including the Radionetics License, the Sanwa License, and the Loyal License. As our data exchange performance obligation under the Sanwa License is fulfilled, we expect to recognize deferred revenue amounts received under the Sanwa License as revenues. We will recognize royalty and milestone revenues under our license agreements if and when appropriate under the relevant accounting rules (see "Note 8" to the consolidated financial statements). We have not generated any revenues from the commercial sale of approved products and we may never generate revenues from the commercial sale of our product candidates.
License revenues
License revenues for 2022 were primarily derived from the Sanwa License, under which Sanwa was granted the exclusive right to develop and commercialize paltusotine in Japan.
License revenues for 2023 were primarily derived from both the Sanwa License and the Loyal License, as described in “Note 8” of the consolidated financial statements.
Clinical supply revenues
On June 14, 2022, we and Sanwa entered into a clinical supply agreement, or the Sanwa Clinical Supply Agreement, whereby we are responsible for manufacturing and supplying certain materials to Sanwa for specified activities under the
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Sanwa License. During the year ended December 31, 2023 and 2022, we recognized $0.4 million and $0.1 million, respectively, of revenues from the Sanwa Clinical Supply Agreement.
Research and development
To date, our research and development expenses have related primarily to discovery efforts and preclinical and clinical development of our product candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
Research and development expenses include:
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salaries, payroll taxes, employee benefits, and stock-based compensation charges for those individuals involved in research and development efforts;
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external research and development expenses incurred under agreements with contract research organizations, or CROs, investigative sites and consultants to conduct our clinical trials and preclinical and nonclinical studies;
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costs related to manufacturing our product candidates for clinical trials and preclinical studies, including fees paid to third-party manufacturers;
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costs related to compliance with regulatory requirements;
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laboratory supplies; and
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facilities, depreciation and other allocated expenses for rent, facilities maintenance, insurance, equipment and other supplies.
We recognize the Australian Tax Incentive as a reduction of research and development expense. The amounts are determined based on eligible research and development expenditures. The Australian Tax Incentive is recognized when there is reasonable assurance that the Australian Tax Incentive will be received, the relevant expenditure has been incurred, and the amount of the Australian Tax Incentive can be reliably measured.
Our direct research and development expenses consist principally of external costs, such as fees paid to CROs, investigative sites and consultants in connection with our clinical trials, preclinical and non-clinical studies, and costs related to manufacturing clinical trial materials. The majority of our third-party expenses during the three years ended December 31, 2023 related to the research and development of paltusotine, CRN04894, and CRN04777. We deploy our personnel and facility related resources across all of our research and development activities.
Our clinical development costs may vary significantly based on factors such as:
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per patient trial costs;
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the number of trials required for approval;
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the number of sites included in the trials;
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the countries in which the trials are conducted;
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the length of time required to enroll eligible patients;
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the number of patients that participate in the trials;
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number of doses that patients receive;
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drop-out or discontinuation rates of patients;
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potential additional safety monitoring requested by regulatory agencies;
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the duration of patient participation in the trials and follow-up;
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the cost and timing of manufacturing our product candidates;
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the phase of development of our product candidates; and
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the efficacy and safety profile of our product candidates.
We plan to increase our research and development expenses for the foreseeable future as we continue the development of our product candidates and the discovery of new product candidates. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
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General and administrative
General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include facility-related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, insurance costs, and commercial planning expenses. We anticipate that our general and administrative expenses will increase in the future to support our continued research and development activities and, if any of our product candidates receive marketing approval, commercialization activities. We also incur expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, as well as commercial preparedness, corporate strategy and business development, corporate communications, and investor relations costs associated with operating as a public company.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those listed below. We base our estimates on historical experience, known trends and events, information received from third parties and various other factors that we believe are reasonable under the circumstances at the time the estimates are made, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There were no material differences between estimates and actual results for the years presented in the accompanying consolidated financial statements.
While our significant accounting policies are described in more detail in "Note 2" to the consolidated financial statements, we believe the following accounting policies and estimates to be most critical to the preparation of our consolidated financial statements.
Accrued research and development expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced.
We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Costs incurred under contracts with contract research organizations, or CROs, that conduct and manage our clinical trials are also included in research and development expenses. The financial terms and activities of these agreements vary from contract to contract and may result in uneven expense levels. Clinical trial activities are accrued and expensed based on estimates of the period in which services and efforts are expended by CROs and other third parties. Estimates are determined by reviewing cost information provided by CROs, other third-party vendors and internal clinical personnel, and contractual arrangements with CROs and the scope of work to be performed. If the amounts that we are obligated to pay under our clinical trial agreements are modified (for instance, because of changes in the clinical trial protocol or scope of work to be performed), we adjust our accruals accordingly on a prospective basis. Revisions to contractual payment obligations are charged to expense in the period in which the facts that give rise to the revision become reasonably certain.
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Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Stock-based compensation
Stock-based compensation expense represents the estimated grant date fair value of the Company’s equity awards, consisting of stock options, restricted stock units and shares issued under the Company’s Employee Stock Purchase Plan, or ESPP, recognized over the requisite service period of such awards (usually the vesting period) on a straight-line basis. We estimate the fair value of all stock option and ESPP grants using the Black-Scholes option pricing model and recognize forfeitures as they occur. Restricted stock units are valued using the grant date stock price.
Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of complex variables, including the expected stock price volatility, the risk-free interest rate, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop.
Beginning in the first quarter of 2023, we determined that the volatility of our own market-traded shares best represents the expected volatility based on the available historical data and, therefore, the expected volatility assumption used to value certain stock-based awards granted during the year ended December 31, 2023 primarily utilizes the historical volatility of our common stock. Previously, due to the lack of an adequate history of a public market for the trading of our common stock and a lack of adequate company-specific historical and implied volatility data that we believed was indicative of the expected future volatility, we had based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. For these analyses, we selected companies with comparable characteristics to ours, including enterprise value, risk profiles, and position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. We compute the historical volatility data using the daily close prices during the equivalent period of the calculated expected term of our stock-based awards. We compute the historical volatility data using the daily close prices during the equivalent period of the calculated expected term of our stock-based awards.
We have estimated the expected life of our employee stock options using the “simplified” method, whereby the expected life equals the average of the vesting term and the original contractual term of the option. The expected term for employee stock purchase plan awards represents the term the awards are expected to be outstanding. The risk-free interest rates for periods within the expected life of the awards are based on the yields of zero-coupon U.S. treasury securities.
Leases
When our leases do not provide an implicit rate, an incremental borrowing rate is used based on the information available at accounting commencement dates in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that we would expect to pay to borrow over a similar term, and on a collateralized basis, an amount equal to the lease payments in a similar economic environment. On September 9, 2022, we entered into a lease agreement for laboratory and office space in San Diego, California, or the 2022 Lease. The incremental borrowing rate for the 2022 Lease was determined using a synthetic credit rating analysis. A 1% increase in our incremental borrowing rate for the 2022 Lease, holding all other assumptions constant, would decrease the initial Right-of-use asset and lease liability of the 2022 Lease by approximately $2.6 million. A 1% decrease in our incremental borrowing rate for the 2022 Lease, holding all other assumptions constant, would increase the initial Right-of-use asset and lease liability of the 2022 Lease by approximately $2.8 million.
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Results of Operations
Comparison of the years ended December 31, 2023 and 2022.
The following table summarizes our results of operations for the years ended December 31, 2023 and 2022 (in thousands):
| Year ended December 31, | Dollar | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | Change | ||||||||||
| Revenues | $ | 4,013 | $ | 4,737 | $ | (724 | ) | |||||
| Operating expenses: | ||||||||||||
| Research and development | 168,527 | 130,225 | 38,302 | |||||||||
| General and administrative | 58,094 | 42,394 | 15,700 | |||||||||
| Total operating expenses | 226,621 | 172,619 | 54,002 | |||||||||
| Loss from operations | (222,608 | ) | (167,882 | ) | (54,726 | ) | ||||||
| Other income, net | 13,277 | 4,974 | 8,303 | |||||||||
| Loss before equity method investment | (209,331 | ) | (162,908 | ) | (46,423 | ) | ||||||
| Loss on equity method investment | (5,198 | ) | (1,010 | ) | (4,188 | ) | ||||||
| Net loss | $ | (214,529 | ) | $ | (163,918 | ) | $ | (50,611 | ) |
Revenues. Revenues during the years ended December 31, 2023 and 2022 primarily relate to licensing arrangements, including $2.1 million from the Loyal License which was entered into 2023. Revenues during year ended December 31, 2023 also include $1.5 million and $0.4 million related to the Sanwa License and Sanwa Clinical Supply Agreement, respectively. Revenues in 2022 were primarily related to the licensing arrangement entered into with Sanwa in February 2022.
Research and development expenses. Research and development expenses were $168.5 million and $130.2 million for the years ended December 31, 2023 and 2022, respectively. The change was primarily due to an increase in personnel costs of $29.3 million, increased outside services (primarily consulting and professional services) of $5.6 million, increase in facilities expenses of $2.3 million, an increase in other corporate and travel expenditures of $2.2 million, offset by decreased net spending on manufacturing and development activities of $1.0 million associated with our clinical and nonclinical programs. We describe the changes in these research and development expenses for each of our programs below.
The following table summarizes our primary external and internal research and development expenses for the years ended December 31, 2023 and 2022 (in thousands):
| Year ended December 31, | Dollar | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | Change | ||||||||||
| External research and development expenses: | ||||||||||||
| Clinical trials | $ | 39,851 | $ | 38,048 | $ | 1,803 | ||||||
| Contract manufacturing | 14,437 | 18,962 | (4,525 | ) | ||||||||
| Preclinical studies | 14,454 | 12,758 | 1,696 | |||||||||
| Outside services | 14,467 | 8,923 | 5,544 | |||||||||
| Other external research and development | 39 | 36 | 3 | |||||||||
| Total external research and development expenses | 83,248 | 78,727 | 4,521 | |||||||||
| Internal expenses: | ||||||||||||
| Payroll and benefits | 53,446 | 31,662 | 21,784 | |||||||||
| Stock-based compensation | 22,633 | 15,078 | 7,555 | |||||||||
| Facilities and related | 4,964 | 2,711 | 2,253 | |||||||||
| Other internal research and development | 4,236 | 2,047 | 2,189 | |||||||||
| Total internal research and development expenses | 85,279 | 51,498 | 33,781 | |||||||||
| Total research and development expenses | $ | 168,527 | $ | 130,225 | $ | 38,302 |
The following table summarizes our research and development expenses by program for the years ended December 31, 2023 and 2022 (in thousands):
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| Year ended December 31, | Dollar | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | Change | ||||||||||
| Paltusotine | $ | 46,772 | $ | 47,767 | $ | (995 | ) | |||||
| CRN04894 | 13,118 | 9,154 | 3,964 | |||||||||
| CRN04777 | 7,754 | 11,558 | (3,804 | ) | ||||||||
| Discovery | 12,667 | 7,278 | 5,389 | |||||||||
| Payroll and benefits | 53,446 | 31,662 | 21,784 | |||||||||
| Stock-based compensation | 22,633 | 15,078 | 7,555 | |||||||||
| Other | 12,137 | 7,728 | 4,409 | |||||||||
| Total research and development expenses | $ | 168,527 | $ | 130,225 | $ | 38,302 |
Research and development expenses for paltusotine were $46.8 million and $47.8 million for the years ended December 31, 2023 and 2022, respectively. The change was primarily due to decreased spending on manufacturing and development activities of $3.3 million, offset by increased outside services of $2.0 million primarily as a result of ramp-up of the PATHFNDR programs in 2022.
Research and development expenses for our CRN04894 clinical studies were $13.1 million and $9.2 million for the years ended December 31, 2023 and 2022, respectively. The change was primarily due to increased spending on manufacturing and development activities of $3.6 million as the program progressed into clinical trials in patients with CAH and Cushing’s disease.
Research and development expenses for our CRN04777 clinical studies were $7.8 million and $11.6 million for the years ended December 31, 2023 and 2022, respectively. The change was primarily due to decreased spending on manufacturing and development activities of $3.1 million and decreased outside services of $0.7 million as a result of suspension the of CRN047777 in August 2023.
Research and development expenses for our discovery programs were $12.7 million and $7.3 million for the years ended December 31, 2023 and 2022, respectively. The change was primarily due to an increase in outside services of $4.0 million and increased spending on lab supplies and toxicology studies of $1.1 million as a result of the expansion of our discovery efforts across new therapeutic targets.
Research and development expenses for payroll and benefits were $53.4 million and $31.7 million for the years ended December 31, 2023 and 2022, respectively. The change was primarily due to an increase in headcount to support our ongoing programs as well as for the expansion of our discovery efforts into new therapeutic targets.
Stock-based compensation for research and development personnel was $22.6 million and $15.1 million for the years ended December 31, 2023 and 2022, respectively. The change was primarily due to an increase in headcount to support our ongoing programs as well as for the expansion of our discovery efforts across new therapeutic targets.
Other research and development expenses were $12.1 million and $7.7 million for the years ended December 31, 2023 and 2022, respectively. The change was primarily due an increase in travel and other expenditures of $1.6 million and an increase in facilities expenditures of $2.2 million driven by our move to our new headquarters.
General and administrative expenses. General and administrative expenses were $58.1 million and $42.4 million for the years ended December 31, 2023 and 2022, respectively. The change was primarily due to an increase in personnel costs of $12.8 million and an increase in travel and other corporate expenditures of $2.1 million to support our growth.
Other income. Other income, net was $13.3 million and $5.0 million for the years ended December 31, 2023 and 2022, respectively. The increase was primarily due to income generated by our investment securities.
Loss on equity method investment. Loss on equity method investment was $5.2 million and $1.0 million for years ended December 31, 2023 and 2022, respectively. The 2023 loss on equity method investment was due to our share of loss in Radionetics’ net loss subsequent to the August 2023 Radionetics stock purchase and Radionetics Warrant exercise. The 2022 loss was due to our share of loss in Radionetics’ net loss associated with our original Radionetics investment.
Cash Flows
We have incurred cumulative net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of December 31, 2023, we had an accumulated deficit of $653.7 million and unrestricted cash, cash equivalents and investment securities of $558.6 million.
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The following table provides information regarding our cash flows for the years ended December 31, 2023 and 2022 (in thousands):
| Years ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (166,307 | ) | $ | (115,205 | ) | ||
| Net cash used in investing activities | (200,413 | ) | (173,980 | ) | ||||
| Net cash provided by financing activities | 388,944 | 121,963 | ||||||
| Net change in cash, cash equivalents and restricted cash | $ | 22,224 | $ | (167,222 | ) |
Operating Activities. Net cash used in operating activities was $166.3 million and $115.2 million for the years ended December 31, 2023 and 2022, respectively. The increase in cash used in operations was primarily attributable to higher personnel costs. The net cash used in operating activities during the year ended December 31, 2023 was primarily due to our net loss of $214.5 million adjusted for $40.2 million of noncash charges, primarily for stock-based compensation and loss on the investment in Radionetics, and a $8.0 million change in operating assets and liabilities. The net cash used in operating activities during the year ended December 31, 2022 was primarily due to our net loss of $163.9 million adjusted for $30.1 million of noncash charges, primarily for stock-based compensation and loss on the investment in Radionetics, and a $18.6 million change in operating assets and liabilities.
Investing activities. Investing activities consist primarily of purchases and maturities of investment securities and, to a lesser extent, the cash outflow associated with purchases of property and equipment. During the year ended December 31, 2023, we also invested $5.0 million to purchase preferred stock in Radionetics. Such activities resulted in net cash outflows of approximately $200.4 million during the year ended December 31, 2023, compared to the net cash outflows of approximately $174.0 million during the year ended December 31, 2022.
Financing activities. Net cash provided by financing activities was $388.9 million and $122.0 million for the years ended December 31, 2023 and 2022, respectively. The net cash provided by financing activities during 2023 and 2022 resulted from proceeds received from the sale of common stock and cash received from the exercise of stock options.
Liquidity and Capital Resources
As of December 31, 2023, we had unrestricted cash, cash equivalents and investment securities of $558.6 million. Based on our current and anticipated level of operations, we believe that our existing capital resources, together with investment income, will be sufficient to satisfy our current and projected funding requirements for at least the next twelve months. However, our forecast of the period through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
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the type, number, scope, progress, expansions, results, costs and timing of, our preclinical studies and clinical trials of our product candidates which we are pursuing or may choose to pursue in the future;
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the costs and timing of manufacturing for our product candidates, including commercial manufacturing if any product candidate is approved;
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the costs, timing and outcome of regulatory review of our product candidates;
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the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;
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our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;
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the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase;
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the timing and the extent of any Australian Tax Incentive refund and future grant revenues that we receive;
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the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;
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our ability to achieve sufficient market acceptance, adequate coverage and reimbursement from third-party payors and adequate market share and revenue for any approved products;
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the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;
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costs associated with any products or technologies that we may in-license or acquire;
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the funding of any co-development arrangements we enter into; and
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our ability to participate in future equity offerings by Radionetics.
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, licenses and other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
In August 2019, we entered into a Sales Agreement, or the Sales Agreement, with Leerink Partners LLC and Cantor Fitzgerald & Co., or collectively, the Sales Agents, under which we may, from time to time, sell up to $150.0 million of shares of our common stock through the Sales Agents, or the ATM Offering. We are not obligated to, and we cannot provide any assurances that we will continue to, make any sales of the shares under the Sales Agreement. The Sales Agreement may be terminated by either Sales Agent (with respect to itself) or us at any time upon ten days’ notice to the other parties, or by either Sales Agent, with respect to itself, at any time in certain circumstances, including the occurrence of a material adverse change. We will pay the Sales Agents a commission for their services in acting as agent in the sale of common stock in an amount equal to 3% of the gross sales price per share sold. During the year ended December 31, 2023, we issued 1,344,865 shares of common stock in the ATM Offering for net proceeds of approximately $40.6 million, after deducting commissions. During the quarter ended December 31, 2023, we issued 822,058 shares of common stock in the ATM Offering for net proceeds of approximately $29.2 million, after deducting commissions.
On April 12, 2021, we completed an underwritten public offering of 4,562,044 shares of our common stock at a price to the public of $16.44 per share. Proceeds from the offering were approximately $72.6 million, net of underwriting discounts and commissions and offering costs of $2.4 million.
On July 28, 2021, we entered into a stock purchase agreement for the private placement of 851,306 shares of our common stock at a price of $17.62 per share, or the Private Placement, which shares were issued on July 30, 2021. The Private Placement yielded net proceeds of $15.0 million.
On October 21, 2021, we completed an underwritten public offering of 8,712,400 shares of our common stock at a price to the public of $19.80 per share. Proceeds from the offering were approximately $162.0 million, net of underwriting discounts and commissions and offering costs of $10.5 million.
On April 18, 2022, we completed an underwritten public offering of 5,625,563 shares of our common stock at a price to the public of $22.22 per share. Net proceeds from the offering were approximately $117.2 million, after underwriting discounts and commissions and offering costs of approximately $7.8 million.
On September 15, 2023, we completed an underwritten public offering of 11,441,648 shares of our common stock at a price to the public of $30.59 per share. Net proceeds from the offering were approximately $328.5 million, after underwriting discounts and commissions and offering costs of approximately $21.5 million.
2022 Lease
On September 9, 2022, we entered into a lease agreement for laboratory and office space in San Diego, California, or the 2022 Lease (see "Note 6" to the consolidated financial statements). On December 18, 2023, we moved our corporate headquarters to the new facility.
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