You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and related notes appearing in this Annual Report on Form 10-K. Some of the
information contained in this discussion and analysis or set forth elsewhere in
this Annual Report on Form 10-K, including information with respect to our plans
and strategy for our business and related financing, includes forward-looking
statements that involve risks and uncertainties. As a result of many factors,
including those factors set forth in the "Risk Factors" section of this Annual
Report on Form 10-K, 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. For the comparison of the financial results
for the fiscal years ended
Overview
Day One was founded to address a critical unmet need: children with cancer are being left behind in a cancer drug development revolution. Our name was inspired by the "The Day One Talk" that physicians have with patients and their families about an initial cancer diagnosis and treatment plan. We aim to re-envision cancer drug development and redefine what's possible for all people living with cancer-regardless of age-starting from Day One.
We are a clinical-stage biopharmaceutical company dedicated to developing and commercializing targeted therapies for patients of all ages with life threatening diseases. Initially, we have focused our clinical development efforts on pediatric patients living with cancer, a vulnerable population that has been underserved in the recent revolution in targeted therapeutics and immuno-oncology.
Our lead product candidate, tovorafenib (DAY101), is an oral, brain-penetrant, highly-selective type II pan-rapidly accelerated fibrosarcoma, or pan-RAF, kinase inhibitor. Tovorafenib (DAY101) has been studied in over 325 patients and has been shown to be generally well-tolerated as a monotherapy. Tovorafenib (DAY101) has demonstrated encouraging anti-tumor activity in pediatric and adult populations with specific genetic alterations that result in the over-activation of the RAS/mitogen-activated protein kinase, or MAPK, pathway leading to uncontrolled cell growth.
Tovorafenib (DAY101) has been granted Breakthrough Therapy designation by the
FDA in
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We have initiated and fully enrolled a pivotal Phase 2 trial, or FIREFLY-1, of
tovorafenib (DAY101) as a monotherapy for pediatric patients with relapsed or
progressive low-grade glioma harboring an activating BRAF alteration. The first
patient was dosed in FIREFLY-1 in
We have initiated a pivotal Phase 3 trial, or FIREFLY-2, of tovorafenib (DAY101)
as a frontline therapy in pLGG in the second quarter of 2022, with the first
site having been initiated in
Our second product candidate, pimasertib, is an oral, highly-selective small molecule inhibitor of mitogen-activated protein kinase kinases 1 and 2, or MEK, a well-characterized key signaling node in the MAPK pathway. Pimasertib has been studied in more than 10 Phase 1/2 clinical trials in over 850 patients with various tumor types, both as monotherapy and in combination with standard of care therapies. Published preclinical studies indicated that pimasertib has higher central nervous system, or CNS, penetration than other MEK inhibitors.
We have initiated an open-label, multicenter, Phase 1b/2a umbrella master trial,
or FIRELIGHT-1, of tovorafenib monotherapy or combination therapy, which
consists of two substudies. Substudy 1 is a Phase 2 trial of tovorafenib
(DAY101) as monotherapy in patients 12 years and older with RAF-altered tumors;
the first patient was dosed in
We believe our business development capabilities combined with our extensive experience in oncology drug development and deep ties within the research and patient advocacy communities, particularly within the pediatric setting, positions us to be a leader in identifying, acquiring and developing therapies for patients of all ages. We hold exclusive worldwide rights to tovorafenib (DAY101) and to pimasertib for all therapeutic areas subject to certain milestone and royalty payments.
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The following table summarizes our product candidate pipeline.
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Since our inception in
To date, we have funded our operations through the sale of our redeemable convertible preferred shares, convertible notes and common stock in our initial public offering and subsequent public offering.
Cash and cash equivalents and short-term investments totaled
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We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for clinical testing, as well as for commercial manufacturing if any of our product candidates obtain marketing approval. As we advance our product candidates through development, we will explore adding backup suppliers for the Active Pharmaceutical Ingredients, or API, drug product, packaging and formulation for each of our product candidates to protect against any potential supply disruptions.
COVID-19 pandemic
The full impact of the ongoing COVID-19 pandemic remains highly uncertain and subject to change. There are many uncertainties around the COVID-19 pandemic and future developments, which are unpredictable, may result in a material, negative impact to our operations and financial condition. We have experienced and expect to continue to experience volatility in services rendered from our third-party service providers as local governments respond to resurgences and the emergence of new strains, each of which may result in the prolonged reinstitution, extension or enhancement of protective measures. With respect to manufacturing and supply, we do not anticipate disruptions to our drug supply chain, and we cannot be sure if lock-down measures or restrictions will be implemented and what, if any, impact that may have on our facilities and operations.
Our management team continues to actively monitor this evolving health crisis and its effects on our financial condition, liquidity, operations, key vendors and workforce.
Inflation Reduction Act
On
Significant Agreements Takeda asset agreement
On
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In consideration for the sale and assignment of assets and the grant of the
license under the Takeda Asset Agreement, DOT-1 made an upfront payment of
The term of the Takeda Asset Agreement will expire on a country-by-country basis upon expiration of all assigned patent rights and all licensed patent rights in such country. Takeda may terminate the Takeda Asset Agreement prior to our first commercial sale of a product if we cease conducting any development activities for a continuous and specified period of time and such cessation is not agreed upon by the parties and is not done in response to guidance from a regulatory authority. Additionally, Takeda can terminate the Takeda Asset Agreement in the event of our bankruptcy. In the event of termination of the Takeda Asset Agreement by Takeda as a result of our cessation of development or bankruptcy, all assigned patents, know-how and contracts (other than the Viracta License Agreement) will be assigned back to Takeda and Takeda will obtain a reversion license under patents and know-how generated to exploit all such terminated products.
Effective
Viracta license agreement
On
DOT-1 paid
The term of the Viracta License Agreement will expire on a licensed product-by-licensed product and country-by-country basis upon the expiration of the Company's obligation to pay royalties to Viracta with respect to such product in such country. DOT-1 has the right to terminate the Viracta License Agreement with respect to any or all of the licensed products at will upon a specified notice period.
Effective
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License agreement with Merck KGaA, Darmstadt,
On
Under the MRKDG License Agreement, we have obligations to use commercially reasonable efforts to develop and commercialize at least two licensed products in at least two specified major market countries by the year 2029.
In consideration for the rights granted under the MRKDG License Agreement and
clinical supplies, we made an upfront payment of
The term of the MRKDG License Agreement will expire on a licensed product-by-licensed product and country-by-country basis upon the expiration of our obligation to pay royalties to the licensor with respect to such licensed product in such country and will expire in its entirety upon the expiration of all of our payment obligations with respect to all licensed products and all countries under the MRKDG License Agreement.
Effective
Components of Results of Operations
Operating expenses
Research and development expenses
Research and development expenses consist primarily of external and internal expenses incurred for our research activities, including our discovery and in-licensing undertakings, and the development of our lead product candidate, tovorafenib (DAY101) and our second product candidate, pimasertib.
External expenses include:
•
costs associated with acquiring technology and intellectual property licenses that have no alternative future uses;
•
costs incurred under agreements with third-party contract research organizations, or CROs, contract manufacturing organizations, or CMOs, and other third parties that conduct clinical trials on our behalf; and
•
other costs associated with our research and development programs, including laboratory materials and supplies.
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Internal expenses include:
•
employee-related costs, including salaries, benefits and share-based compensation expense, for our research and development personnel; and
•
facilities and other overhead expenses, including expenses for rent and facilities maintenance, and amortization.
We expense research and development expenses as incurred. We track external costs by program, which currently consist of expenses for our tovorafenib (DAY101) program and our pimasertib program. We do not track indirect costs on a program specific basis because these costs are deployed across multiple programs and, as such, are not separately classified.
Research and development activities are central to our business model. We expect that our research and development expenses will increase substantially for the foreseeable future as we continue to implement our business strategy, advance tovorafenib (DAY101) and pimasertib through clinical trials and conduct larger clinical trials, expand our research and development efforts, and identify, acquire and develop additional product candidates, particularly as more of our product candidates move into clinical development and later stages of clinical development.
We cannot reasonably determine the duration and costs to complete future clinical trials of tovorafenib (DAY101), pimasertib or any other product candidate we may develop or acquire, or to what extent we will generate revenue from the commercialization and sale of any of our product candidates. The successful development and commercialization of our product candidates, as well as our ability to obtain the necessary regulatory and marketing approvals are highly uncertain. This is due to numerous risks and uncertainties associated with developing new drugs, many of which are outside of our control, including:
•
the scope, rate of progress, expense and results of preclinical development activities, as well as of any future clinical trials of our product candidates, and other research and development activities we may conduct;
•
uncertainties in clinical trial design;
•
per patient trial costs;
•
the number of trials required for approval;
•
the number of sites included in the trials;
•
the number of patients that participate in the trials;
•
the countries in which the trials are conducted;
•
the length of time required to enroll eligible patients;
•
the drop-out or discontinuation rates of patients, particularly in light of the COVID-19 pandemic environment;
•
the safety and efficacy profiles of our product candidates;
•
the timing, receipt and terms of any approvals from applicable regulatory
authorities, including the FDA,
•
obtaining and maintaining intellectual property protection and regulatory exclusivity for our product candidates;
•
establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully;
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•
retention and expansion of a workforce of experienced scientists and others to continue research and development of our product candidates;
•
maintaining a continued acceptable safety profile of the products following any marketing approvals.
•
significant and changing government regulation and regulatory guidance;
•
the impact of any business interruptions to our operations or to those of the third parties with whom we work, including due to the ongoing COVID-19 pandemic; and
•
the extent to which we establish additional strategic collaborations or other arrangements.
A change in estimates of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant delays in our ongoing and planned clinical trials due to patient enrollment or other reasons, we could be required to expend significant additional financial resources and time on the completion of clinical development.
General and administrative expenses
General and administrative expenses consist primarily of personnel-related costs, legal and professional service costs, insurance costs and facility-related costs. Personnel-related costs include salaries, bonuses, benefits, share-based compensation, travel expenses and other related costs, for personnel in our executive, finance, corporate, business development, and administrative functions. Legal and professional service expenses include legal fees related to intellectual property and corporate matters; professional fees for accounting, auditing, tax, human resources, business development, and other consulting services; and travel expenses and facilities-related expenses.
We expect that our general and administrative expenses will increase
substantially for the foreseeable future as we anticipate an increase in our
personnel headcount to support expansion of research and development efforts for
our product candidates, increase our team and resources dedicated to commercial
market preparation, as well as to support our operations generally. We also
expect an increase in expenses associated with being a public company, including
costs related to compliance with the requirements of the Nasdaq Global Select
Market, or Nasdaq, and the
Net loss attributable to redeemable convertible noncontrolling interest
Net loss attributable to redeemable convertible noncontrolling interest
represented a portion of the net loss that is not allocated to us in our
subsidiary, DOT-1. On
Exchange of redeemable noncontrolling interest shares - deemed dividend
For the year ended
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Results of Operations
Comparison of year ended
The following table summarizes our results of operations for the years endedDecember 31, 2022 and 2021: Year Ended December 31, 2022 2021 $ Change % Change Operating expenses: Research and development$ 85,618 $ 43,584 $ 42,034 96.4 % General and administrative 61,291 29,159 32,132 110.2 % Total operating expenses 146,909 72,743 74,166 102.0 % Loss from operations (146,909 ) (72,743 ) (74,166 ) 102.0 % Interest income, net 4,746 4 4,742 * Other expense, net (18 ) (15 ) (3 ) 20.0 % Net loss (142,181 ) (72,754 ) (69,427 ) 95.4 % Net loss attributable to redeemable convertible noncontrolling interests - (2,109 ) 2,109 * Exchange of redeemable noncontrolling interest shares - deemed dividend - (99,994 ) 99,994 * Net Loss attributable to common stockholders/members$ (142,181 ) $ (170,639 ) $ 28,458 -16.7 %
Research and development expenses
Research and development expenses increased
The following table summarizes our external and internal research and
development expenses for the years ended
Year EndedDecember 31, 2022 2021 (in thousands)
External costs: Third-party CRO, CMO and other third-party clinical trial costs (1)
$ 50,175 $ 21,181 Milestone payment related to the MRKDG License Agreement 2,500 - Upfront payment related to the MRKDG License Agreement - 8,000 Milestone payment related to the Viracta License Agreement - 3,000 Other research and development costs, including laboratory materials and supplies 3,598 243 Internal costs: Employee related expenses 29,345 11,160 Total research and development expenses$ 85,618 $ 43,584
(1)
Third-party CRO, CMO and other clinical trial costs for the tovorafenib (DAY
101) program and the pimasertib program were
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General and administrative expenses
General and administrative expenses increased
Exchange of redeemable noncontrolling interest shares - deemed dividend
In
Liquidity and Capital Resources
Sources of liquidity
In
In
In
As of
Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures including our license, clinical trial and laboratory costs as well as to a lesser extent, general and administrative expenditures including our salary and consulting expenses. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. Our material cash requirements include the following contractual and other obligations.
Leases
We have an operating lease obligation for office space. As of
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Contract Research Organizations and Contract Manufacturing Organizations
We have entered into contracts in the normal course of business with CROs, CMOs,
and other third-party vendors for clinical trial, manufacturing, testing, and
other research and development activities. These contracts generally provide for
termination on notice, with the exception of one vendor where certain costs are
non-cancellable after the approval of the project. As of
License Agreements
We have entered into licensing agreements, which require us to pay milestones
contingent upon meeting of specific events. We made milestones payment of
Cash flows
The following table summarizes our sources and uses of cash for the periods presented: Year Ended December 31, 2022 2021 Net cash used in operating activities$ (109,874 ) $ (48,539 ) Net cash used in investing activities (255,074 ) (8,000 ) Net cash provided by financing activities 165,901 297,120
Net (decrease) increase in cash and cash equivalents
Operating activities
Net cash used in operating activities for the year ended
Net cash used in operating activities for the year ended
Investing activities
Net cash used in invested activities for the year ended
Net cash used in investing activities for the year ended
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Financing activities
Net cash provided by financing activities for the year ended
Net cash provided by financing activities for the year ended
Funding requirements
Since our inception, we have incurred significant operating losses. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future in connection with our ongoing activities.
We believe our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements into 2025. We have based this estimate on assumptions that may prove to be imprecise, and we could use our available capital resources sooner than we currently expect.
As a result of anticipated expenditures, we will need to obtain substantial additional financing in connection with our continuing operations. Until such time, if ever, as we cannot generate substantial revenue from product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. Adequate additional funds may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we may be required to delay, limit, reduce or terminate our research, product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. 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 acquisitions or capital expenditures or declaring dividends.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing 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.
Our ability to raise additional funds may be adversely impacted by potential
worsening global economic conditions, including inflation and changing interest
rates, and disruptions to and volatility in the credit and financial markets in
Off-balance sheet arrangements
We did not during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
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Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in
While our significant accounting policies are described in more detail in the Notes to our Consolidated Financial Statements appearing within Item 8 of this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Accrued research and development expenses
We record accrued liabilities for estimated costs of our research and development activities conducted by third-party service providers, which include the conduct of preclinical and clinical studies and contract manufacturing activities. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced. We accrue for these costs based on factors such as estimates of the work completed and in accordance with agreements established with our third-party service providers under the service agreements.
We make payments in connection with clinical trials under contracts with CMOs and CROs that support conducting and managing our clinical trials. The financial terms of these contracts are subject to negotiation, which vary by contract and may result in payments that do not match the periods over which materials or services are provided. Generally, these agreements set forth the scope of work to be performed at a fixed fee, unit price or on a time and materials basis. We accrue costs for clinical trial activities performed by CROs based upon the estimated amount of work completed on each trial. For clinical trial expenses, the significant factors used in estimating accruals include the number of patients enrolled, the activities to be performed for each patient, the number of active clinical sites and the duration for which the patients will be enrolled in the trial. We monitor patient enrollment levels and related activities to the extent possible through internal reviews, correspondence with CROs and review of contractual terms. We base our estimates on the best information available at the time. In accruing service fees of CMOs, we estimate the time period over which services will be performed and the level of effort to be expended in each period. Clinical supplies inventories that have no alternative use are recorded to research and development expense as ownership for these supplies passes to us.
If we do not identify costs that have begun to be incurred or if we under- or over-estimate the level of services performed or the costs of these services, actual expenses could differ from our estimates. To date, we have not experienced any material differences between accrued costs and actual costs incurred. However, due to the nature of estimates, we cannot assure that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials and other research activities.
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Share-based compensation
Prior to our IPO, we recognized share-based compensation expense based on the
estimated fair value of all share-based awards, incentive shares and restricted
share awards, on the date of grant using the option-pricing model. The
option-pricing model requires the input of subjective assumptions, including the
fair value of the underlying common shares, the expected term of the award, the
expected volatility, risk-free interest rates and the dividend yield. In
determining the fair value of common shares, the methodologies used to estimate
the enterprise value were performed using methodologies, approaches and
assumptions consistent with the
Subsequent to closing of the IPO, we use the Black-Scholes valuation model to estimate the fair value of options granted, intrinsic value to estimate the fair value of restricted stock awards, and fair value of our common stock at the grant date for restricted stock units.
The Black-Scholes option-pricing model, used to estimate fair value of stock options awards, requires the use of the following assumptions:
•
Fair Value of Common Stock-the closing price on the Nasdaq market at the grant date.
•
Expected Term-The expected term represents the period that the share-based awards are expected to be outstanding. The expected term for stock options is calculated using the simplified method, as the weighted-average vesting term of the award and the award's contract period. We utilize this method due to lack of historical exercise data and the plain-vanilla nature of our service condition share-based awards. For our performance condition stock option awards, we calculate the expected term by taking into consideration the option's contractual life, the timing of when milestones are expected to be achieved and the expected exercise period by a holder from the vesting date until the contractual term.
•
Expected Volatility-Since we do not have sufficient trading history for our common stock, the expected volatility is estimated based on the average historical volatilities of common stock of comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants. The comparable biopharmaceutical companies are chosen based on their size, stage in the life cycle or area of specialty. We will continue to apply this process until sufficient historical information regarding the volatility of the common stock price becomes available.
•
Risk-Free Interest Rate-The risk-free interest rate is based on the
•
Expected Dividend Yield-We have never paid dividends on the common stock and have no plans to pay dividends on our common stock. Therefore, the expected dividend yield used is zero.
We recognize forfeitures by reducing the expense in the same period the forfeitures occur. We recognize share-based compensation expense for awards with performance conditions when it is probable that the condition will be met, and the award will vest.
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The assumptions underlying these valuations represented management's best estimates, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our share-based compensation expense could have been materially different.
New Accounting Pronouncements
Refer to Note 2 of the Notes to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for a summary of recently issued and adopted accounting pronouncements.
Emerging Growth Company Status
As an emerging growth company, or EGC, under the Jumpstart Our Business Startups
Act of 2012, or JOBS Act, we can take advantage of an extended transition period
for complying with new or revised accounting standards. This provision allows an
EGC to delay the adoption of some accounting standards until those standards
would otherwise apply to private companies. We have elected to use this extended
transition period for complying with new or revised accounting standards that
have different effective dates for public and private companies until the
earlier of the date we (i) are no longer an emerging growth company or (ii)
affirmatively and irrevocably opt out of the extended transition period provided
in the JOBS Act. As of
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