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 December 31, 2021 and 2020, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on March 7, 2022. As used in this report, unless the context suggests otherwise, "we," "us," "our," "the Company" or "Day One" refer to Day One Biopharmaceuticals, Inc.




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 August 2020 for the treatment of pLGG based on initial results from a Phase 1 trial which showed evidence of rapid anti-tumor activity and durable responses in pLGG patients. Pediatric low-grade glioma is the most common brain tumor diagnosed in children for which there is no standard of care and for which there are no approved therapies for the majority of patients. We received Orphan Drug designation for the treatment of malignant glioma from the FDA in September 2020 and from the EU Commission for the treatment of glioma in May 2021. Additionally, the FDA granted Rare Pediatric Disease designation to tovorafenib (DAY101) for treatment of low-grade gliomas, or LGGs, harboring an activating RAF alteration in July 2021.



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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 May 2021 and we completed enrollment in the registrational arm in May 2022. The FIREFLY-1 trial has also been expanded to: (a) include two additional study arms to enable expanded access for eligible patients now that the primary cohort has completed enrollment, and (b) evaluate the preliminary efficacy of tovorafenib (DAY101) in patients aged six months to 25 years with a relapsed or progressive extracranial solid tumor with an activating RAF fusion. We reported initial data from an interim analysis from the FIREFLY-1 trial in June 2022 and top-line data for all patients in January 2023. Topline data from January 2023 demonstrated an overall response rate, or ORR, of 64% in the 69 Response Assessment for Neuro-Oncology, or RANO, evaluable patients, comprising of 3 confirmed complete responses, or CR, and 41 partial responses, or PR (31 confirmed partial responses and 10 unconfirmed partial response, or uPR). We observed an additional 19 patients with stable disease, or SD, resulting in a clinical benefit rate of 91% (CR+ PR/uPR+ SD). Safety data, based on 77 treated patients, indicated monotherapy tovorafenib to be generally well-tolerated. We believe tumor reduction or stabilization is clinically meaningful for pLGG patients, as both are perceived as beneficial given the lack of approved therapies for the majority of patients. We anticipate presenting additional data from the FIREFLY-1 trial at an upcoming medical meeting in the second quarter of 2023, and reviewing key portions of the data from the study with the FDA at a pre-New Drug Application, or NDA, meeting in advance of our planned submission of an NDA in the first half of 2023.

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 June 2022. The first patient was dosed in FIREFLY-2 in March 2023.

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 November 2021. Substudy 2 is a Phase 1b/2 combination trial of tovorafenib (DAY101) and pimasertib in patients 12 years and older with various MAPK-altered solid tumors; the first patient was dosed in May 2022. Simultaneous inhibition of both RAF and MEK has been shown to lead to synergistic antitumor activity in preclinical models. This combination may demonstrate enhanced anti-tumor activity in a variety of adult solid tumors driven by MAPK alterations, including NRAS mutant melanoma and lung cancers, tumors driven by Class II BRAF alterations, tumors with BRAF wild-type fusions, and tumors driven by KRAS alterations.

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 November 2018, we have devoted substantially all of our resources to identifying, acquiring and developing our product candidates and building our pipeline; organizing and staffing our company; business planning; establishing and maintaining our intellectual property portfolio; establishing arrangements with third parties for the manufacture of our product candidates; raising capital; preparing for commercial launch; and providing general and administrative support for these operations. We do not have any products approved for commercial sale and have not generated any revenues from product sales or any other source and have incurred net losses since commencement of our operations. For the years ended December 31, 2022 and 2021, we reported a net loss of $142.2 million and $72.8 million, respectively. We had an accumulated deficit of $269.7 million and $127.5 million as of December 31, 2022 and 2021, respectively. We expect a significant increase in expenses and substantial losses for the foreseeable future as we continue our development of, and seek regulatory approvals for our product candidates, commercialize any approved products, and seek to expand our product pipeline and invest in our organization. In addition, we expect to continue to incur additional costs associated with operating as a public company, including significant legal, audit, accounting, regulatory, tax-related, director and officer insurance, investor relations and other expenses that we did not incur as a private company.

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 $342.3 million as of December 31, 2022. Based on our current operating plan, management believes we have sufficient capital resources to fund anticipated operations into 2025. Because of the numerous risks and uncertainties associated with product development, we may never achieve profitability, and unless and until then, we will need to continue to raise additional capital. There are no assurances that we will be successful in obtaining an adequate level of financing to support our business plans. If we are unable to raise capital as and when needed or on attractive terms, we may have to significantly delay, reduce or discontinue the development and commercialization of our product candidates or scale back or terminate our pursuit of new in-licenses and acquisitions.



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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 August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which includes an Alternative Minimum Tax based on the Adjusted Financial Statement Income of Applicable Corporations. Based on our initial evaluation, we do not believe the Inflation Reduction Act will have a material impact on our income tax provision and cash taxes. We continue to monitor the changes in tax laws and regulations to evaluate their potential impact on our business.





Significant Agreements

Takeda asset agreement

On December 16, 2019, DOT Therapeutics-1, Inc., or DOT-1, our subsidiary, entered into an asset purchase agreement, or the Takeda Asset Agreement, with Millennium Pharmaceuticals, Inc., a related party and an affiliate of Takeda Pharmaceutical Company Limited, or Takeda. Pursuant to the Takeda Asset Agreement, DOT-1 purchased certain technology rights and know-how related to TAK-580 (which is now tovorafenib (DAY101)) that provides a new approach for treating patients with primary brain tumors or brain metastases of solid tumors. DOT-1 also received clinical inventory supplies to use in our research and development activities of such RAF-inhibitor and an assigned investigator clinical trial agreement. Takeda also assigned to DOT-1 its exclusive license agreement, or the Viracta License Agreement, with Viracta Therapeutics, Inc. (f/k/a Sunesis Pharmaceuticals, Inc.), or Viracta. Takeda also granted DOT-1 a worldwide, sublicensable exclusive license under specified patents and know-how and non-exclusive license under other patents and know-how generated by Takeda under the Takeda Asset Agreement. DOT-1 also granted Takeda a grant back license, as defined in the Takeda Asset Agreement, which is terminable either automatically or by DOT-1 in the event Takeda does not achieve specified development milestones within the applicable timeframes set forth under the Takeda Asset Agreement. This grant back license to Takeda was terminated at the time of Conversion in connection with the Millennium Stock Exchange Agreement.



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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 $1.0 million in cash and issued 9,857,143 shares of Series A redeemable convertible preferred stock in DOT-1 in December 2019. The fair value of issued shares was estimated as $9.9 million, based on the price paid by other investors for issued shares in the Series A financing of DOT-1. Based on the terms of the Millennium Stock Exchange Agreement, Takeda exchanged the 9,857,143 shares of Series A redeemable convertible preferred stock of DOT-1 for 6,470,382 shares of our common stock upon the effectiveness of the Conversion, on May 26, 2021.

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 December 31, 2021, DOT-1 was merged with and into our company, with our company being the surviving corporation and assuming DOT-1's obligations under the Takeda Assets Purchase Agreement.

Viracta license agreement

On December 16, 2019, DOT-1 amended and restated the Viracta License Agreement that was assigned pursuant to the Takeda Asset Agreement. Under the Viracta License Agreement, DOT-1 received a worldwide exclusive license under specified patent rights and know-how to develop, use, manufacture, and commercialize products containing compounds binding the RAF protein family.

DOT-1 paid $2.0 million upfront in cash to Viracta, which was recorded as research and development expenses in 2019. DOT-1 made a milestone payment of $3.0 million to Viracta in February 2021, which was recorded as research and development expense when the milestone was achieved in April 2021. DOT-1 is also required to make additional milestone payments of up to $54.0 million upon achievement of specified development and regulatory milestones for each licensed product in two indications, with milestones payable for the second indication to achieve a specified milestone event being lower than milestones payable for the first indication. Additionally, if DOT-1 obtains a priority review voucher with respect to a licensed product and sells such priority review voucher to a third party or uses such priority review voucher, DOT-1 is obligated to pay Viracta a specified percentage in the mid-teen digits of all net consideration received from any such sale or of the value of such used priority review voucher, as applicable. Commencing on the first commercial sale of a licensed product in a country, DOT-1 is obligated to pay tiered royalties ranging in the mid-single-digit percentages on net sales of licensed products, if any. The obligation to pay royalties will end on a country-by-country and licensed product-by-licensed product basis commencing on the first commercial sale in a country and continuing until the later of: (i) the expiration of the last valid claim of the Viracta licensed patents, jointly owned collaboration patents or specified patents owned by the Company covering the use or sale of such product in such country, (ii) the expiration of the last statutory exclusivity pertaining to such product in such country or (iii) the tenth anniversary of the first commercial sale of such product in such country. No other milestones, except as discussed above, were achieved and due as of December 31, 2022.

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 December 31, 2021, DOT-1 was merged with and into our company, with our company being the surviving corporation and assuming DOT-1's obligations under Viracta License Agreement.




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License agreement with Merck KGaA, Darmstadt, Germany

On February 10, 2021, DOT Therapeutics-2, Inc., or DOT-2, our subsidiary, entered into a license agreement, or the MRKDG License Agreement, with Merck KGaA, Darmstadt, Germany, a pharmaceutical corporation located in Darmstadt, Germany. Under the MRKDG License Agreement, Merck KGaA, Darmstadt, Germany granted to us an exclusive worldwide license, with the right to grant sublicenses through multiple tiers, under specified patent rights and know-how for us to research, develop, manufacture and commercialize products containing and comprising the pimasertib and MSC2015103B compounds. We also received clinical inventory supplies to use in its research and development activities. Our exclusive license grant is subject to a non-exclusive license granted by Merck KGaA, Darmstadt, Germany's affiliate to a cancer research organization and Merck KGaA, Darmstadt, Germany retains the right to conduct, directly or indirectly, certain ongoing clinical studies relating to pimasertib.

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 $8.0 million, which was recorded as research and development expenses, as the technology does not have an alternative future use and supplies are used for research activities. Additionally, we made a milestone payment of $2.5 million, which was recorded as research and development expenses due to the nature of the license agreement and the milestone event relating to the first dosing of a patient in a first clinical trial of a product containing pimasertib, in the year ended December 31, 2022. We may also be required to make additional payments of up to $364.5 million based upon the achievement of specified development, regulatory, and commercial milestones, as well a high, single-digit royalty percentage on future net sales of licensed products, if any. Milestones and royalties are contingent upon future events and will be recorded when the milestones are achieved and when payments are due.

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 December 31, 2021, DOT-2 was merged with and into our company, with our company being the surviving corporation and assuming DOT-2's obligations under the MRKDG License Agreement.

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, European Medicines Agency, Health Canada or other regulatory agencies of the investigational NDAs, clinical trial applications or other regulatory filings for tovorafenib (DAY101) and future product candidates;

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 Securities and Exchange Commission, or SEC; additional director and officer insurance costs; and investor and public relations costs.

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 May 26, 2021, in connection with the terms of the Millennium Stock Exchange Agreement, Takeda exchanged its shares in DOT-1 for shares of our common stock. At that time, the redeemable convertible noncontrolling interest was extinguished, and DOT-1 became our wholly owned subsidiary.

Exchange of redeemable noncontrolling interest shares - deemed dividend

For the year ended December 31, 2021, as a result of an exchange of shares by Takeda, we recognized an extinguishment loss of approximately $100.0 million to additional paid-in-capital, which was calculated as a difference between the fair value of common stock issued to Takeda in the conversion and the carrying value of redeemable noncontrolling interest at the conversion date. The all-stock, non-cash exchange was treated as a deemed dividend in the calculation of net loss attributable to common stockholders and net loss per share.



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Results of Operations

Comparison of year ended December 31, 2022 and 2021



The following table summarizes our results of operations for the years ended
December 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 $42.0 million, from $43.6 million for the year ended December 31, 2021, to $85.6 million for the year ended December 31, 2022. In the year ended December 31, 2022, as compared to December 31, 2021, third-party expenses increased by $29.0 million, due primarily to an increase in clinical trial, manufacturing and other product development expenses, personnel related expenses increased by $18.1 million resulting from additional headcount and share-based compensation, and upfront and milestone expenses decreased by $8.5 million due to the timing of milestone payments.

The following table summarizes our external and internal research and development expenses for the years ended December 31, 2022 and 2021:



                                                                 Year Ended
                                                                December 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 $43.2 million and $6.9 million, respectively, for year ended December 31, 2022, compared to $19.8 million and $1.4 million, respectively, for the year ended December 31, 2021.



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General and administrative expenses

General and administrative expenses increased $32.1 million, from $29.2 million for the year ended December 31, 2021 to $61.3 million for the year ended December 31, 2022. The increase in general and administrative expenses was primarily due to $17.1 million in employee compensation costs driven by headcount growth, $10.6 million in professional services, legal and insurance driven by the build out of commercial capabilities and continued expansion of business operations and $4.4 million in facilities costs and other expenses.

Exchange of redeemable noncontrolling interest shares - deemed dividend

In May 2021, we exchanged Takeda's redeemable noncontrolling interest shares in DOT-1 for shares of common stock of Day One Biopharmaceuticals, Inc., which resulted in accounting for the transaction as a deemed dividend. As such, we recognized a $100.0 million non-cash extinguishment loss to additional paid-in capital, which was calculated as a difference between the fair value of common stock issued to Takeda in the Conversion and the carrying value of the redeemable noncontrolling interest at the conversion date. This was disclosed below net loss on the consolidated statements of operations as a deemed dividend and included in the net loss per share calculation for the year ended December 31, 2021. There was no such loss recognized during the year ended December 31, 2022.

Liquidity and Capital Resources

Sources of liquidity

In June 2022, we entered into an equity distribution agreement with Piper Sandler & Co. and JonesTrading Institutional Services LLC, as sales agents, relating to the issuance and sale of shares of our common stock having an aggregate offering price of up to $150.0 million from time to time, or the 2022 ATM. The issuance and sale of these shares by us pursuant to the 2022 ATM were deemed an "at-the-market" offering under the Securities Act. As of December 31, 2022, we have not sold any shares of our common stock under the 2022 ATM.

In June 2022, we completed a follow-on offering and issued and sold 11,500,000 shares of common stock (including the exercise by the underwriters of their option to purchase an additional 1,500,000 shares of common stock) at a price to the public of $15.00 per share for net proceeds of approximately $161.6 million, after deducting underwriting discounts, commissions and offering costs.

In June 2021, we completed our IPO and sold an aggregate of 11,500,000 shares of common stock at a price to the public of $16.00 per share, which included 1,500,000 shares issued upon the full exercise by the underwriters in May 2021 of their option to purchase additional shares of common stock. We received aggregate net proceeds from the IPO of $167.0 million, after deducting underwriting discounts, commissions, and offering costs of $17.0 million. Prior to our IPO, we had funded our operations through the sale of our redeemable convertible preferred shares and convertible notes. We had previously raised approximately $192.0 million in gross proceeds from the sale and issuance of our Series A and Series B redeemable convertible preferred shares and convertible notes.

As of December 31, 2022, we had an accumulated deficit of $269.7 million and $342.3 million in cash, cash equivalents and short-term investments. We believe our cash, cash equivalents and short-term investments will be sufficient to satisfy our cash requirements over the next 12 months and into 2025.

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 December 31, 2022, the Company had fixed lease payment obligations of approximately $0.9 million, with approximately $0.5 million payable within 12 months.



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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 December 31, 2022, there were no amounts accrued related to termination and cancellation charges as these are not probable.

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 $2.5 million related to the first dosing of a patient in a first clinical trial of a product containing pimasertib in the year ended December 31, 2022 and $3.0 million related to the Viracta License Agreement in the year ended December 31, 2021. We are required to pay royalties on sales of products developed under these agreements. All our products are in development as of December 31, 2022 and no such royalties are due. As of December 31, 2022, we do not have any contingent payment obligations since the amount, timing and likelihood of such payments are not known.

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 $ (199,047 ) $ 240,581






Operating activities

Net cash used in operating activities for the year ended December 31, 2022 was $109.9 million, consisting of our net loss of $142.2 million, changes of approximately $6.6 million in net operating assets and liabilities and by non-cash charges of $25.7 million, which is primarily comprised of share-based compensation expense of $27.2 million. Changes in operating assets and liabilities were primarily related to an increase in accrued expenses and other current liabilities of $9.2 million. This was partially offset by a decrease of accounts payable of $1.5 million, an increase to operating lease liabilities of $0.3 million, an increase to deposits and other long-term assets of $0.3 million, and an increase to prepaid expenses and other current assets of $0.5 million.

Net cash used in operating activities for the year ended December 31, 2021 was $48.5 million, consisting of our net loss of $72.8 million, partially offset by $2.7 million in net operating assets and liabilities and by non-cash charges of $21.5 million. Changes in operating assets and liabilities were primarily related to an increase in prepaid expenses and other current assets of $3.7 million, which includes $3.0 million prepayment of the Viracta license milestone, partially offset by an increase in accrued expenses and other current liabilities of $5.1 million, and an increase in accounts payable of $1.5 million. Our non-cash charges primarily consisted of $13.3 million in share-based compensation expense and $0.2 million in non-cash lease expense. We also paid $8.0 million related to the MRKDG License Agreement, which was recognized as research and development expenses and presented in investing activities in our consolidated statements of cash flows.

Investing activities

Net cash used in invested activities for the year ended December 31, 2022 was $255.1 million attributable to the purchase of short-term investments and property and equipment expenditures of $0.4 million. This was partially offset by the proceeds from the maturity of short-term investments of $0.1 million.

Net cash used in investing activities for the year ended December 31, 2021 was $8.0 million, attributable to the payment under the MRKDG License Agreement.



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Financing activities

Net cash provided by financing activities for the year ended December 31, 2022 was $165.9 million, primarily attributable to the net proceeds from the issuance of common stock in connection with our follow-on offering of common stock. Additionally, there was $4.3 million of net cash provided by financing activities related to proceeds from the issuance of common stock upon stock option exercises and purchases made under our 2021 Employee Stock Purchase Plan.

Net cash provided by financing activities for the year ended December 31, 2021 was $297.1 million, attributable to $167.0 million related to the net proceeds from the issuance of common stock in connection with the IPO, and $129.8 million related to the net proceeds from the sale and issuance of Series B redeemable convertible preferred shares.

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 the United States and worldwide resulting from the ongoing COVID-19 pandemic or otherwise. Because of the numerous risks and uncertainties associated with product development, we cannot predict the timing or amount of increased expenses and cannot assure you that we will ever be profitable or generate positive cash flow from operating activities.

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 SEC other than our indemnification agreements as described in Note 6 of our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.



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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 the United States, or GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, 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. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.

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 American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The participation threshold amounts were determined by the board of directors at the time of grant. The expected life of the awards granted during the period was determined based on an expected time to the liquidation event. We applied the risk-free interest rate based on the U.S. Treasury yield in effect at the time of the grant consistent with the life of the award. The expected volatility was based on a peer group in the industry in which we did business consistent with the expected time to liquidity. The dividend yield was set at zero as the underlying security did not and was not expected to pay a dividend.

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 U.S. Treasury yield in effect at the time of grant for zero-coupon U.S. Treasury notes with maturities approximately equal to the expected term of the awards.

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 December 31, 2023, we will lose our status as an emerging growth company and will no longer be able to take advantage of the exemptions from various reporting requirements beginning with our annual report for the fiscal year ending December 31, 2023 to be filed in 2024.

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