UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________________ to ________________
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 5, 2023 there were
FINCH THERAPEUTICS, INC.
FORM 10-Q
For the quarterly period ended March 31, 2023
Table of Contents
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iii |
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PART I. |
1 |
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Item 1. |
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Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 |
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2023 and 2022 |
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Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2023 and 2022 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 5. |
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Item 6. |
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33 |
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” or “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
These forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions and are not guarantees of future performance or development. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, and in any other reports we file with the Securities and Exchange Commission, including this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q, completely and with the understanding that our actual future results may be materially different from what we expect. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in our forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking
ii
statements for any reason after the date of this report to conform these statements to new information, actual results or changes in our expectations, except as required by law. We qualify all of our forward-looking statements by these cautionary statements.
SPECIAL NOTE REGARDING COMPANY REFERENCES
Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “FTG,” the “Company,” “we,” “us” and “our” refer to Finch Therapeutics Group, Inc., and its subsidiaries.
SPECIAL NOTE REGARDING TRADEMARKS
All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.
iii
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
FINCH THERAPEUTICS GROUP, INC.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except share and per share data)
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MARCH 31, |
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DECEMBER 31, |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating right-of-use assets |
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In-process research and development |
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Restricted cash, non-current |
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Other assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Operating lease liabilities, current |
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Total current liabilities |
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Deferred tax liability |
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Loan payable, non-current |
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Operating lease liabilities, non-current |
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Other liabilities |
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Total liabilities |
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Preferred stock (undesignated), $ |
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STOCKHOLDERS’ EQUITY: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
1
FINCH THERAPEUTICS GROUP, INC.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except share and per share data)
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THREE MONTHS ENDED |
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2023 |
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2022 |
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REVENUE: |
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Collaboration revenue |
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$ |
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$ |
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Total revenue |
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OPERATING EXPENSES: |
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Research and development |
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( |
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General and administrative |
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( |
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( |
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Impairment of IPR&D |
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Impairment of long-lived assets |
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Restructuring expense |
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Total operating expenses |
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Net loss from operations |
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OTHER (EXPENSE) INCOME, NET: |
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Interest income, net |
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Loss on loan extinguishment |
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Loss on disposal of fixed assets, net |
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Other income, net |
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Total other (expense) income, net |
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Loss before income taxes |
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Income tax benefit |
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Net loss |
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$ |
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$ |
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Net loss attributable to common stockholders—basic and diluted (Note 16) |
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$ |
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$ |
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Net loss per share attributable to common stockholders—basic and diluted |
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$ |
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$ |
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Weighted-average common stock outstanding—basic and diluted |
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See notes to unaudited condensed consolidated financial statements.
2
FINCH THERAPEUTICS GROUP, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands, except share and per share data)
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COMMON STOCK |
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ADDITIONAL |
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ACCUMULATED |
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TOTAL |
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SHARES |
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AMOUNT |
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CAPITAL |
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DEFICIT |
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EQUITY |
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BALANCE, January 1, 2022 |
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$ |
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$ |
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$ |
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$ |
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Exercise of common stock options |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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BALANCE, March 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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COMMON STOCK |
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ADDITIONAL |
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ACCUMULATED |
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TOTAL |
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SHARES |
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AMOUNT |
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CAPITAL |
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DEFICIT |
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EQUITY |
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BALANCE, January 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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Vesting of restricted stock units |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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BALANCE, March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
3
FINCH THERAPEUTICS GROUP, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
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THREE MONTHS ENDED |
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2023 |
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2022 |
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CASH FLOWS USED IN OPERATING ACTIVITIES: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization expense |
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Stock-based compensation expense |
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Impairment of IPR&D |
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Loss on loan extinguishment |
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Impairment of long-lived assets |
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Non-cash interest expense |
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Loss on disposal of property and equipment |
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Other non-cash operating lease cost |
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Benefit for deferred income taxes |
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( |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Other non-current assets |
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Accounts payable |
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Accrued expenses and other current liabilities |
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( |
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Other non-current liabilities |
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( |
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Operating lease liabilities |
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( |
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Net cash used in operating activities |
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( |
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( |
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CASH FLOWS USED IN INVESTING ACTIVITIES: |
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Purchases of property and equipment |
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( |
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( |
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Net cash used in investing activities |
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( |
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( |
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CASH FLOWS (USED IN) PROVIDED BY FINANCING ACTIVITIES: |
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Principal payments on finance lease obligation |
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( |
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Proceeds from exercise of stock options, net |
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Principal repayments of loan |
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( |
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Payment of terminal fee obligation and prepayment fee |
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( |
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Net cash (used in) provided by financing activities |
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( |
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NET DECREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
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( |
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( |
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Cash, cash equivalents and restricted cash at beginning of year |
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Cash, cash equivalents and restricted cash at end of year |
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$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
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Cash paid for interest |
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$ |
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$ |
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Cash paid in connection with operating lease liabilities |
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$ |
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$ |
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: |
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Property and equipment in accounts payable and accrued liabilities |
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$ |
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$ |
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Remeasurement of right-of-use asset |
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$ |
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$ |
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Other receivable recorded for sale of property and equipment |
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$ |
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$ |
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4
The following table provides a reconciliation of the cash, cash equivalents and restricted cash as of each of the periods shown above:
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THREE MONTHS ENDED |
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2023 |
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2022 |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Total cash, cash equivalents and restricted cash |
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$ |
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$ |
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See notes to unaudited condensed consolidated financial statements.
5
FINCH THERAPEUTICS GROUP, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Business
Finch Therapeutics Group, Inc. (the “Company” or “FTG”) was incorporated in 2017 as a Delaware corporation. The Company was formed as a result of a merger and recapitalization of Finch Therapeutics, Inc. (“Finch”) and Crestovo Holdings LLC (“Crestovo”) in September 2017 (the “Merger”), in which the former owners of Finch and Crestovo were issued equivalent stakes in the newly formed company, FTG. Crestovo was renamed Finch Therapeutics Holdings LLC in November 2020 (“Finch Holdings”). Finch and Finch Holdings are both wholly-owned subsidiaries of FTG.
The Company is a microbiome technology company with a portfolio of intellectual property and microbiome assets. The Company’s objectives are to realize the value of its intellectual property estate through licensing its technology to collaboration partners and enforcing its patent rights against infringing parties and, in certain cases, to generate additional data on selected product candidates through academic collaborations. The Company has an intellectual property estate including more than 70 issued U.S. and foreign patents with relevance for both donor-derived and donor-independent microbiome therapeutics in a range of potential indications. The Company’s assets include CP101, an investigational, orally administered microbiome candidate designed for the prevention of recurrent C. difficile infection (“CDI”), with positive clinical data from a Phase 2 randomized, placebo-controlled trial and a Phase 2 open-label trial, and pre-clinical assets that are designed to target ulcerative colitis, Crohn’s disease, and autism spectrum disorder. Additionally, the Company has developed a biorepository of strains and samples. In January 2023, the Company announced the decision to discontinue its Phase 3 clinical trial of CP101 in recurrent CDI and focus on realizing the value of its intellectual property estate and other assets. This decision came after an assessment by the Company's management team and board of directors of multiple factors, including the Company's outlook for identifying a commercial partner, slower than anticipated enrollment in the PRISM4 trial, and broader sector trends in the biotechnology industry. The Company has significantly scaled back its expenses by winding down its development efforts, including by liquidating certain of its assets, terminating vendor contracts and reducing headcount.
Until January 2023, the Company was a clinical-stage microbiome therapeutics company using its Human-First Discovery platform to develop a novel class of orally administered biological drugs. The microbiome consists of trillions of microbes that live symbiotically in and on every human and are essential to our health. When key microbes are lost, the resulting microbiome disruption can increase susceptibility to immune disorders, infections, neurological conditions, cancer and other serious diseases. The Company developed its Human-First Discovery platform to use reverse translation to identify diseases of microbiome disruption and to design microbiome therapeutics that address them.
Liquidity and Capital Resources
Management believes that the Company’s cash and cash equivalents of $
The Company does not currently expect to progress any product candidate through clinical trials or commercial approval and it does not currently expect to generate any revenue from product sales. The Company may never succeed in realizing the value of its intellectual property estate and other assets and, even if it does, it may never generate revenue that is significant or large enough to achieve profitability.
As a result, the Company may need additional funding to support its operating activities as it seeks to realize value from its intellectual property estate and other assets. Until such time, if ever, that the Company can generate substantial revenue, the Company expects to finance its cash needs through equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, the Company may be unable to raise additional funds or enter into such other arrangements when needed or
6
on favorable terms, if at all. If the Company is unable to obtain funding as needed, it may decide to pursue a dissolution and liquidation.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and, pursuant to the rules and regulations of Article 10 of Regulation S-X of the Securities Act of 1933, as amended, published by the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes the disclosures are adequate. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 23, 2023.
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments that are necessary for a fair presentation of the Company’s condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022, condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022, condensed consolidated statements of stockholders’ equity (deficit) for the three months ended March 31, 2023 and 2022, and condensed consolidated cash flows for the three months ended March 31, 2023 and 2022. Such adjustments are of a normal and recurring nature. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other accounting standard setting bodies that the Company adopts as of the specified effective date. Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have or may have a material impact on the condensed consolidated statements or disclosures.
The significant accounting policies and estimates used in preparation of the unaudited interim condensed consolidated financial statements are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 23, 2023. There have been no material changes to the Company’s significant accounting policies during the three months ended March 31, 2023.
Goodwill and Acquired In-Process Research and Development
Goodwill and in-process research and development ("IPR&D") are evaluated annually for impairment on October 1, or more frequently if events or changes in circumstances indicate that the asset might be impaired. To conduct impairment tests of goodwill, the fair value of the Company’s single reporting unit is compared to its carrying value. If the reporting unit’s carrying value exceeds its fair value, the Company records an impairment loss to the extent that the carrying value of goodwill exceeds its fair value.
To conduct impairment tests of IPR&D, the fair value of the IPR&D asset is compared to its carrying value. If the carrying value exceeds its fair value, we record an impairment loss to the extent that the carrying value of the IPR&D asset exceeds its fair value. We estimate the fair value for our IPR&D asset using discounted cash flow valuation models, which require the use of significant estimates and assumptions, including, but not limited to, estimating the timing of and expected costs to complete in-process projects, projecting regulatory approvals, estimating future cash flows from product sales resulting from completed projects and in-process projects, and developing appropriate discount rates.
In January 2023, the Company made the decision to discontinue its Phase 3 clinical trial of CP101 in recurrent CDI. Management concluded that the event was an impairment indicator requiring the Company to perform an interim impairment test of IPR&D. Management's assessment for the impairment of IPR&D indicated that since the CP101 clinical trial was discontinued in January 2023, there are no future cash flow projections associated with the clinical trial, and therefore there is no value to be assessed for the CP101 IPR&D asset. Therefore, it was determined that the fair value of the Company's IPR&D asset at March 31, 2023 was zero, resulting in full impairment of $
7
Recently Issued Accounting Pronouncements
On January 1, 2023, the Company adopted Accounting Standards Update No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. In April 2019, the FASB issued clarification to ASU 2016-13 within ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, or ASU 2016-13. The guidance is effective for fiscal years beginning after December 15, 2022. The adoption of the standard was immaterial to the accompanying condensed consolidated financial statements.
3. FAIR VALUE MEASUREMENTS
The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values (in thousands):
DESCRIPTION |
|
MARCH 31, |
|
|
QUOTED |
|
|
SIGNIFICANT |
|
|
SIGNIFICANT |
|
||||
Asset |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Total financial assets |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
DESCRIPTION |
|
DECEMBER 31, |
|
|
QUOTED |
|
|
SIGNIFICANT |
|
|
SIGNIFICANT |
|
||||
Asset |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
Total financial assets |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
||
There were
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following as of March 31, 2023 and December 31, 2022 (in thousands):
|
|
MARCH 31, |
|
|
DECEMBER 31, |
|
||
Lab equipment |
|
$ |
|
|
$ |
|
||
Office furniture and fixtures |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Construction work-in-progress |
|
|
|
|
|
|
||
Software |
|
|
|
|
|
|
||
Computer equipment |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
8
Depreciation expense was $
5. LEASES
Inner Belt Road Lease
In December 2015, the Company entered into a
The Company's lease expense under the Inner Belt Road Lease was $
Cherry Street Lease
On March 1, 2021, the Company assumed a lease agreement (the “Cherry Street Lease”) in conjunction with the closing of the OpenBiome Agreement.
Concord Avenue Lease
On May 25, 2021, Finch entered into a lease agreement (the "Concord Avenue Lease") from
Hood Lease
On August 3, 2021, Finch entered into a
The Hood Lease provided for a tenant improvement allowance of approximately $
Finch posted a customary letter of credit in the amount of approximately $
In the third quarter of 2022, Finch entered into a sublease agreement to sublet approximately one third of its leased space under the Hood Lease, which commenced on August 10, 2022, for an initial term of
9
The following table presents the classification of right-of-use assets and lease liabilities as of March 31, 2023 and December 31, 2022 (in thousands):
|
BALANCE SHEET CLASSIFICATION |
|
MARCH 31, 2023 |
|
|
DECEMBER 31, 2022 |
|
||
ASSETS |
|
|
|
|
|
|
|
||
Operating lease assets |
Operating right-of-use assets |
|
$ |
|
|
$ |
|
||
Finance lease assets |
|
|
|
|
|
|
|||
Total lease assets |
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
|
||
Current |
|
|
|
|
|
|
|
||
Operating lease liabilities |
Operating lease liabilities, current |
|
$ |
|
|
$ |
|
||
Finance lease liabilities |
|
|
|
|
|
|
|||
Noncurrent |
|
|
|
|
|
|
|
||
Operating lease liabilities |
Operating lease liabilities, non-current |
|
|
|
|
|
|
||
Finance lease liabilities |
|
|
|
|
|
|
|||
Total lease liabilities |
|
|
$ |
|
|
$ |
|
||
The following table represents the components of lease cost, which are included in general and administrative and research and development expense, and sublease income, which is included in other income on the statement of operations for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
THREE MONTHS ENDED MARCH 31, |
|
|||||
LEASE COST |
|
2023 |
|
|
2022 |
|
||
Finance lease cost: |
|
|
|
|
|
|
||
Amortization of right-of-use assets |
|
$ |
|
|
$ |
|
||
Interest on lease liabilities |
|
|
— |
|
|
|
|
|
Operating lease cost |
|
|
|
|
|
|
||
Short-term lease cost |
|
|
|
|
|
|
||
Variable lease cost |
|
|
||||||