Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
You should read the following discussion and analysis together with our financial statements and related notes
included in “Item 8. Financial Statements and Supplementary Data” in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and
uncertainties. For a complete discussion of forward-looking statements, see the section above entitled “Forward Looking Statements.” Our actual results could differ materially from those expressed or implied in any forward-looking
statements as a result of various factors, including those set forth under the caption “Item 1A. Risk Factors.”
Overview
We are a clinical-stage biopharmaceutical company with one product candidate in a Phase 1/1b clinical trial, and we are focused on leveraging our
proprietary ImmunoTAC technology platform to develop systemically delivered, tissue targeted therapeutics for the treatment of cancer, chronic viral infections, and other serious diseases. Our platform enables us to strategically pair proprietary
linker-payloads that modulate key disease-modifying pathways with monoclonal antibodies directed to specific disease sites. Initially, we are applying our platform to create a new class of targeted immuno-oncology agents that direct a myeloid cell
activator to the tumor microenvironment in solid tumors to promote cancer cell killing. Our lead product candidate, SBT6050, is comprised of a TLR8 agonist linker-payload conjugated to a HER2-directed monoclonal antibody that targets tumors such as
certain breast, gastric and non-small cell lung cancers. SBT6050 is currently in a Phase 1/1b clinical trial as a monotherapy and in combination with pembrolizumab, in patients with advanced or metastatic
HER2-expressing solid tumors. In this trial, we have observed changes in pharmacodynamic markers in the first dose cohort, and we anticipate providing an update on interim data from the Phase 1 single agent dose-escalation cohorts in the second
half of 2021. SBT6290 is our second product candidate, expanding on the potential of a TLR8 agonist as a payload. SBT6290 is a TLR8 linker-payload conjugated to a monoclonal antibody that targets Nectin4, which is expressed in certain bladder,
triple negative breast, head and neck, and non-small cell lung cancers. We anticipate submitting an investigational new drug application for SBT6290 in the fourth quarter of 2021. Our third TLR8 program,
SBT8230, is comprised of a TLR8 linker-payload conjugated to an ASGR1 monoclonal antibody that is under development for the treatment of cHBV. We are also developing agents that localize therapies to modulate important pathways in additional
oncology and fibrosis indications using TLR8 and other linker-payloads.
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Our ImmunoTAC platform drives our development pipeline of tissue targeted therapeutic candidates as
summarized in the chart below:
We have incurred significant operating losses since our inception. As of December 31, 2020, we had an
accumulated deficit of $96.7 million. Our net losses were $32.9 million and $24.0 million for the years ended December 31, 2020 and 2019, respectively. Our losses have resulted primarily from costs incurred in connection with
raising capital, research and development activities and general and administrative expenses. We do not have any products approved for sale and have not generated any revenue from product sales or otherwise.
We expect our expenses will increase substantially and that we will continue to incur significant losses for the foreseeable future as we continue our
development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products, seek to expand our product pipeline, invest in our organization and technology platform, as well as incur expenses associated
with operating as a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on a variety of factors including the timing and scope of our preclinical studies and clinical trials. Accordingly, until such time as we can generate significant revenue from
sales of our product candidates, if ever, we expect to finance our cash needs through public or private equity offerings, debt financings, collaborations and licensing arrangements or other capital sources.
In December 2020, we completed our initial public offering in which we sold 13,225,000 shares of our common stock at $21.00 per share and received net
proceeds, after underwriting discounts and offering costs, of $255.3 million. Further, in March, July, and September 2020, we raised net proceeds of $153.3 million from the sale of our redeemable convertible preferred stock.
Components of Our Results of Operations
Operating Expenses
Our operating expenses consist of (i) research and development expenses and (ii) general and administrative expenses.
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Research and Development
Our research and development expenses consist primarily of direct and indirect costs incurred in connection with the development of our ImmunoTAC
technology platform, product candidates, discovery efforts and preclinical studies and clinical trial activities related to our program pipeline, including our lead product candidate, SBT6050.
Our direct costs include:
• consulting fees.
Our indirect costs include:
We expense research and development costs as incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed. In-licensing fees and other costs to acquire technologies used in research and development that have not yet received regulatory approval and that are not expected to have an alternative future use
are expensed when incurred. We track direct costs by stage of program, clinical or preclinical. However, we do not track indirect costs on a program specific or stage of program basis because these costs are deployed across multiple programs
and, as such, are not separately classified.
We expect that our research and development expenses will substantially increase for the foreseeable
future as we continue the clinical development of SBT6050 and discovery and development of our other development candidates and discovery programs and development, particularly as our product candidates move into later stages of
development which increases costs considerably. We cannot reasonably determine the timing of initiation, the duration or the completion costs of future clinical trials and preclinical studies of IND and development candidates due to the inherently
unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as
to which development candidates and discovery programs to pursue and how much funding to direct to each product candidate or program on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials,
regulatory developments and our ongoing assessments as to each product candidate’s commercial potential.
General and Administrative
General and administrative expenses consist primarily of personnel-related expenses, including employee salaries, bonuses, benefits, and
stock-based compensation, and recruiting costs for
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personnel in executive, finance, and other administrative functions. Other significant general and administrative expenses include legal fees relating to intellectual property and corporate
matters, professional fees for accounting, tax and consulting services, insurance costs, travel expenses and facility related expenses.
We expect
that our general and administrative expenses will substantially increase for the foreseeable future as we continue to increase our general and administrative headcount to support our continued research and development activities and, if any product
candidates receive marketing approval, commercialization activities, as well as to support our operations generally. We also expect to incur increased expenses associated with operating as a public company, including costs related to accounting,
audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, and investor and public
relations costs.
Interest Income (Expense), Net
Interest income (expense), net includes interest earned on our cash and cash equivalents carried at fair value, and interest expense on our borrowings.
Results of Operations
Comparison of the Years Ended
December 31, 2020 and 2019
The following table summarizes our results of operations for the years ended December 31, 2020 and
2019:
Year EndedDecember 31, DollarChange %Change
(in thousands)
Operating expenses:
* Not meaningful
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Research and Development Expenses
The following table summarizes our research and development expenses for the years ended December 31, 2020 and 2019:
Year EndedDecember 31, DollarChange %Change
(in thousands)
Direct costs:
Indirect costs:
Other unallocated research and development expenses 1,676 1,664 12 1
Research and development expenses were $24.6 million and $21.5 million for the years ended December 31,
2020 and 2019, respectively. The increase of $3.2 million was due primarily to an increase in preclinical programs of $3.8 million as we began advancing certain pipeline programs, including SBT6290 and SBT8230, into preclinical
development. The increase was also due to increases in personnel-related expenses of $3.1 million, and facility and equipment related expenses of $0.2 million. These increases were partially offset by a decrease of $4.0 million in
research and manufacturing expenses related to the development of SBT6050 as the program completed manufacturing activities and initiated a Phase 1/1b clinical trial in the second half of 2020.
General and Administrative Expenses
General
and administrative expenses were $8.3 million and $2.6 million for the years ended December 31, 2020 and 2019, respectively. The increase of $5.8 million was due primarily to an increase of $3.9 million in personnel-related
expenses due to increased headcount in 2020, including new executives, as well as increases in salaries, bonuses, and stock-based compensation. To a lesser extent, the increase in general and administrative expenses was due to an increase in legal
fees of $0.8 million, professional fees of $0.7 million, and $0.4 million in other various general and administrative expenses as we prepared to become a public company.
Interest Income (Expense), Net
Interest
income (expense), net was ($29,000) and $0.1 million for the years ended December 31, 2020 and 2019, respectively. The change of $0.1 million was primarily due to a decrease in interest earned on our cash and cash equivalents due to
changes in interest rates.
Liquidity and Capital Resources
We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the
foreseeable future. Since our inception, we have funded our operations almost exclusively with proceeds from the sale and issuance of shares of our redeemable convertible preferred stock and debt financings. We will need to raise substantial
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additional capital in the future. In 2020, we raised net proceeds, after deducting underwriting discounts and commissions and offering costs, of $255.3 million from our initial public
offering in December 2020 and net proceeds of $153.3 million from the sale of our redeemable convertible preferred stock in March, July, and September 2020.
As of December 31, 2020, we had $386.6 million in cash and cash equivalents. The following table sets forth a summary of the net cash flow
activity for the years ended December 31, 2020 and 2019:
Year EndedDecember 31,
(in thousands)
Net cash provided by (used in):
Investing activities (917 ) (96 )
Operating Activities
During the year ended December 31, 2020, net cash used in operating activities was $31.2 million. This consisted primarily of a net loss of
$32.9 million and an increase in our operating assets and liabilities of $2.6 million, partially offset by non-cash charges of $4.4 million. The non-cash
charges primarily consisted of stock-based compensation expense of $2.6 million, non-cash lease expense of $1.1 million, and depreciation expense of $0.6 million. The increase in our operating
assets and liabilities was primarily due to an increase in prepaid expenses and other assets of $3.5 million and a decrease in our lease liability of $0.9 million, partially offset by an increase in accounts payable and accrued expenses of
$1.8 million after adjusting for non-cash items. The increase in prepaid expenses and other assets was primarily due to the purchase of $2.6 million in prepaid insurance.
During the year ended December 31, 2019, net cash used in operating activities was $18.9 million. This consisted primarily of a net loss of
$24.0 million, partially offset by a decrease in our operating assets and liabilities of $3.3 million and non-cash charges of $1.8 million. The non-cash
charges primarily consisted of non-cash lease expense of $1.0 million, depreciation expense of $0.5 million, stock-based compensation expense of $0.2 million, and amortization of debt issuance
costs of $0.1 million. The decrease in our operating assets and liabilities was primarily due to an increase in accounts payable and accrued expenses of $4.0 million and a decrease in prepaid expenses and other assets of $0.1 million,
partially offset by a decrease in our lease liability of $0.8 million.
Investing Activities
During the year ended December 31, 2020, cash used in investing activities was $0.9 million due to purchases of property and equipment.
During the year ended December 31, 2019, cash used in investing activities was $0.1 million due to purchases of property and equipment.
Financing Activities
During the year ended
December 31, 2020, cash provided by financing activities was $408.5 million. This consisted primarily of net proceeds received from the issuance of our common
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stock in connection with our initial public offering of $255.7 million, net proceeds received from the issuance of shares of our redeemable convertible preferred stock of
$153.4 million, and proceeds from the exercise of common stock options of $0.2 million, which were partially offset by principal payments on term loan payable of $0.7 million.
During the year ended December 31, 2019, cash provided by financing activities was $8.6 million. This consisted primarily of net proceeds
received from the issuance of our convertible notes of $10.0 million, which was partially offset by principal payments on term loan payable of $1.4 million.
Future Funding Requirements
We believe that our cash
and cash equivalents of $386.6 million at December 31, 2020 will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 24 months. However, our forecast of the period of time through
which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be
wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
• the number and characteristics of product candidates that we pursue;
• the length of our clinical trials;
• the emergence of competing therapies and other adverse market developments;
• the extent to which we in-license or acquire other products and technologies;
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• the costs of operating as a public company.
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through
public or private equity offerings, debt financings, or other capital sources which may include strategic collaborations, licensing arrangements or other arrangements with third parties. To the extent that we raise additional capital through the
sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common
stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring
dividends. If we raise funds through strategic collaborations or other similar arrangements with third parties, we may have to relinquish valuable rights to our platform technology, future revenue streams, research programs or product candidates or
may have to grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce
or terminate our product development or future commercialization efforts. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions 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.
Contractual Obligations and Commitments
The following table
summarizes our contractual obligations and commitments at December 31, 2020:
Payments Due by Period
Total Less than1 Year 1-3Years 3-5Years More than5 Years
(in thousands)
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Under our license agreements, we have payment obligations that are contingent upon future events such
as our achievement of specified development, regulatory and commercial milestones and are required to make royalty payments in connection with the sales of products developed under those agreements. As of December 31, 2020 and 2019, we were
unable to estimate the timing or likelihood of achieving the milestones or making future product sales and, therefore, any related payments are not included in the table above. For additional details regarding these agreements, see Part I, Item 1 of
this Annual Report on Form 10-K under the section titled “License Agreement”.
In November 2016,
we entered into a loan and security agreement with SVB that allowed borrowings up to $5.0 million in two tranches, the first that was immediately drawn and the second to be drawn before December 31, 2017 if certain financing milestones
were met. We drew $3.5 million in the first tranche, and the second tranche expired undrawn. The outstanding principal amount of the term loan accrues interest at an annual rate of 1.75% per annum. At closing, we incurred de minimis debt
issuance costs and owed a final payment fee of $0.3 million, both of which are amortized to interest expense over the remaining term of the debt under the effective interest method. The effective interest rate of our term loan is 5.14%. In
April 2020, SVB amended our term loan to defer principal payments for six months and extend the maturity date to May 1, 2021, which we determined to be a debt modification.
In October 2019, we entered into a cell line license agreement with WuXi Biologics (Hong Kong) Limited (WuXi Bio), pursuant to which we received a non-exclusive, worldwide, sublicensable license under certain of WuXi Bio’s intellectual property rights, know-how and biological materials (the WuXi Bio Licensed
Technology) to make, use, sell, offer for sale and import developed through the use of the WuXi Bio Licensed Technology (the WuXi Bio Licensed Product). In consideration for the license, we paid a license fee of $100,000 to WuXi Bio which was
recorded in research and development expense in 2019. In 2020 we incurred an additional license fee of $50,000 to WuXi Bio which was recorded in research and development expense in 2020. Additionally, if we do not engage WuXi Bio to manufacture the
WuXi Bio Licensed Products for our clinical and commercial supplies, we are required to make aggregate milestone payments of up to $10.8 million to WuXi Bio upon the achievement of certain sales milestones. To date, other than the license fee,
no payments have been made under this agreement.
We enter into contracts in the normal course of business with clinical supply manufacturers and
with vendors for preclinical studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts and not included in the
table above.
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and
regulations of the SEC.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have
been prepared in accordance with U.S. generally accepted accounting principles (GAAP). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and
expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, stock-based compensation, and valuation
allowances for deferred tax assets. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be
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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.
Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described
in more detail in Note 2 to our audited financial statements appearing in Part II, Item 8 of this Annual Report on Form 10-K, we believe the following accounting policies and estimates to be most critical to
the preparation of our financial statements.
Research and Development Expenses
All research and development costs are expensed in the period incurred. Advance payments, including nonrefundable amounts, for goods or services that
will be used or rendered for future research and development activities are capitalized until such goods are delivered or the related services are performed, or such time when we do not expect the goods to be delivered or services to be performed.
We estimate the period over which such services will be performed and the level of effort to be expended in each period. If actual timing of performance or the level of effort varies from the estimate, we will adjust the amounts recorded
accordingly. We have not experienced any material differences between accrued or prepaid costs and actual costs since our inception.
Stock-Based Compensation
We recognize stock-based compensation expense for stock options on a straight-line basis over the requisite service period and account for
forfeitures as a reduction of stock-based compensation expense as they occur. Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model.
The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. These
assumptions include:
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Income Taxes
We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. In evaluating our valuation allowance, we consider all available positive and negative evidence, including scheduled reversals of
deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred
tax assets have been fully offset by a valuation allowance.
As of December 31, 2020, we had net operating loss carryforwards for income tax
purposes of approximately $89.7 million. If not used, $18.2 million of this carryforward will begin to expire in 2036 and $71.5 million has no expiration. We also have research and development tax credits of approximately
$1.5 million which will begin to expire in 2037 if left unused.
Under Sections 382 and 383 of the Code, substantial changes in our ownership
may limit the amount of NOL and research and development credit carryforwards that could be used annually in the future to offset taxable income. The tax benefits related to future utilization of federal and state NOL carryforwards, credit
carryforwards, and other deferred tax assets may be limited or lost if cumulative changes in ownership exceeds 50% within any three-year period. We have not completed a Section 382/383 analysis under the Code regarding the limitation of NOL and
credit carryforwards. If a change in ownership were to have occurred, the annual limitation may result in the expiration of NOL carryforwards and credits before utilization.
As of December 31, 2020, we did not have any liabilities for unrecognized income tax benefits associated with uncertain tax positions, including
any interest and penalties.
Recent Accounting Pronouncements
See Note 2 to our audited financial statements appearing in Part II, Item 8 of this Annual Report on Form 10-K
for additional information.
Emerging Growth Company Status
We are an emerging growth company, as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely
on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of
the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden
parachute payments not previously approved.
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards
issued subsequent to the enactment of the JOBS Act until such time as those standards
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apply to private companies. We have elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public
and private companies until the earlier of the date that 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 a result, our financial
statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have at least
$1.07 billion in annual revenue; (ii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act;
(iii) the date on which we have issued more than $1.0 billion in nonconvertible debt securities during the prior three-year period; and (iv) December 31, 2025.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable to a “smaller reporting company” as defined under Item 10(f)(1) of Regulation S-K of the
Securities Act.
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Item 8. Financial Statements and Supplementary Data.
Page
Report of Independent Registered Public Accounting Firm 143
Balance Sheets 144
Statements of Operations and Comprehensive Loss 145
Statements of Cash Flows 147
Notes to Financial Statements 148
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Silverback Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the
accompanying balance sheets of Silverback Therapeutics Inc. (the Company) as of December 31, 2020 and 2019, the related statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit)
and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements’). In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S. generally accepted
accounting principles.
Basis for Opinion
These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor
since 2020.
Seattle, Washington
March 29, 2021
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Silverback Therapeutics, Inc.
Balance Sheets
(in
thousands, except share and par value data)
December 31,
Assets
Current assets:
Prepaid expenses and other current assets 4,087 552
Current liabilities:
Convertible notes, net — 9,991
Current portion of lease liability 896 783
Lease liability, net of current portion 2,326 3,324
Commitments and contingencies (Note 12)
Stockholders’ equity (deficit):
The accompanying notes are an integral part of these financial statements.
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Silverback Therapeutics, Inc.
Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data)
Years endedDecember 31,
Operating expenses:
Interest income (expense), net (29 ) 100
Net loss and comprehensive loss $ (32,947 ) $ (23,967 )
The accompanying notes are an integral part of these financial statements.
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Silverback Therapeutics, Inc.
Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
(in thousands, except share data)
Shares Amount Shares Amount
Stock-based compensation — — — — 148 — 148
Net loss and comprehensive loss — — — — — (23,967 ) (23,967 )
Stock-based compensation — — — — 2,640 — 2,640
Net loss and comprehensive loss — — — — — (32,947 ) (32,947 )
The accompanying notes are an integral part of these financial statements.
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Silverback Therapeutics, Inc.
Statements of Cash Flows
(in thousands)
Year endedDecember 31,
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of debt issuance costs 31 75
Stock-based compensation expense 2,640 148
Changes in operating assets and liabilities:
Prepaid expenses and other current assets (3,535 ) 66
Accounts payable and accrued expenses 1,790 4,014
Net cash used in operating activities (31,196 ) (18,898 )
Cash flows from investing activities:
Purchase of property and equipment (917 ) (96 )
Net cash used in investing activities (917 ) (96 )
Cash flows from financing activities:
Payment of deferred offering costs (2,606 )
Proceeds from issuance of convertible notes — 10,000
Payment of convertible notes issuance costs (9 )
Principal payments on term loan payable (700 ) (1,400 )
Proceeds from exercise of common stock options 177 19
Net cash (used in) provided by financing activities 408,506 8,610
Change in cash, cash equivalents, and restricted cash 376,393 (10,384 )
Cash, cash equivalents, and restricted cash at beginning of period 10,526 20,910
Cash, cash equivalents, and restricted cash at end of period $ 386,919 $ 10,526
Supplemental disclosure of cash flow information:
The accompanying notes are an integral part of these financial statements.
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Silverback Therapeutics, Inc.
Notes to Financial Statements
1. Nature of Business
Silverback Therapeutics, Inc.
(“Silverback” or “the Company”) is a clinical-stage biopharmaceutical company focused on leveraging its proprietary ImmunoTAC technology platform to develop systemically delivered and tissue targeted therapeutics for the
treatment of cancer, chronic viral infections, and other serious diseases. The Company’s platform enables us to strategically pair proprietary linker-payloads that modulate key disease-modifying pathways with monoclonal antibodies directed at
specific disease sites. The Company was formed in Seattle, Washington, and incorporated in the state of Delaware on January 4, 2016.
Reverse Stock Split
In November 2020, the Company’s Board of Directors approved an amendment to the Company’s certificate of incorporation to effect a
reverse split of shares of the Company’s common stock on a one-for-3.713 basis, which was effected on November 30, 2020 (the “Reverse Stock Split”).
The number of authorized shares and the par values of the common stock and redeemable convertible preferred stock were not adjusted as a result of the Reverse Stock Split. In connection with the Reverse Stock Split, the conversion ratio for the
Company’s outstanding redeemable convertible preferred stock was proportionately adjusted such that the common stock issuable upon conversion of such preferred stock was decreased in proportion to the Reverse Stock Split. All references to
common stock and options to purchase common stock share data, per share data, and related information contained in the financial statements have been retroactively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.
Initial Public Offering and Related Transaction
On December 3, 2020, the Company’s registration statement on Form S-1 (File No. 333-250009) for its initial public offering of common stock (“IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). On December 8, 2020, the Company issued
and sold 13,225,000 shares of common stock in the IPO at a public offering price of $21.00 per share, resulting in net proceeds of $255.3 million after deducting underwriting discounts and commissions and offering expenses paid by the
Company.
In connection with the IPO, all 77,074,884 shares of redeemable convertible preferred stock outstanding at the time of the IPO converted
into 20,758,098 shares of the Company’s common stock.
Risks and Uncertainties
The Company is subject to a number of inherent risks which include, but are not limited to, the need to obtain adequate additional funding, possible
failure of clinical trials or other events demonstrating a lack of clinical safety or efficacy of its product candidates, dependence on key personnel, reliance on third-party service providers for manufacturing drug product and conducting clinical
trials, the ability to successfully secure its proprietary technology, and risks related to the regulatory approval and commercialization of a product candidate. Additionally, the development and commercialization of new drug products is highly
competitive. Products or technologies developed by competitors may diminish or render obsolete the Company’s existing products under development.
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Silverback Therapeutics, Inc.
Notes to Financial Statements
Liquidity and Capital Resources
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred net
operating losses since its inception and had an accumulated deficit of $96.7 million as of December 31, 2020. The Company had cash and cash equivalents of $386.6 million as of December 31, 2020 and has not generated positive cash
flows from operations. To date, the Company has been able to fund its operations primarily through the issuance of redeemable convertible preferred stock and convertible notes. During 2020, the Company has received an aggregate of $68.4 million
in gross proceeds from the issuance of shares of its Series B redeemable convertible preferred stock and an aggregate of $84.9 million in gross proceeds from the issuance of shares of its Series C redeemable convertible preferred stock. In
December 2020, the Company completed an initial public offering in which it sold 13,225,000 shares of common stock at $21.00 per share and received net proceeds, after underwriting discounts and offering costs, of $255.3 million. The
Company’s currently available cash and cash equivalents as of December 31, 2020 are sufficient to meet its anticipated cash requirements for the 12 months following the date the financial statements are issued. Management considers that
there are no conditions or events, in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern for a period of at least 12 months from the date the financial statements are issued.
Management expects operating losses to continue for the foreseeable future. There can be no assurance that the Company will ever earn revenues or
achieve profitability, or if achieved, that they will be sustained on a continuing basis. In addition, the preclinical manufacturing, and clinical development activities as well as the commercialization of the Company’s products, if approved,
will require significant additional financing. The Company may be unable to secure such financing when needed, or if available, such financings may be under terms that are unfavorable to the Company or the current stockholders. If the Company is
unable to raise additional funds when needed, it may be required to delay, reduce the scope of, or eliminate development programs, which may adversely affect its business and operations.
2. Summary of Significant Accounting Policies
Basis of Presentation
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). Any
reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”), of the Financial Accounting
Standards Board (“FASB”).
Use of Estimates
The preparation of the Company’s financial statements requires it to make estimates and assumptions that impact the reported amounts of assets,
liabilities and expenses in the Company’s financial statements and accompanying notes. The most significant estimates in the Company’s financial statements relate to accruals for research and development expenses, valuation of equity
awards, and valuation allowances for deferred tax assets. These estimates and assumptions are based on current facts, historical experience, future expectations, and various other factors believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these
estimates.
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The full extent to which the coronavirus (COVID-19) pandemic
will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses, clinical trials and research and development costs, will depend on future developments that are highly uncertain,
including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local,
regional, national and international markets. The Company has considered potential impacts arising from the COVID-19 pandemic and is not presently aware of any events or circumstances that would require the
Company to update its estimates, judgments or revise the carrying value of its assets or liabilities.
Segments
The Company has determined that it operates and manages one operating segment, which is the business of developing and commercializing tissue targeted
therapeutics. The Company’s chief operating decision maker, its chief executive officer, reviews financial information on an aggregate basis for the purpose of allocating resources.
Cash and Cash Equivalents
Cash equivalents are
comprised of short-term, highly-liquid investments with maturities of 90 days or less at the date of purchase. As of December 31, 2020 and 2019, the Company’s cash equivalents consisted of money market funds.
Restricted Cash
Restricted cash consists of a deposit
securing a collateral letter of credit issued in connection with the Company’s facility operating lease.
The following table provides a
reconciliation of cash and cash equivalents and restricted cash reported within the balance sheets that sum to the amounts shown in the statements of cash flows (in thousands):
December 31,
Total cash and cash equivalents and restricted cash $ 386,919 $ 10,526
Concentrations of Credit Risk
The Company is subject to credit risk from holding its cash and cash equivalents at one commercial bank. The Company limits its exposure to credit
losses by investing in money market funds through a U.S. bank with high credit ratings. Cash may consist of deposits held with banks that may at times exceed federally insured limits, however, exposure to credit risk in the event of default by the
financial institution is limited to the extent of amounts recorded on the balance sheets. The Company has not experienced any losses in such accounts and management believes that the Company is not exposed to significant credit risk due to the
financial position of the depository institutions in which those deposits are held.
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Prepaid Expenses and Other Current Assets
Prepaid expenses consist primarily of operating expenses paid in advance.
Property and Equipment, Net
Property and equipment,
net consists of furniture and fixtures and laboratory equipment and is stated at cost, less accumulated depreciation. Furniture and fixtures and laboratory equipment are depreciated over the estimated useful lives of the assets (each three to five
years) using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations in the period
realized. Repairs and maintenance costs are charged to expense as incurred.
Leases
Leases consist of the Company’s operating lease. In accordance with ASC 842, Leases, the Company determines if an arrangement is a lease at
inception and evaluates each lease agreement to determine whether the lease is an operating or finance lease. For leases where the Company is the lessee, right-of-use
(“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at
the lease commencement date based on the present value of lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease
payments. The operating lease ROU asset also includes any prepaid lease payments, lease incentives received, and costs which will be incurred in exiting a lease. The Company’s lease includes options to extend or terminate the lease. Periods
covered by an option to extend the lease are included in the lease term when it is reasonably certain that the Company will exercise that option. Periods covered by an option to terminate the lease are included in the lease term when it is
reasonably certain that the Company will not exercise that option. At the inception of the lease and as of December 31, 2020, the Company was not reasonably certain that it will exercise its option to extend the lease and was not reasonably
certain that it will not exercise its option to terminate the lease, therefore, the periods covered by the options are not included within the lease term. Short-term leases with an initial term of 12 months or less are not recorded on the balance
sheet. The Company does not have material short-term lease costs. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. For real estate leases, the Company does not separate lease and non-lease components. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Impairment of Long-Lived Assets
Long-lived assets
consist of property and equipment and ROU assets. These assets are reviewed for impairment whenever facts or circumstances either internally or externally may suggest that the carrying value of an asset or asset group may not be recoverable. An
impairment loss is recorded if and when events and circumstances indicate that assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. The Company has not
recognized any impairment losses through December 31, 2020.
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Research and Development Expenses
All research and development costs are expensed in the period incurred. Research and development expenses consist primarily of direct and indirect costs
incurred in connection with the development of the Company’s ImmunoTAC technology platform, discovery efforts, and preclinical study and clinical trial activities related to the Company’s program pipeline, including the Company’s lead
product candidate, SBT6050. Direct costs include expenses incurred under agreements with contract research organizations (“CROs”) and other vendors that conduct the Company’s preclinical and clinical activities, expenses associated
with manufacturing the Company’s product candidates including under agreements with contract development and manufacturing organizations (“CDMOs”) and other vendors, and consulting fees. Indirect costs include personnel-related
expenses, consisting of employee salaries, bonuses, benefits, and stock-based compensation expense and recruiting costs for personnel engaged in research and development activities, facility and equipment related expenses, consisting of indirect and
allocated expenses for rent, depreciation, and equipment maintenance, and other unallocated research and development expenses incurred in connection with the Company’s research and development programs, including laboratory materials and
supplies and license fees. Research and development expenses are charged to operating expenses as incurred when these expenditures relate to the Company’s research and development efforts and have no alternative future use.
The Company is obligated to make upfront payments upon execution of certain research and development agreements. Advance payments, including
nonrefundable amounts, for goods or services that will be used or rendered for future research and development activities are capitalized until such goods are delivered or the related services are performed, or such time when the Company does not
expect the goods to be delivered or services to be performed. The Company estimates the period over which such services will be performed and the level of effort to be expended in each period. If actual timing of performance or the level of effort
varies from the estimate, the Company will adjust the amounts recorded accordingly. Since inception, the Company has not experienced any material differences between accrued or prepaid costs and actual costs.
General and Administrative Expenses
General and
administrative expenses consist primarily of personnel-related expenses, including employee salaries, bonuses, benefits, and stock-based compensation, and recruiting costs for personnel in executive, finance, and other administrative functions.
Other significant general and administrative expenses include legal fees relating to intellectual property and corporate matters, professional fees for accounting, tax and consulting services, insurance costs, travel expenses and facility related
expenses. General and administrative costs are expensed as incurred.
Stock-Based Compensation
The Company has stock-based compensation plans that are described in Note 9. As of December 31, 2020, the Company had issued stock options and
permitted eligible employees to participate in an employee stock purchase plan whereby shares of the Company’s common stock may be purchased at a discount. Further discussion of the measurement and expense methodology related to these programs
is described below:
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Stock Option Awards
The cost of employee services received in exchange for an award of an equity instrument is measured at the grant date based on the award’s estimated
fair value using the Black-Scholes option pricing model. The estimated fair value of the awards is recognized into expense on a straight-line basis over the requisite service period. Stock-based compensation expense for an award with a performance
condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized, and any
previously recognized compensation expense is reversed. Management evaluates when the achievement of a performance condition is probable based on the expected satisfaction of the performance condition at each reporting date. Forfeitures are
recognized as a reduction of stock-based compensation expense as they occur. The option plan permits, but does not require, the inclusion of early exercise provisions in individual awards. Proceeds from early option exercises are recorded as a
liability until the underlying restricted shares vest. While the restricted shares have voting rights, they are not considered outstanding for accounting purposes.
Employee Stock Purchase Plan
In December 2020, the
Company’s Employee Stock Purchase Plan (“ESPP”) became effective, pursuant to which eligible employees can purchase shares of the Company’s common stock at a discount to the fair market value at semi-annual intervals. In
determining the grant date fair value of shares expected to be purchased under the ESPP, the Company uses the Black-Scholes option pricing model. Black-Scholes inputs are determined in the same manner as for stock option awards. The estimated grant
date fair value of shares expected to be purchased is recognized into expense on a straight-line basis over the requisite service period.
Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial
statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in
the period that includes the enactment date.
The Company recognizes net deferred tax assets to the extent that the Company believes these assets
are more likely than not to be realized. In making such a determination, management considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If management determines that the Company is more likely than not able to realize its deferred tax assets in the future in excess of their net recorded
amount, management would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes in the period in which the adjustment is made.
The Company records uncertain tax positions on the basis of a two-step process whereby (1) management
determines whether it is more likely than not that the tax positions will be sustained on
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the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, management
recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company recognizes interest and penalties related to unrecognized tax benefits within
income tax expense. Any accrued interest and penalties are included within the related tax liability. The Company did not have any uncertain tax positions as of December 31, 2020 and 2019.
Comprehensive Loss
Comprehensive loss is defined as a
change in equity during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive loss was equal to net loss for the years ended December 31,
2020 and 2019.
Net Loss Per Share Attributable to Common Stockholders
Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the
weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share
attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company. For purposes of this calculation, redeemable convertible preferred stock, stock options, employee stock
purchase rights, and unvested common stock subject to repurchase are considered to be common stock equivalents but are not included in the calculations of diluted net loss per share for the periods presented as their effect would be antidilutive.
Emerging Growth Company Status
The Company is an
emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of
the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with certain new or revised accounting standards that have different effective dates for public
and private companies until the earlier of the date that it is (1) no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, these financial
statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Recently
Adopted Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13,Fair Value
Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those
fiscal years. Early adoption is permitted. The Company adopted ASU 2018-13 on January 1, 2020 and the standard did not have a material impact on its financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12,Income Taxes (Topic 740): Simplifying the Accounting for
Income Taxes, which simplifies the accounting for income taxes, eliminates certain
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exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The guidance is effective for fiscal years
beginning after December 15, 2021, with early adoption permitted. The Company adopted ASU 2019-12 on January 1, 2020 and the standard did not have a material impact on its financial statements and
related disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13,Financial Instruments—Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments. The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than temporary impairments on investment
securities are recorded. The guidance is effective for the Company beginning on January 1, 2023, with early adoption permitted. The Company is currently evaluating the impact the standard may have on its financial statements and related
disclosures.
3. Fair Value Measurements
The Company
follows authoritative accounting guidance, which among other things, defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either
a recurring or nonrecurring basis. Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (at exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. The three levels of inputs that may be used to measure fair value include:
Level 1: Quoted prices in active markets for identical assets or liabilities. The Company’s Level 1
assets consist of money market funds.
Level 2: Observable inputs other than Level 1 prices, such as
quoted prices for similar assets or liabilities in active markets or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity.
The following table identifies the Company’s assets and liabilities that were measured at fair value on a recurring basis (in thousands):
Level 1 Level 2 Level 3
Assets:
Money market funds $ 386,369 $ — $ —
Assets:
Money market funds $ 9,976 $ — $ —
There were no transfers between the Level 1 and Level 2 categories or into or out of the Level 3 category
during the years ended December 31, 2020 and 2019.
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4. Property and Equipment, Net
Property and equipment are summarized as follows (in thousands):
December 31,
Furniture and fixtures $ 269 $ 156
Property and equipment, gross 3,670 2,766
Less accumulated depreciation and amortization (2,052 ) (1,450 )
Property and equipment, net $ 1,618 $ 1,316
Depreciation and amortization expense was $0.6 million and $0.5 million for the years ended December 31,
2020 and 2019, respectively.
5. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
December 31,
Research and development expenses $ 2,063 $ 827
Employee compensation and benefits 2,634 1,024
Professional services and other 581 261
6. Leases
The Company leases
an office and laboratory space in Seattle, Washington. The components of lease expense and related cash flows were as follows (in thousands):
Year EndedDecember 31,
Lease expense
Operating cash outflows from operating leases $ 1,591 $ 1,522
The remaining term on the Company’s lease was 1.8 years and 2.8 years as of December 31, 2020 and 2019,
respectively. To compute the present value of the lease liability, the Company used a discount rate of 8.5%.
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Notes to Financial Statements
Future minimum commitments due under the operating lease agreement as of December 31, 2020 are as
follows (in thousands):
Year Ending December 31, Amount
Thereafter —
Total undiscounted lease payments 3,586
Present value adjustment (364 )
Total present value of lease payments $ 3,222
7. Convertible Notes and Other Debt
Convertible Notes
In October 2019, the Company issued