Erasca, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2022; filed August 11, 2022. Erasca is a clinical-stage precision oncology company developing therapies for RAS/MAPK pathway-driven cancers. It has no approved products and has not generated product revenue.
Financial Position and Results
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $27.5 million | $54.9 million |
| In-process R&D expense | $0 | $2.0 million |
| General and administrative expense | $8.4 million | $15.5 million |
| Total operating expenses | $35.9 million | $72.4 million |
| Net loss | $35.6 million | $72.1 million |
| Net loss per share | $0.30 | $0.60 |
| Net cash used in operating activities | Not separately provided | $52.9 million |
Operating and net margins are not meaningful because the company had no revenue. Accumulated deficit was $310.2 million at June 30, 2022, compared with $238.2 million at December 31, 2021.
- Liquidity: Cash and cash equivalents were $298.0 million; short-term marketable securities were $73.5 million; and long-term marketable securities were $19.3 million. Total cash, cash equivalents and marketable securities were approximately $390.8 million.
- Cash flow: Net cash used in operating activities was $52.9 million, investing activities used $11.0 million, and financing activities provided $1.5 million. Cash, cash equivalents and restricted cash declined by $62.5 million during the first six months.
- Debt: The filing does not report outstanding debt. Liabilities consisted primarily of operating lease liabilities, including $27.6 million of reported operating lease liabilities at June 30, 2022.
- Equity: Stockholders’ equity was $395.1 million. Common shares outstanding were 120.5 million at June 30, 2022 and 122.1 million shares were outstanding as of August 4, 2022.
Changes Versus Prior Comparable Period
- Second-quarter R&D expense increased $9.9 million, or approximately 56%, to $27.5 million, driven by higher clinical, preclinical and discovery costs, personnel, stock-based compensation, facilities and depreciation.
- Six-month R&D expense increased $25.1 million, or approximately 84%, to $54.9 million.
- Second-quarter G&A expense increased $3.3 million to $8.4 million; six-month G&A increased $6.7 million to $15.5 million.
- Net loss increased by $7.4 million in the quarter and $25.8 million year to date.
- In-process R&D expense declined in the second quarter because the prior-year period included a $5.5 million stock issuance related to the UCSF license amendment. For the first six months of 2022, the $2.0 million charge related to a Katmai development milestone.
- Operating cash burn increased from $33.9 million to $52.9 million for the first six months, while financing inflows fell from $120.7 million to $1.5 million because the prior-year period included $119.4 million of preferred-stock proceeds.
- Stock-based compensation increased to $9.5 million for the first six months from $2.4 million in the prior-year period.
Outlook, Commentary, Risks and Unusual Items
- Management expects expenses and operating losses to increase substantially as clinical trials, preclinical research, manufacturing, staffing, intellectual property and public-company costs expand.
- Based on current plans, management expects cash, cash equivalents and marketable securities to fund operations into the second half of 2024. This estimate is subject to clinical-development timing, spending levels, financing conditions and other uncertainties.
- Management expects no product revenue for several years, if ever, unless candidates successfully complete development and receive regulatory approval. Additional equity, debt, collaboration or licensing financing may be required.
- Clinical priorities include ERAS-007, ERAS-601 and ERAS-801. The company expected Phase 1b monotherapy data for ERAS-007 and Phase 1 monotherapy data for ERAS-601 in the second half of 2022, with additional combination data expected in 2023.
- The company recently decided to close the HERKULES-4 trial before enrolling patients and is focusing clinical efforts on solid tumors. It also announced a new ERAS-007 combination trial funded by a Stand Up To Cancer grant.
- Pfizer and Lilly are supplying certain combination agents at no cost under clinical-trial collaboration and supply agreements. Erasca remains responsible for sponsoring and funding the applicable trials.
- The company relies on third parties for manufacturing, packaging, distribution and clinical research services. Risks include trial enrollment and outcomes, regulatory approval, manufacturing capacity, supply-chain disruption, inflation, COVID-19, geopolitical events and the need for additional capital.
- License and acquisition agreements include potential future development, regulatory and commercial milestones, royalties and, in certain cases, additional equity issuances. No material litigation contingencies were accrued.
- On August 11, 2022, after quarter-end, the company entered into an at-the-market facility allowing issuance of up to $200 million of common stock. The company is not required to sell shares, and proceeds and dilution are uncertain.
- There were no material changes to the risk factors reported in the 2021 Form 10-K. Management concluded that disclosure controls and procedures were effective as of June 30, 2022.
Investor Verification Checklist
- Verify clinical-trial enrollment, safety, pharmacokinetic and proof-of-concept data for ERAS-007, ERAS-601 and ERAS-801.
- Assess whether the projected cash runway into the second half of 2024 remains valid as clinical spending increases.
- Review the potential dilution and timing associated with the $200 million at-the-market facility, equity awards and approximately 20.1 million potentially dilutive securities excluded from loss-per-share calculations.
- Review future license milestones, royalties and possible equity obligations, including the potential issuance of 3.9 million shares under the Asana arrangement.
- Monitor the company’s long-term lease commitments, including substantial obligations related to San Diego and South San Francisco facilities.
- Confirm manufacturing capacity, third-party supply arrangements and the effect of any clinical delays, regulatory setbacks or trial closures on the development plan.