Black Diamond Therapeutics, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. The company is a clinical-stage precision oncology biotech developing small-molecule, tumor-agnostic therapies using its Mutation-Allostery-Pharmacology (MAP) platform. It has no approved products and has generated no revenue. Financial figures below are in millions of dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $10.2 | $5.6 | $17.5 | $8.7 |
| General and administrative expense | $4.9 | $1.4 | $10.4 | $2.2 |
| Total operating expenses | $15.0 | $7.0 | $27.9 | $10.8 |
| Net loss | $14.6 | $12.3 | $26.7 | $16.1 |
| Net loss per share, basic and diluted | $0.41 | $5.99 | $0.92 | $7.86 |
At June 30, 2020, cash and cash equivalents were $64.0 million and investments were $281.0 million, for combined cash, cash equivalents and investments of $345.0 million. Current assets were $208.2 million; current liabilities were $6.1 million. Total liabilities were $6.3 million, with no debt reported. Accumulated deficit was $77.7 million. With no revenue, profit margins are not meaningful.
Operating cash used in the first half was $24.9 million, versus $11.9 million a year earlier. Investing cash use was $279.6 million, mainly purchases of investments; IPO proceeds provided $213.8 million of financing cash. The company completed its February IPO for $231.3 million gross proceeds and $212.1 million net proceeds.
Material changes versus comparable periods
- Q2 operating expenses rose $8.0 million year over year, led by higher R&D spending for the MAP platform and product candidates, including BDTX-189, and higher personnel and public-company costs.
- First-half net loss increased to $26.7 million from $16.1 million, reflecting substantially higher operating expenses. Q2 loss increased less sharply than operating expenses, partly because 2019 included a $5.3 million derivative-liability fair-value loss; no such charge was recorded in 2020.
- The IPO and conversion of preferred stock substantially increased common equity and liquidity. Short- and long-term investments totaled $281.0 million at June 30; none were held at December 31, 2019.
Outlook, risks and unusual items
- Management expected existing cash, cash equivalents and investments to fund operating expenses and capital needs into 2023. This estimate depends on assumptions that may prove incorrect; additional capital may eventually be required.
- BDTX-189’s Phase 1 MasterKey-01 trial was enrolling and dosing. The company expected to complete the Phase 1 portion in the first half of 2021. The FDA granted BDTX-189 Fast Track designation in July 2020 for specified advanced solid tumors with HER2 or EGFR/HER2 mutations and no satisfactory treatment options.
- The company expects expenses to increase as it advances clinical and preclinical programs, expands the MAP platform, builds internal capabilities and operates as a public company. It does not provide product-sales guidance.
- COVID-19 could disrupt trial recruitment, sites, investigators, suppliers and research timelines. Management said the Phase 1 timeline remained on track at the filing date, while emphasizing uncertainty about future effects.
- A July 2020 lease, entered after quarter-end, covers approximately 25,578 square feet in Cambridge for seven years, with a five-year extension option. Stated total minimum payments are up to $17.0 million, and the lease requires a $1.2 million letter of credit. Lease balances were expected to be recognized as the spaces commenced.
- Disclosure controls were concluded to be ineffective because material weaknesses in financial-reporting controls remained unremediated. The weaknesses involved insufficient accounting expertise and inadequate segregation of duties; remediation efforts included stronger processes, an ERP implementation and outside consultants.
- Key risks include early-stage clinical and regulatory uncertainty, patient-enrollment and companion-diagnostic challenges, reliance on third-party manufacturers and CROs, competition, COVID-19 disruption, and limited patent protection. The company reported one pending PCT application covering BDTX-189 and no issued patents relating to its candidates or technology.
Important facts for investors to verify
- Whether the Phase 1 trial and subsequent BDTX-189 development remain on schedule, and whether enrollment, safety and efficacy support the planned tumor-agnostic approach.
- Whether the stated funding runway into 2023 remains supportable as operating expenses rise and clinical programs advance.
- Progress and sustained effectiveness of remediation of the material weaknesses in internal controls.
- Recognition and cash impact of the new Cambridge lease, including the required letter of credit.
- Future patent filings and protection for BDTX-189 and the MAP platform, as well as any COVID-19-related effects on clinical sites, vendors or research timelines.