C4 Therapeutics, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021; filed August 11, 2021. C4 Therapeutics is a clinical-stage biopharmaceutical company developing targeted protein degraders using its TORPEDO platform. It has no approved products and has not generated product-sales revenue.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Collaboration revenue | $9.8 million | $9.7 million | $17.2 million | $16.5 million |
| Research and development expense | $23.3 million | $17.8 million | $43.8 million | $34.1 million |
| General and administrative expense | $8.6 million | $2.8 million | $16.0 million | $5.6 million |
| Operating loss | $22.1 million | $10.9 million | $42.6 million | $23.2 million |
| Net loss | $22.6 million | $10.8 million | $43.6 million | $22.7 million |
| Basic and diluted net loss per share | $0.51 | $9.28 | $1.00 | $18.87 |
Per-share comparisons reflect the 2020 preferred-stock conversion and IPO, which substantially increased the weighted-average common shares; they should not be read as an improvement in underlying losses. Collaboration revenue was nearly flat in Q2 and rose modestly for the first half. There were no product sales or royalties. Q2 collaboration revenue included a $1.0 million Calico milestone; a $3.0 million Biogen lead fee was achieved in May and is deferred and recognized over the related services.
Expense growth reflected expanded preclinical and clinical work, increased staffing, and higher stock-based compensation. First-half stock-based compensation was $9.1 million versus $0.3 million in 2020. The company attributed higher G&A costs in part to public-company expenses, including insurance, legal, audit, and consulting fees. No operating margin is presented in the filing.
Cash flow and liquidity: First-half operating cash use was $42.9 million, versus $31.3 million in 2020. Investing cash use was $29.3 million, largely reflecting net purchases of marketable securities; financing provided $170.4 million, principally net proceeds of $169.9 million from the June follow-on offering. Cash, cash equivalents, and marketable securities totaled approximately $498.7 million at June 30, 2021. The follow-on issued 4,887,500 shares and generated $169.5 million net proceeds after estimated offering costs.
Debt: Related-party term debt had a $10.4 million carrying value and $12.5 million principal outstanding. It bears a variable rate of 11.25% at June 30, 2021, is secured by substantially all assets, and matures June 5, 2024. Interest-only payments continue through December 2022; principal payments then begin. The unused $7.5 million borrowing tranche expired June 30, 2021. The agreement includes a $3.0 million minimum cash requirement and restrictive covenants.
Total liabilities were $112.0 million and stockholders’ equity was $416.4 million at June 30, 2021. Current assets were $477.6 million, including $281.1 million cash and cash equivalents and $184.8 million current marketable securities. Deferred revenue totaled $74.9 million, reflecting collaboration consideration not yet recognized as revenue.
Material changes and business developments
- R&D expense increased 31% for the quarter and 29% for the first half; G&A expense increased substantially from 2020 levels, in part due to stock compensation, hiring, and public-company costs.
- C4T7455 entered a first-in-human Phase 1/2 trial in June 2021 for multiple myeloma and non-Hodgkin lymphomas, including peripheral T-cell and mantle cell lymphoma.
- The company expected to submit an IND for CFT8634 in the second half of 2021 and begin a Phase 1/2 trial in 2022. It expected to submit an IND for CFT8919 by mid-2022 and begin a Phase 1/2 trial by year-end 2022. It also targeted clinical entry for BRAF- and RET-directed programs by the end of 2022.
- In August 2021, after quarter-end, FDA granted orphan drug designation to CFT7455 for multiple myeloma. C4T also offered Calico an option to extend research on a program for up to one year, for a $1.0 million payment if exercised plus FTE reimbursement.
Outlook, risks, and other matters
The company expects substantial operating losses and rising expenses as it advances clinical and preclinical programs, expands its platform, and supports public-company operations. It expects to fund operations through existing resources, collaboration payments, and potentially additional financing. The filing gives differing runway statements: the financial-statement notes say cash, cash equivalents, and marketable securities should fund operations for at least 12 months from issuance of the statements, while the risk discussion says the company believes resources plus expected future collaboration payments will fund its existing operating plan for at least 24 months. Management cautions that assumptions may prove incorrect and that current resources will not fund candidates through regulatory approval.
Key risks include the early stage and unproven nature of targeted protein degradation; clinical, regulatory, safety, enrollment, manufacturing, and supply-chain uncertainties; dependence on CROs, CMOs, and collaboration partners Roche, Biogen, and Calico; potential COVID-19 disruption; competition; intellectual-property protection and litigation; and the need for substantial additional capital. The related-party debt carries high interest, asset security, cash requirements, and operating restrictions. No material legal proceedings were reported. Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
The filing provides no earnings or revenue guidance. Management’s stated development timelines are expectations, not guaranteed milestones. The company said it expects to cease being an emerging growth company on December 31, 2021 under the then-applicable filer rules.
Important facts for investors to verify
- Reconcile the stated 12-month and 24-month cash-runway estimates, including the assumptions about future collaboration receipts and planned development spending.
- Track enrollment, safety, and development progress in the CFT7455 Phase 1/2 trial, and whether IND and trial timelines for CFT8634, CFT8919, BRAF, and RET are achieved.
- Monitor operating cash burn, the rise in stock-based compensation and public-company costs, and the timing of additional financing needs.
- Review the Perceptive debt’s interest, covenants, collateral, repayment schedule, and prepayment fee, as well as the potential dilution from equity compensation and future share issuance.
- Assess whether Roche, Biogen, and Calico programs progress toward milestones and whether collaboration revenue can sustain operations; no royalties had been received as of the filing.