10-Q 1 cadl-20240331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number: 001-40629

 

CANDEL THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

52-2214851

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

117 Kendrick St, Suite 450
Needham, MA

02494

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 916-5445

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

CADL

 

The Nasdaq Global Market

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. Yes No

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). Yes No

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.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

 

 

Emerging growth company

 

 

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 No

As of May 6, 2024, the registrant had 29,744,731 shares of common stock, $0.01 par value per share, outstanding.

 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (Form 10-Q), including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Forward-looking statements in this Form 10-Q may include, but are not limited to, statements about:

the timing and the success of preclinical studies and clinical trials of CAN-2409 and CAN-3110 and any other product candidates;
the initiation of any clinical trials of CAN-2409 (international non-proprietary name: aglatimagene besadenovec) and CAN-3110 and any other product candidates;
our need to raise additional funding before we can expect to generate any revenues from product sales;
our ability to conduct successful clinical trials or obtain regulatory approval for CAN-2409 and CAN-3110 or any other product candidates that we may identify or develop;
the ability of our research to generate and advance additional product candidates;
the effects of public health crises, outbreaks of an infectious disease or ongoing geopolitical conflicts, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations;
our ability to establish an adequate safety or efficacy profile for CAN-2409, CAN-3110 or any other product candidates that we may pursue;
our ability to manufacture CAN-2409, CAN-3110 or any other product candidate in conformity with our specifications and the U.S. Food and Drug Administration’s (FDA) requirements and to scale up manufacturing of our product candidates to commercial scale, if approved;
the implementation of our strategic plans for our business, any product candidates we may develop and any companion diagnostics;
our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates any companion diagnostics;
the rate and degree of market acceptance and clinical utility for any product candidates we may develop;
estimates of our expenses, future revenues, capital requirements and our needs for additional financing;
the period we estimate to be funded by our existing financial resources;
our ability to establish and maintain collaborations;
the potential benefits with the continued existence of our license agreement with Mass General Brigham (MGB);
our financial performance;
our ability to effectively manage our anticipated growth;
developments relating to our competitors and our industry, including the impact of government regulation;
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals; and
other risks and uncertainties, including those discussed in Part II, Item 1A - Risk Factors in this Form 10-Q.

 


In some cases, forward-looking statements can be identified by terminology such as “will,” “may,” “should,” “could,” “expects,” “intends,” “plans,” “aims,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section entitled “Risk Factors” and elsewhere in this Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those expressed or implied by the forward-looking statements. No forward-looking statement is a promise or a guarantee of future performance.

The forward-looking statements in this Form 10-Q represent our views as of the date of this Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Form 10-Q.

This Form 10-Q may include statistical and other industry and market data that we obtained from industry publications and research, surveys, and studies conducted by third parties. Industry publications and third-party research, surveys, and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. We have not independently verified the information contained in such sources.

 


SUMMARY OF THE MATERIAL AND OTHER RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous risks and uncertainties, including those described more fully in Part II, Item 1A - Risk Factors in this Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

We are a biopharmaceutical company with a limited operating history and we have not generated any revenue from product sales. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years and may never achieve or maintain profitability.
Substantial doubt exists about our ability to continue as a going concern. Our ability to continue as a going concern requires that we obtain sufficient additional funding to finance our operations. If we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate some of our research, clinical trials, product development, or future commercialization efforts.
We have incurred indebtedness, and we may incur additional indebtedness, which could adversely affect our financial condition.
Our business is dependent on the success of CAN-2409, CAN-3110 and any other product candidates that we advance into the clinic. All of our product candidates will require additional development before we may be able to seek regulatory approval for and launch a product commercially.
Our preclinical studies and clinical trials may fail to demonstrate adequately the safety and efficacy of any of our product candidates, which would prevent or delay development, regulatory approval, and commercialization.
Our product candidates are based on a novel approach to the treatment of cancer, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval, if at all.
Even if we receive marketing approval for our current or future product candidates, our current or future product candidates may not achieve broad market acceptance, which would limit the revenue that we generate from their sales.
The regulatory approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If we are not able to obtain, or experience delays in obtaining, required regulatory approvals, we will not be able to commercialize CAN-2409, CAN-3110 and future product candidates as expected, and our ability to generate revenue may be materially impaired.
The FDA’s agreement to a Special Protocol Assessment with respect to the study design of our phase 3 clinical trial of CAN-2409 in newly diagnosed localized prostate cancer in intermediate and high-risk patients does not guarantee any particular outcome from regulatory review, including ultimate approval, and may not lead to a successful review or approval process.
Some of our product candidates are being and may continue to be studied in third-party research and clinical trials sponsored by organizations or agencies other than us, or in investigator-sponsored clinical trials, which means we will have minimal or no control over the conduct of such trials and which may adversely affect our ability to obtain marketing approval or certain regulatory exclusivities.
Changes in product candidate manufacturing or formulation may result in additional costs or delay.
Any future public health crisis, outbreaks of an infectious disease or ongoing geopolitical conflicts may have adverse effects on our business and operations.
If the government or third-party payors fail to provide adequate coverage, reimbursement and payment rates for our product candidates, or if health maintenance organizations or long-term care facilities choose to use therapies that are less expensive or considered a better value, our revenue and prospects for profitability will be limited.
If the manufacturers upon which we may rely fail to produce our product candidates in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to biopharmaceutical manufacturers, we may face delays in the development and commercialization of, or be unable to meet demand for, our product candidates and may lose potential revenues.
The transition of our manufacturing operations to a third-party contract manufacturer may result in further delays or expenses, and we may not experience the anticipated operating efficiencies.
Our rights to develop and commercialize certain of our product candidates are subject and may in the future be subject, in part, to the terms and conditions of licenses granted to us by third parties. If we fail to comply with our obligations under our current or future intellectual property license agreements or otherwise experience disruptions

 


to our business relationships with our current or any future licensors, we could lose intellectual property rights that are important to our business.

 


NOTE REGARDING COMPANY REFERENCES

 

Unless the context otherwise requires, the terms “Candel Therapeutics,” “the Company,” “we,” “us,” and “our” in this Form 10-Q refer to Candel Therapeutics, Inc. and its consolidated subsidiary.

 

NOTE REGARDING TRADEMARKS

 

We own or have rights to various trademarks, service marks and trade names that are used in connection with the operation of our business, including our company name, Candel Therapeutics, our logo, and the names of our CAN-2409™ and CAN-3110™ product candidates. This Form 10-Q may also contain trademarks, service marks and trade names of third parties, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this Form 10-Q is not intended to and does not imply a relationship with, or endorsement or sponsorship by, us. Solely for convenience, the trademarks, service marks and trade names referred to in this Form 10-Q may appear without the ®, TM or SM symbols, but the omission of such references is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable owner of these trademarks, service marks and trade names.

i


Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

2

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

3

Condensed Consolidated Statements of Cash Flows (Unaudited)

4

Notes to Condensed Consolidated Financial Statements (Unaudited)

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

PART II.

OTHER INFORMATION

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

84

Item 3.

Defaults Upon Senior Securities

84

Item 4.

Mine Safety Disclosures

84

Item 5.

Other Information

84

Item 6.

Exhibits

85

Signatures

86

 

ii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Candel Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

 

 

 

MARCH 31,
2024
(Unaudited)

 

 

DECEMBER 31,
2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

25,713

 

 

$

35,413

 

Prepaid expenses and other current assets

 

 

1,423

 

 

 

1,384

 

Total current assets

 

 

27,136

 

 

 

36,797

 

Fixed assets, net

 

 

2,962

 

 

 

3,206

 

Lease right of use assets

 

 

751

 

 

 

816

 

Restricted cash

 

 

266

 

 

 

266

 

Other assets

 

 

102

 

 

 

116

 

Total assets

 

$

31,217

 

 

$

41,201

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

472

 

 

$

422

 

Accrued expenses

 

 

2,772

 

 

 

4,356

 

Current portion of term loan payable to a bank

 

 

9,767

 

 

 

8,893

 

Current portion of lease liability

 

 

526

 

 

 

513

 

Total current liabilities

 

 

13,537

 

 

 

14,184

 

Term loan payable to a bank

 

 

9,174

 

 

 

11,632

 

Other long-term debt

 

 

781

 

 

 

751

 

Lease liability, net of current portion

 

 

837

 

 

 

973

 

Warrant liability

 

 

909

 

 

 

916

 

Total liabilities

 

 

25,238

 

 

 

28,456

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.01 par value; 10,000,000 shares authorized at March 31, 2024 and December 31, 2023; no shares issued or outstanding at March 31, 2024 and December 31, 2023, respectively.

 

 

 

 

 

 

Common stock, $0.01 par value; 150,000,000 shares authorized at March 31, 2024 and December 31, 2023; 29,470,076 and 29,213,627 shares issued at March 31, 2024 and December 31, 2023, respectively; 29,347,468 and 29,091,019 shares outstanding at March 31, 2024 and December 31, 2023, respectively.

 

 

292

 

 

 

290

 

Treasury stock (at cost)

 

 

(448

)

 

 

(448

)

Additional paid-in capital

 

 

151,384

 

 

 

149,931

 

Accumulated deficit

 

 

(145,249

)

 

 

(137,028

)

Total stockholders’ equity

 

 

5,979

 

 

 

12,745

 

Total liabilities and stockholders’ equity

 

$

31,217

 

 

$

41,201

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


Candel Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

THREE MONTHS ENDED
MARCH 31,

 

 

 

2024

 

 

2023

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

4,102

 

 

$

5,469

 

General and administrative

 

 

3,800

 

 

 

4,164

 

Total operating expenses

 

 

7,902

 

 

 

9,633

 

Loss from operations

 

 

(7,902

)

 

 

(9,633

)

Other income (expense):

 

 

 

 

 

 

Grant income

 

 

 

 

 

12

 

Interest income

 

 

320

 

 

 

711

 

Interest expense

 

 

(646

)

 

 

(609

)

Change in fair value of warrant liability

 

 

7

 

 

 

724

 

Total other income (expense), net

 

 

(319

)

 

 

838

 

Net loss and comprehensive loss

 

$

(8,221

)

 

$

(8,795

)

Net loss per share, basic and diluted

 

$

(0.28

)

 

$

(0.30

)

Weighted-average common shares outstanding, basic and diluted

 

 

29,197,537

 

 

 

28,919,810

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


Candel ThErapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

 

 

 

COMMON STOCK

 

 

TREASURY STOCK

 

 

ADDITIONAL
PAID-IN

 

 

ACCUMULATED

 

 

STOCKHOLDERS’

 

 

 

SHARES

 

 

AMOUNT

 

 

SHARES

 

 

AMOUNT

 

 

CAPITAL

 

 

DEFICIT

 

 

EQUITY

 

Balance, December 31, 2023

 

 

29,213,627

 

 

$

290

 

 

 

(122,608

)

 

$

(448

)

 

$

149,931

 

 

$

(137,028

)

 

$

12,745

 

Options exercised

 

 

146,964

 

 

 

1

 

 

 

 

 

 

 

 

 

225

 

 

$

 

 

 

226

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,030

 

 

 

 

 

 

1,030

 

Change in fair value of
   NC Ohio Trust Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

13

 

Sale of common stock,
   net of issuance costs

 

 

109,485

 

 

 

1

 

 

 

 

 

 

 

 

 

185

 

 

 

 

 

 

186

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,221

)

 

 

(8,221

)

Balance, March 31, 2024

 

 

29,470,076

 

 

$

292

 

 

 

(122,608

)

 

$

(448

)

 

$

151,384

 

 

$

(145,249

)

 

$

5,979

 

 

 

 

COMMON STOCK

 

 

TREASURY STOCK

 

 

ADDITIONAL
PAID-IN

 

 

ACCUMULATED

 

 

STOCKHOLDERS’

 

 

 

SHARES

 

 

AMOUNT

 

 

SHARES

 

 

AMOUNT

 

 

CAPITAL

 

 

DEFICIT

 

 

EQUITY

 

Balance, December 31, 2022

 

 

29,042,418

 

 

$

290

 

 

 

(122,608

)

 

$

(448

)

 

$

146,961

 

 

$

(99,089

)

 

$

47,714

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

798

 

 

 

 

 

 

798

 

Change in fair value of
   NC Ohio Trust Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(65

)

 

 

 

 

 

(65

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,795

)

 

 

(8,795

)

Balance, March 31, 2023

 

 

29,042,418

 

 

$

290

 

 

 

(122,608

)

 

$

(448

)

 

$

147,694

 

 

$

(107,884

)

 

$

39,652

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


Candel Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

THREE MONTHS ENDED
MARCH 31,

 

 

 

2024

 

 

2023

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net loss

 

$

(8,221

)

 

$

(8,795

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation expense

 

 

251

 

 

 

230

 

Loss on the sale of fixed assets

 

 

 

 

 

74

 

Non-cash stock compensation expense

 

 

1,043

 

 

 

733

 

Non-cash lease expense

 

 

65

 

 

 

57

 

Non-cash interest expense

 

 

30

 

 

 

26

 

Change in fair value of warrant liability

 

 

(7

)

 

 

(724

)

Accretion of debt discount

 

 

83

 

 

 

75

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(39

)

 

 

(730

)

Other assets

 

 

14

 

 

 

 

Accounts payable

 

 

50

 

 

 

149

 

Accrued expenses

 

 

(1,584

)

 

 

(1,790

)

Deferred income

 

 

 

 

 

(12

)

Lease liability

 

 

(123

)

 

 

(112

)

Net cash used in operating activities

 

 

(8,438

)

 

 

(10,819

)

Cash Flows from Investing Activities:

 

 

 

 

 

 

Purchase of fixed assets

 

 

(7

)

 

 

(138

)

Proceeds from the sale of fixed assets

 

 

 

 

 

157

 

Net cash (used in) provided by investing activities

 

 

(7

)

 

 

19

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

Proceeds from option exercises

 

 

226

 

 

 

 

Proceeds from sale of common stock,
   net of issuance costs

 

 

186

 

 

 

 

Principal payments on term loan

 

 

(1,667

)

 

 

 

Net cash used in financing activities

 

 

(1,255

)

 

 

 

Net decrease in cash

 

 

(9,700

)

 

 

(10,800

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

35,679

 

 

 

70,324

 

Cash, cash equivalents and restricted cash at end of period

 

$

25,979

 

 

$

59,524

 

Supplemental cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

549

 

 

$

500

 

Supplemental disclosures of non-cash information:

 

 

 

 

 

 

Capital expenditures in accounts payable and accrued expenses

 

$

 

 

$

66

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


Candel Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization and Basis of Presentation

Candel Therapeutics, Inc., formerly known as Advantagene, Inc. (the Company), is a clinical stage biopharmaceutical company that was incorporated in Delaware in June 2003. On November 30, 2020, the Company changed its name to Candel Therapeutics, Inc. The Company is focused on developing off-the-shelf viral immunotherapies that elicit an individualized, systemic anti-tumor immune response to help patients fight cancer. The Company’s engineered viruses are designed to induce immunogenic cell death through direct viral-mediated cytotoxicity in cancer cells, thus releasing tumor neo-antigens and creating a pro-inflammatory microenvironment at the site of injection. This is intended to lead to in-situ vaccination against the injected tumor and uninjected distant metastases. The Company has established two off-the-shelf viral immunotherapy platforms and its two product candidates, CAN-2409 and CAN-3110, are in clinical trials for a number of tumor types. Additionally, the Company and the University of Pennsylvania (UPenn) are collaborating to study the impact of novel viral immunotherapies based on Candel's propriety enLIGHTEN™ Discovery Platform, a systematic, iterative herpes simplex virus based platform leveraging human biology and advanced analytics, to strengthen the effects of UPenn's investigational CAR-T cell therapies in solid tumors.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.

Since inception, the Company has funded its operations primarily with proceeds from the sale of its convertible notes and capital stock and from debt borrowings. The Company has incurred recurring losses since its inception, including a net loss of $8.2 million and $8.8 million for the three months ended March 31, 2024 and 2023, respectively. In addition, as of March 31, 2024, the Company had an accumulated deficit of $145.2 million. The Company expects to continue to generate operating losses and negative cash flows from operations for the foreseeable future.

On August 5, 2022, the Company filed a shelf registration statement on Form S-3 (as amended to date, the Shelf) with the U.S. Securities and Exchange Commission (SEC), which covers the offering, issuance, and sale by us of up to an aggregate of $200.0 million of our common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. We simultaneously entered into a sales agreement with Jefferies LLC, as sales agent, to provide for the issuance and sale by us of up to $75.0 million of our common stock from time to time in “at-the-market” offerings under the Shelf (the ATM Program). The Shelf was declared effective by the SEC on August 12, 2022. As of March 31, 2024, the Company has sold and issued 109,485 shares of common stock under the ATM Program, with total net proceeds of $0.2 million. Subsequent to March 31, 2024, no additional sales have been made under the ATM Program.

The Company’s cash and cash equivalents were $25.7 million as of March 31, 2024. In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), 205-40, Presentation of Financial Statements - Going Concern, management is required to assess the Company’s ability to continue as a going concern for the one-year look forward period following the date that the condensed consolidated financial statements are issued. The Company expects to continue to generate operating losses and negative cash flows from operations. Based on these conditions, the Company has determined that substantial doubt exists regarding its ability to continue as a going concern for the one-year period following the date these condensed consolidated financial statements are issued. To sustain its future operations beyond such one-year period, the Company will require additional funding. The Company expects to finance its cash needs through a combination of public or private equity or debt financings, government grants, and other sources, which may include collaborations, strategic alliances and licensing arrangements with third parties. There is no assurance that the Company will be successful in obtaining sufficient funding on acceptable terms, if at all, and the Company could be forced to delay, reduce, or eliminate some or all of its research, clinical trials, product development or future commercialization efforts, which could materially adversely affect its business prospects or its ability to continue as a going concern.

The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and that contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

 

5


2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting standards set by the FASB. The FASB sets generally accepted accounting principles (GAAP) that the Company follows to ensure its financial condition, results of operations, and cash flows are consistently reported. References to GAAP issued by the FASB in these notes to the financial statements are to the FASB ASC. The Company has reclassified certain amounts relating to its prior period results to conform to its current period presentation.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Candel Therapeutics, Inc. and its wholly owned subsidiary Candel Therapeutics Securities Corporation. All intercompany transactions and balances have been eliminated.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision-maker in deciding how to allocate resources and assess performance. The Company and the Company's chief operating decision maker, the Company's chief executive officer, views the Company's operations and manages its business as a single operating segment. The Company only operates in the United States.

Emerging Growth Company

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the 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 new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that is (i) no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the Jobs Act. As a result, these condensed consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of March 31, 2024, the condensed consolidated statements of operations for the three months ended March 31, 2024 and 2023, the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2024 and 2023, the condensed consolidated statements of cash flows for the three months ended March 31, 2024 and 2023, and the related interim disclosures are unaudited. These condensed consolidated financial statements include all adjustments necessary, consisting of only normal recurring adjustments, to fairly state the financial position and the results of the Company’s operations and cash flows for interim periods in accordance with U.S. GAAP. Interim period results are not necessarily indicative of results of operations or cash flows for a full year or any subsequent interim period. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K on file with the SEC.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and related disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. On an ongoing basis, the Company’s management evaluates its estimates, which include but are not limited to management’s judgments of accrued expenses, valuation of stock-based option awards, valuations of warrants, and income taxes. Actual results could differ from those estimates.

Restricted Cash

The Company had $0.3 million of restricted cash as of both March 31, 2024 and December 31, 2023, which represents cash held as a security deposit under the terms of the Company’s Needham, Massachusetts facility lease.

Recently Issued Accounting Standards

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative, which modifies the disclosure or presentation requirements related to a variety of FASB Accounting Standard Codification topics. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K is effective, with early adoption prohibited. If by

6


June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the associated amendment will be removed from the Codification and will not become effective for any entities. The Company is currently evaluating the potential impact that ASU 2023-06 may have on its condensed consolidated financial statements and related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting: Improvements to Reportable Segment Disclosures, which amends guidance in ASC 280, Segment Reporting The amendments in this ASU expand segment disclosure requirements, including new segment disclosure requirements for entities with a single reportable segment, among other disclosure requirements. The ASU’s amendments are effective for public business entities for annual periods beginning after December 15, 2023. Early adoption is permitted. The Company is currently evaluating the potential impact that the adoption of ASU 2023-07 may have on its condensed consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which amends the guidance in ASC 740, Income Taxes. The ASU is intended to improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation and (2) income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. The ASU’s amendments are effective for public business entities for annual periods beginning after December 15, 2024. Early adoption is permitted. Adoption can be either prospectively or retrospectively applied, and the Company will adopt this ASU on a prospective basis. The Company is currently evaluating the potential impact that ASU 2023-09 may have on its condensed consolidated financial statements and related disclosures.

 

3. Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands):

 

 

 

FAIR VALUE MEASUREMENTS AS OF
MARCH 31, 2024 USING:

 

 

 

LEVEL 1

 

 

LEVEL 2

 

 

LEVEL 3

 

 

TOTAL

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liability

 

 

 

 

 

 

 

 

909

 

 

 

909

 

Total

 

$

 

 

$

 

 

$

909

 

 

$

909

 

 

 

 

FAIR VALUE MEASUREMENTS AS OF
DECEMBER 31, 2023 USING:

 

 

 

LEVEL 1

 

 

LEVEL 2

 

 

LEVEL 3

 

 

TOTAL

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liability

 

 

 

 

 

 

 

 

916

 

 

 

916

 

Total

 

$

 

 

$

 

 

$

916

 

 

$

916

 

The following table provides a roll forward of the aggregate fair values of the Company’s warrant liability, for which fair value is determined by Level 3 inputs (in thousands):

 

 

 

SERIES B
WARRANT
LIABILITY

 

Balance at December 31, 2023

 

$

916

 

Change in fair value

 

 

(7

)

Balance at March 31, 2024

 

$

909

 

 

7


4. Fixed Assets, Net

Fixed assets, net consisted of the following (in thousands):

 

 

 

MARCH 31,
2024

 

 

DECEMBER 31,
2023

 

Laboratory equipment

 

$

1,213

 

 

$

1,209

 

Manufacturing equipment

 

 

733

 

 

 

730

 

Furniture and fixtures

 

 

159

 

 

 

159

 

Networking and computer equipment

 

 

88

 

 

 

88

 

Leasehold improvements

 

 

3,109

 

 

 

3,109

 

Total fixed assets

 

$

5,302

 

 

$

5,295

 

Less: accumulated depreciation

 

 

(2,340

)

 

 

(2,089

)

Fixed assets, net

 

$

2,962

 

 

$

3,206

 

 

Depreciation expense was $0.3 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively.

5. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

 

 

 

MARCH 31,
2024

 

 

DECEMBER 31,
2023

 

Payroll and employee related expenses

 

$

1,192

 

 

$

2,017

 

Third-party research and development expenses

 

 

749

 

 

 

1,811

 

Professional fees and other

 

 

831

 

 

 

528

 

 

 

$

2,772

 

 

$

4,356

 

 

6. Term Loan

On February 24, 2022, the Company entered into a four-year loan and security agreement (the Loan Agreement) with Silicon Valley Bank (SVB) pursuant to which SVB has agreed to provide term loans to the Company in an aggregate principal amount of up to $25.0 million. The Company borrowed $20.0 million upon entering into the Loan Agreement. The Company could have borrowed up to an additional aggregate principal amount not to exceed $5.0 million, at any time on or prior to December 31, 2022, upon achievement of all of the following milestones, inclusively: (a) positive phase 2 clinical activity data from the Company’s CAN-2409 NSCLC clinical trial, (b) dosing of its first patient in its phase 3 CAN-2409 high-grade glioma clinical trial, and (c) receipt on or prior to December 31, 2022, of net cash proceeds in an amount equal to at least $75.0 million from the issuance and sale of equity securities to investors acceptable to SVB. The Company did not borrow any of the additional aggregate principal amount on or prior to December 31, 2022. The term loan is secured by substantially all of the Company’s properties, rights and assets, except for its intellectual property, which is subject to a negative pledge under the Loan Agreement.

The term loans bear interest at a floating rate per annum equal to the greater of (A) 5.75% and (B) the prime rate (as published in the money rates section of The Wall Street Journal) plus 2.50%. The Company is required to make monthly interest payments, and commencing on February 1, 2024, 24 consecutive installments of principal plus monthly payments of accrued interest. The term loans mature on January 1, 2026. Upon repayment in full of the term loans, the Company will be required to pay a final payment fee equal to 4.50% of the original principal amount of any funded term loan being repaid. The Loan Agreement permits voluntary prepayment of all, but not less than all, of the SVB term loans, subject to a prepayment premium of 1% to 3% based upon the timing of the repayment.

During each of the three months ended March 31, 2024 and 2023, the Company recorded interest expense relating to the Loan Agreement of $0.6 million. The weighted average effective interest rate as of March 31, 2024 was 11.40%.

The Company incurred $89,000 of debt issuance costs and will incur a $0.9 million final payment fee, which were recorded as debt discount and are being amortized over the term of the Loan Agreement. The scheduled principal payments and net carrying amount of the term loan are as follows (in thousands):

 

8


YEAR ENDING DECEMBER 31,

 

 

 

2024 (remaining nine months)

 

$

7,500

 

2025

 

 

10,000

 

2026

 

 

833

 

Total principal

 

 

18,333

 

Final payment fee

 

 

900

 

Less: debt discount

 

 

(989

)

Accretion of debt discount

 

 

697

 

Net carrying amount

 

 

18,941

 

Less current portion

 

 

(9,767

)

Long-term portion

 

$

9,174

 

The carrying value of the Company's term loan approximates fair value.

7. Other Long-Term Debt

Periphagen Note

On December 9, 2019, the Company entered into a series of asset purchase agreements with Periphagen, Inc. (Periphagen), a biopharmaceutical company focused on the development of gene therapy vectors. Under the terms of the asset purchase agreements, the Company assumed a $1.0 million promissory note bearing a contractual interest rate of 2% compounded annually, with the outstanding balance and accrued interest due upon maturity in November 2027, with no interim installments due. The estimated market rate for the Company for an unsecured loan with a maturity in November 2027 was determined to be 15.83% as of December 9, 2019. Although the Company does not have a public credit rating, management estimates a CCC credit rating based on the Company’s financial position and stage of development. Using the commensurate rate for a CCC rated company and based on the amount due at maturity, the present value of the future cash outflow was determined to be $0.4 million at the transaction date. As of March 31, 2024, the carrying value of the note is $0.8 million. The carrying value of the note approximates fair value. Upon maturity, the Company will pay Periphagen $1.4 million for the outstanding balance and accrued interest due.

9


8. Lease

On February 4, 2019, the Company signed a lease agreement for its corporate headquarters at 117 Kendrick Street in Needham, Massachusetts. The facility consists of a 15,197 square foot property which houses the corporate, clinical, laboratory and manufacturing operations for the Company. The lease term ends on August 31, 2026.

For each of the three months ended March 31, 2024 and 2023, the Company recorded $0.1 million of operating lease cost and for the three months ended March 31, 2024 and 2023, the Company has recorded $38,000 and $49,000, respectively, of variable lease cost. The total lease expense for each of the three months ended March 31, 2024 and 2023 was $0.1 million.

Cash paid for amounts included in the lease liability for each of the three months ended March 31, 2024 and 2023 was $0.1 million.

 

 

 

THREE MONTHS ENDED
MARCH 31,

 

Other Information

 

2024

 

 

2023

 

Operating cash flows used for operating leases

 

$

148

 

 

$

144

 

 Weighted-average remaining lease term (years)

 

 

2.4

 

 

 

3.4

 

 Weighted-average incremental borrowing rate

 

 

7.02

%

 

 

7.02

%

The future lease payments under non-cancelable leases at March 31, 2024, are as follows (in thousands):

 2024

 

 

450

 

 2025

 

 

613

 

 2026

 

 

415

 

      Total future lease payments

 

 

1,478

 

Less: imputed interest

 

 

(115

)

Total lease liability

 

$

1,363

 

 

9. Common Stock

Common Stock

Common shares are voting and dividends may be paid when, as and if declared by the board of directors.

Common Stock Reserved

The Company has reserved the following shares of common stock for future issuance as of:

 

 

 

MARCH 31,
2024

 

 

DECEMBER 31,
2023

 

 

 

 

 

 

 

Stock options outstanding

 

 

5,112,673

 

 

 

5,666,621

 

Unvested restricted stock

 

 

2,306,889

 

 

 

2,526,432

 

Shares available for future grant under stock option plan

 

 

2,042,216

 

 

 

252,053

 

Warrants

 

 

7,507,708

 

 

 

7,507,708

 

 

 

16,969,486

 

 

 

15,952,814

 

Shelf Registration and At-the-Market Offerings

On August 5, 2022, the Company filed the Shelf with the SEC, which covers the offering, issuance, and sale by us of up to an aggregate of $200.0 million of our common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. We simultaneously entered into a sales agreement with Jefferies LLC, as sales agent, to provide for the issuance and sale by us of up to $75.0 million of our common stock from time to time in “at-the-market” offerings under the Shelf. The Shelf was declared effective by the SEC on August 12, 2022. As of March 31, 2024, the Company has sold and issued 109,485 shares of common stock under the ATM Program, with total net proceeds of $0.2 million. Subsequent to March 31, 2024, no additional sales have been made under the ATM Program.

 

 

 

10


10. Warrants

The Company has the following warrants outstanding for the purchase of common stock as of March 31, 2024 and December 31, 2023:

 

WARRANTS

 

SHARES OF
COMMON
STOCK
SUBJECT TO
WARRANTS

 

 

EXERCISE
PRICE PER
SHARE

 

 

EXPIRATION
DATES

Series B Warrants

 

 

3,672,484

 

 

$

6.81

 

 

November 2025

Conditional Series B Warrants

 

 

3,672,484

 

 

$

6.81

 

 

November 2025

NC Ohio Trust

 

 

162,740

 

 

$

1.46

 

 

March 2029

Series B Warrants

In connection with the November 13, 2018 issuance of Series B convertible preferred stock (the Series B Preferred), the Company issued to the purchaser of the Series B Preferred warrants to purchase 3,672,484 shares of common stock for $6.81 per share (the Series B Warrants), which became fully exercisable upon issuance. The Series B Warrants contain provisions allowing cashless exercise.

In addition, the Company issued to the same stockholder additional five-year warrants for the purchase of 3,672,484 shares of common stock for $6.81 per share (the Conditional Series B Warrants), which become exercisable in the event that the Company completes a future financing that meets certain financial milestones or achieves certain share prices as follows:

918,121 shares vest upon (1) a financing event effected through the sale of our equity securities to third parties resulting in at least $20,000,000 in gross proceeds, with a per share price of $12.47, or (2) an average market price (determined over a consecutive 10-day period) of $12.47 per share;
an additional 918,121 shares vest upon (1) a financing event with a price per share of $13.20, or (2) an average market price (determined over a consecutive 10-day period) of, $13.20 per share;
an additional 918,121 shares vest upon (1) a financing event with a per share price of $13.94, or (2) an average market price (determined over a consecutive 10-day period) of, $13.94 per share; and
an additional 918,121 shares vest upon (1) a financing event with a per share price of $14.68, or (2) an average market price (determined over a consecutive 10-day period) of, $14.68 per share.

On June 24, 2021, the Company’s board of directors approved and on July 14, 2021 the stockholders approved, effective upon the closing of the Company’s initial public offering, an amendment to the terms of the Series B Warrants and the Conditional Series B Warrants to extend the expiration date from November 2023 to November 2025. In addition, the exercise period for the Conditional Series B Warrants was amended such that in the event the future financing milestones or certain share price targets described above are achieved, the Conditional Series B Warrants can only be exercised in conjunction with the sale of the Company, on a cash or cashless exercise basis, or otherwise in November 2025 through a cashless exercise.

The Company recorded the Series B Warrants as a component of stockholder’s equity at the time of issuance at their estimated fair value of $2.1 million and recorded the Conditional Series B Warrants as a liability on the condensed consolidated balance sheet as the number of shares used to calculate the settlement is not a fixed number of shares. The Conditional Series B Warrants are remeasured to their fair value at each reporting date with changes in the fair value recognized as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. The Company will continue to recognize changes in the fair value of the Conditional Series B Warrants until each Conditional Series B Warrant is exercised, expires or qualifies for equity classification. The warrant liability fair value was $0.9 million as of both March 31, 2024 and December 31, 2023.

NC Ohio Trust Warrants

On March 20, 2019, the Company established the NC Incorporated Ohio Trust, an irrevocable trust funded by the Company. The beneficiary in the trust agreement has provided past services to the Company for more than 15 years and is a non-employee. The warrant provides the beneficiary the right to purchase 162,740 shares of the Company’s common stock, $0.01 par value at an exercise price of $1.46 per share, subject to adjustments as specified in the warrant agreement. The Company recognizes the warrants as compensation expense within the condensed consolidated statement of operations and comprehensive loss when the warrants are granted or at the service inception date if the service inception date precedes the grant date. In the period in which the grant date occurs, cumulative compensation cost shall be adjusted to reflect the cumulative effect of measuring compensation cost based on the fair value at the grant date rather than the fair value previously used at the service inception date or subsequent reporting dates. As of March 31, 2024 and December 31, 2023, a grant date was not established as there was not a mutual understanding of key terms. The Company remeasures the fair value of the award at

11


each reporting date, as the service date preceded the grant date. The value of the warrants for 162,740 shares of common stock was $0.2 million as of both March 31, 2024 and December 31, 2023, and was recorded as stock compensation expense within research and development expense and a credit to stockholders’ equity in the condensed consolidated financial statements.

11. Stock Options, Restricted Stock and Stock-Based Compensation

Equity Incentive Plans

The Company’s 2015 Stock Plan, as amended, (the 2015 Plan) provides for the Company to sell or issue common shares or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the board of directors and consultants of the Company. The 2015 Plan is administered by the board of directors and exercise prices, vesting and other restrictions are determined at its discretion. All stock option grants are non-statutory stock options except option grants to employees intended to qualify as incentive stock options under the Internal Revenue Code of 1986, as amended. Incentive stock options may not be granted at less than the fair market value of the Company’s common stock on the date of grant, as determined in good faith by the board of directors at its sole discretion. Nonqualified stock options may be granted at an exercise price established by the board of directors at its sole discretion and the vesting periods may vary. Vesting periods are generally four years and are determined by the board of directors. Stock options become exercisable as they vest. Options granted under the 2015 Plan expire no more than ten years from the date of grant. As of March 31, 2024, there are no shares available for grants under the 2015 Plan and the 2015 Plan continues to govern the terms and conditions of the outstanding awards under the 2015 Plan.

On July 14, 2021, the Company’s 2021 Equity Incentive Plan (the 2021 Plan) was approved by the Company’s stockholders, and became effective upon completion of the IPO and serves as the successor to the 2015 Plan. 6,645,259 shares of common stock are reserved under the 2021 Plan, of which 2,042,216 shares remain available for future grants as of March 31, 2024.

Stock Options

Stock option activity is summarized as follows:

 

 

NUMBER OF
STOCK
OPTIONS

 

 

WEIGHTED-
AVERAGE
EXERCISE
PRICE

 

 

WEIGHTED-
AVERAGE
REMAINING
CONTRACTUAL
TERM (IN YEARS)

 

 

AGGREGATE
INTRINSIC
VALUE
(IN THOUSANDS)

 

Outstanding as of December 31, 2023

 

 

5,666,621

 

 

$

2.47

 

 

 

6.61

 

 

 

 

Granted

 

 

67,500

 

 

 

1.59

 

 

 

 

 

 

 

Exercised

 

 

(146,964

)

 

 

1.54

 

 

 

 

 

 

 

Cancelled, forfeited or expired

 

 

(474,484

)

 

 

3.42

 

 

 

 

 

 

 

Outstanding as of March 31, 2024

 

 

5,112,673

 

 

$

2.40

 

 

 

6.66

 

 

$

378

 

Exercisable as of March 31, 2024

 

 

3,500,102

 

 

$

2.41

 

 

 

5.80

 

 

$

133

 

Unvested as of March 31, 2024

 

 

1,612,571

 

 

$

2.37

 

 

 

8.53

 

 

$

245

 

The 2015 Plan, permits participants to use common stock they previously acquired to pay for the exercise of stock options based upon the fair value on the date of exercise. In connection with the exercise of a stock options to purchase 306,518 shares of our common stock at an exercise price of $1.46, option holders tendered 122,608 shares of our common stock previously acquired in consideration of the full aggregate exercise price in accordance with the terms of the option and the 2015 Plan. The shares tendered are recorded as treasury stock within the Company’s condensed consolidated financial statements at March 31, 2024.

The fair value of stock options granted was estimated on the grant date using the Black-Scholes option pricing model based on the following assumptions:

 

 

THREE MONTHS ENDED
MARCH 31,

 

 

 

2024

 

 

2023

 

Expected option life (years)

 

 

6.08

 

 

 

6.08

 

Risk-free interest rate

 

4.21% - 4.27%

 

 

3.58% - 4.13%

 

Expected volatility

 

99.30% - 99.45%

 

 

91.33% - 92.25%

 

Expected dividend yield

 

 

0

%

 

 

0

%

 

The total intrinsic value of stock options vested during each of the three months ended March 31, 2024 and 2023 was zero.

Restricted Stock Units

12


Under the terms of the restricted stock unit agreements covering the common stock, shares of common stock related to restricted stock units are subject to time-based vesting. The restricted stock units will immediately be forfeited to the Company if the relationship between the recipient and the Company ceases.

Restricted stock activity is summarized as follows:

 

 

NUMBER OF
SHARES

 

 

WEIGHTED-
AVERAGE GRANT
DATE FAIR VALUE

 

Unvested at December 31, 2023

 

 

2,526,432

 

 

$

1.06

 

Granted

 

 

 

 

$

 

Vested

 

 

 

 

$

 

Forfeited

 

 

(219,543

)

 

$

1.13

 

Unvested at March 31, 2024

 

 

2,306,889

 

 

$

1.06

 

 

The aggregate fair value of restricted stock units that vested during each of the three months ended March 31, 2024 and 2023 was zero.

Stock-Based Compensation

Stock-based compensation expense for the three months ended March 31, 2024 and 2023 was classified in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):

 

 

 

THREE MONTHS ENDED
MARCH 31,

 

 

 

2024

 

 

2023

 

Research and development

 

$

553

 

 

$

311

 

General and administrative

 

 

490

 

 

 

422

 

Total stock-based compensation expense

 

$

1,043

 

 

$

733

 

 

As of March 31, 2024, total unrecognized compensation cost related to unvested stock-based awards was $4.4 million, which is expected to be recognized over a weighted average period of 2.30 years.

12. Exclusive Licensing Agreement with a Related Party

In March 2014, the Company entered into an exclusive licensing agreement with Ventagen, LLC (Ventagen) which provides Ventagen the right to develop products for commercial sale and distribution within Mexico, Belize, Guatemala, Honduras, El Salvador, Costa Rica, Nicaragua, Panama, Colombia, and Bolivia (the Territory). Ventagen paid the Company $1.0 million upon the signing of the agreement and agreed to a fixed future payment to the Company of $2.5 million. The future payment will be made upon the achievement of $5.0 million of sales of an approved product by Ventagen and is subject to reduction if Ventagen’s costs to develop an approved product exceeds $4.0 million. In addition to the upfront payment and the future payment, Ventagen agreed to purchase from the Company all manufactured product that is required for clinical or commercial purposes at a price of cost plus 25% of the wholesale price of the approved product, subject to a minimum or maximum price. In the event the Company is unable or unwilling to manufacture supply under the terms of the agreement, Ventagen has the right to manufacture its own supply and will be required to pay a fixed fee per dose sold. The Company also agreed to provide certain services to Ventagen related to Ventagen’s development plan. Stockholders of the Company own 49.5% of the voting stock of Ventagen, including 47% by the Company’s founders who are currently significant stockholders of the Company, and trusts for the benefit of their children.

The Company had completely recognized the $1.0 million upfront license fee as research and development service revenue as of December 31, 2022.

13. Technology License Agreement

On January 20, 2018 the Company entered into an exclusive option agreement (Option Agreement) with MGB. Pursuant to the Option Agreement, the Company has obtained the exclusive right from MGB to negotiate an exclusive license to make, develop and commercialize rQNestin, a genetically modified oncolytic herpes simplex virus for the treatment of certain types of cancers. Pursuant to the Option Agreement, the Company will support a clinical trial to be conducted at MGB pursuant to the terms of a clinical trial agreement to be negotiated and the Company has committed to remitting $0.8 million in support of such clinical trial over the course of approximately three years. Upon execution of the Option Agreement, the Company remitted a non-refundable fee of $40,000 to MGB to be applied toward the Company’s on-going obligations to reimburse patent expenses. During the three

13


months ended March 31, 2024 and 2023, the Company did not expense any startup and patient fees for clinical trials performed by MGB.

On September 15, 2020, the Company exercised the Option Agreement with MGB and entered into an exclusive worldwide patent license agreement with MGB (the MGB License). In connection with the MGB License, the Company paid a fee of $0.1 million and agreed to reimburse patent costs incurred by MGB, including $0.1 million paid at the time of entering into the MGB License. Prior to the first commercial sale, the Company is required to pay MGB an annual license fee of $50,000 beginning following the fourth anniversary of the effective date. The MGB License contains cumulative milestone payments equaling a maximum amount of $39.0 million upon the achievement of various clinical, commercial and sales milestones of both primary and secondary products. Following the first commercial sale, the Company is required to pay royalties to MGB, which are paid at an increasing rate as net sales increase, ranging from low single digits to high single digits. In addition, after the first commercial sale, the Company is required to pay MGB a pre-determined fixed annual minimum royalty, which amount may be credited against earned royalties starting in the fourth year following the first commercial sale. The Company also agreed to pay a single digit royalty rate on net sales of any derived products.

14. Commitments and Contingencies

Guarantees

The Company has identified the guarantees described below as disclosable, in accordance with ASC 460, Guarantees.

As permitted under Delaware law, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The maximum potential amount of future payments the Company could be required to make is unlimited; however, the Company has directors’ and officers’ insurance coverage that should limit its exposure and enable it to recover a portion of any future amounts paid.

The Company is a party to a number of agreements entered into in the ordinary course of business that contain typical provisions that obligate the Company to indemnify the other parties to such agreements upon the occurrence of certain events. Such indemnification obligations are usually in effect from the date of execution of the applicable agreement for a period equal to the applicable statute of limitations. The aggregate maximum potential future liability of the Company under such indemnification provisions is uncertain.

The Company leases office space under a noncancelable operating lease expiring in 2026. The Company has standard indemnification arrangements under this lease that require it to indemnify the landlord against all costs, expenses, fines, suits, claims, demands, liabilities, and actions directly resulting from any breach, violation, or nonperformance of any covenant or condition of the lease.

As of March 31, 2024, the Company had not experienced any losses related to these indemnification obligations, and no material claims with respect thereto were outstanding. The Company does not expect significant claims related to these indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves have been established.

Legal Proceedings

From time to time, we may become involved in litigation or other legal proceedings. On December 15, 2022, Periphagen notified us by letter of its claim that we have failed to use commercially reasonable efforts to complete a human proof of concept clinical trial of an NT-3 Asset under an Exclusive License Agreement dated December 9, 2019 between us and Periphagen (the Periphagen License Agreement). On January 13, 2023, we filed a demand for arbitration against Periphagen with the American Arbitration Association, seeking a declaration that Periphagen’s December 15 letter failed to comply with the dispute and escalation provisions in the Periphagen License Agreement. On March 10, 2023, Periphagen filed its answer and counterclaims to our demand for arbitration. In its counterclaims, Periphagen sought a declaration that we have not used commercially reasonable efforts to complete a human proof of concept clinical trial of the NT-3 Asset and a declaration that any further extension of time would not be scientifically or commercially reasonable. We denied Periphagen’s counterclaims.

On June 7, 2023, the parties entered into an amendment to the Exclusive License Agreement that resolved the dispute and resulted in termination of the arbitration without any financial impact.

We are not currently a party to any litigation or legal proceedings that, in the opinion of our management, are probable to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact on our business, financial condition, results of operations and prospects because of defense and settlement costs, diversion of management resources and other factors.

14


15. Net Loss Per Share

Net Loss Per Share

Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share data):

 

 

 

THREE MONTHS ENDED
MARCH 31,

 

Numerator:

 

2024

 

 

2023

 

Net loss

 

$

(8,221

)

 

$

(8,795

)

Denominator:

 

 

 

 

 

 

Weighted-average shares of common stock
   outstanding – basic and diluted

 

 

29,197,537

 

 

 

28,919,810

 

Net loss per share – basic and diluted

 

$

(0.28

)

 

$

(0.30

)

The Company’s potentially dilutive securities have been excluded from the computation of dilutive net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share is the same.

The Company excluded the following potential shares of common stock from the computation of diluted net loss per share because including them would have had an anti-dilutive effect.

 

 

 

AS OF MARCH 31,

 

 

 

2024

 

 

2023

 

Outstanding warrants for common stock

 

 

7,507,708

 

 

 

7,507,708

 

Outstanding stock options (as converted to common stock)

 

 

5,112,673

 

 

 

5,479,355

 

Unvested restricted stock

 

 

2,306,889

 

 

 

612,366

 

 

 

14,927,270

 

 

 

13,599,429

 

 

16. Corporate Restructuring

In November 2023, the Company’s board of directors authorized a restructuring plan to focus on continuation and expansion of development of CAN-3110 as well as the enLIGHTENTM Discovery Platform, which resulted in a reduction of the Company’s workforce by approximately 45%. Each affected employee’s separation occurred in December 2023. As a result, the Company incurred costs of $0.7 million related to severance benefits for the affected employees, including severance payments and limited reimbursement of medical insurance premiums. The restructuring plan was completed in the first quarter of 2024 when the final severance payments of $46,000 were made.

15


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed and consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q (Form 10-Q). Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. You should review the section titled “Risk factors” in this Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described below.

Overview

We are a clinical stage biopharmaceutical company focused on developing off-the-shelf viral immunotherapies that elicit an individualized, systemic anti-tumor immune response to help patients fight cancer. Our engineered viruses are designed to induce a systemic anti-tumor response due to immunogenic cell death through direct viral-mediated cytotoxicity in cancer cells, thus releasing tumor neo-antigens and creating a pro-inflammatory microenvironment at the site of injection. This is intended to lead to in-situ vaccination against the injected tumor and uninjected distant metastases. Our viral immunotherapy approach utilizes intratumoral administration of genetically engineered viruses to induce tumor cell death and elicit a systemic anti-tumor response. Local delivery enables us to achieve these effects while aiming to minimize systemic toxicity. The immune cells induced by these viral immunotherapies are believed to target patients’ specific tumor antigens, potentially improving responses in immunologically “hot” tumors while at the same time infiltrating the tumor microenvironment, transforming non-inflamed “cold” tumors with limited immune response into “hot” tumors. While our product candidates are administered directly into the tumor, we have observed systemic immune response in our preclinical studies and clinical trials that may indicate the potential of our product candidates to induce systemic immune response against distal, uninjected tumors, also known as an “abscopal” effect.

We believe viral immunotherapy is among the most promising cancer treatment modalities today. Our goal is to further improve patient outcomes through viral immunotherapies by selecting the optimal vector, specific transgenes and clinical indications for each tumor type while optimizing product candidate attributes, such as high-titer formulation, intratumoral administration to induce systemic anti-tumor immunity, and storage conditions that could potentially lower logistical barriers for patients and clinicians.

We have established two clinical off-the-shelf viral immunotherapy platforms based on novel, genetically modified adenovirus and herpes simplex virus (HSV) constructs, respectively.

Our most advanced product candidate, CAN-2409, is an off-the-shelf adenovirus product candidate which is administered in conjunction with the prodrug, valacyclovir, that has generated promising clinical activity across a range of solid tumor indications. CAN-2409 is currently being studied in the following ongoing clinical trials:

Prostate Cancer
o
A pivotal phase 3 randomized, triple-blinded and placebo-controlled clinical trial in the United States under a Special Protocol Assessment (SPA) with the U.S. Food and Drug Administration (FDA) evaluating 711 evaluable patients with newly diagnosed, localized prostate cancer who have an intermediate or high-risk for progression. We completed enrollment of this trial in September 2021, and we expect to report topline data in the fourth quarter of 2024.
o
A phase 2 randomized, double blind, placebo-controlled clinical trial in the United States evaluating 187 patients with low-to-intermediate risk, localized prostate cancer undergoing active surveillance. We completed enrollment of this trial in May 2019, and we expect to report topline data in the fourth quarter of 2024.
Non-Small Cell Lung Cancer (NSCLC)
o
An open-label phase 2 clinical trial in the United States evaluating CAN-2409 plus valacyclovir in combination with continued PD-(L)1 checkpoint inhibitors in approximately 80 patients with stage III/IV NSCLC who have inadequate response to front line PD-(L)1 checkpoint inhibitor treatments. In April 2023, we announced that the FDA granted fast track designation for CAN-2409 plus valacyclovir in combination with pembrolizumab in order to improve survival or delay progression in patients with stage III (not candidates for curative intent) or stage IV NSCLC, who are resistant to first line PD-(L)1 inhibitor therapy and who do not have activating molecular driver mutations or have progressed on directed molecular therapy. These patients historically have had an expected median overall survival (mOS) of <12 months (Reckamp K et al. J Clin Onc 2022;40:2295-2306). The aim of the CAN-2409 immunotherapy antitumor strategy is to raise the tail on the survival curve by increasing the number of long survivors beyond 10-14 months in patients treated with two CAN-2409 injections.
o
In 2022, we presented data from this phase 2 clinical trial where patients who received two administrations of CAN-2409 plus prodrug and completed the 12-week treatment window demonstrated: 1) increased infiltration of CD8+ cytotoxic tumor infiltrating lymphocytes in the tumor microenvironment, systemic expansion of effector T cells and increased soluble granzyme B levels in peripheral blood, 2) favorable changes in the trajectory of tumor progression, 3) decreased tumor size of target lesions in most patients, and 4) reduced size of

16


uninjected tumor lesions (Aggarwal C et al. Abstract #9037 ASCO June 2022 and Aggarwal C et al. Candel Virtual R&D Day, December 2022). These data were further supported in an update released September 2023, based on a data cutoff of August 1, 2023:
40 patients across Cohort 1 (stable disease at enrollment; n=5) and Cohort 2 (progressive disease at enrollment; n=35) were evaluable, as they received two courses of CAN-2409 plus valacyclovir and completed the 12-week treatment window.
While overall survival was not yet mature, we observed an encouraging number of long survivors. We believe that CAN-2409 may induce a new state of functional immunosurveillance and durable disease control in a subset of the patients.
Of the 40 evaluable patients, 15 patients had lived ≥ 12 months; of these, 10 patients had lived > 18 months, of whom 70% (7/10) were alive as of last follow up. All 4 patients (100%) with overall survival > 24 months were alive at last follow up, with the longest reaching 31.7 months.
An additional 18 out of the 40 evaluable patients were also alive but had not yet reached 12 months of follow up.
Notably, many patients treated with CAN-2409 had long survival (≥ 12 months) despite having disease features generally associated with advanced disease and reduced likelihood to benefit from immune checkpoint inhibitor therapy, such as low or negative PD-(L)1 expression, including:
Amongst patients alive ≥ 12 months with known PD-(L)1 status (14/15), 93% had negative or low PD-(L)1 score (<1 or between 1-49).