10-Q 1 brhc10037371_10q.htm 10-Q

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, 2022
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: 001-39743

KINNATE BIOPHARMA INC.
(Exact name of registrant as specified in its charter)


Delaware
 
82-4566526
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
103 Montgomery Street, Suite 150
The Presidio of San Francisco
San Francisco, CA
 
94129
(Address of principal executive offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (858) 299-4699



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 $0.0001 per share
 
KNTE
 
The Nasdaq Global Select 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, a 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 9, 2022, the Registrant had 43,977,623 shares of common stock, $0.0001 par value per share, outstanding.
 


TABLE OF CONTENTS

   
Page
PART I—FINANCIAL INFORMATION
 
   
Item 1.
1
     
 
1
     
 
2
     
 
3
     
 
4
     
 
5
     
Item 2.
17
     
Item 3.
28
     
Item 4.
29
     
PART II—OTHER INFORMATION
 
   
Item 1.
30
     
Item 1A.
30
     
Item 2.
112
     
Item 3.
112
     
Item 4.
113
     
Item 5.
113
     
Item 6.
113
     
 

Special Note Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10‑Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10‑Q, including statements regarding our future results of operations and financial position, business strategy, development plans, ongoing and planned future preclinical studies and clinical trials, future results of ongoing and planned future clinical trials, expected research and development costs, regulatory strategy, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. In some cases, investors can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this Quarterly Report on Form 10‑Q include, but are not limited to, statements about:
 

the ability of our ongoing and planned future preclinical studies and clinical trials to demonstrate safety and efficacy of our product candidates, and other positive results;
 

the timing, progress and results of ongoing and planned future preclinical studies and clinical trials for our current product candidates and other product candidates we may develop, including statements regarding the timing of initiation and completion of preclinical studies or clinical trials and related preparatory work, the period during which the results of the preclinical studies or clinical trials will become available, and our research and development programs;
 

the timing, scope and likelihood of regulatory filings and approvals, including timing of investigational new drug applications (INDs) and final U.S. Food and Drug Administration (FDA) approval of our current product candidates and any other future product candidates;
 

the timing, scope or likelihood of foreign regulatory filings and approvals;
 

our ability to develop and advance our current product candidates and programs into, and successfully complete, clinical trials;
 

our manufacturing, commercialization, and marketing capabilities and strategy;
 

our plans relating to commercializing our product candidates, if approved, including the geographic areas of focus and sales strategy;
 

the need to hire additional personnel and our ability to attract and retain such personnel;
 

the size of the market opportunity for our product candidates, including our estimates of the number of patients who suffer from the diseases we are targeting;
 

our expectations regarding the approval and use of our product candidates in combination with other drugs;
 

our competitive position and the success of competing therapies that are or may become available;
 

our estimates of the number of patients that we will enroll in our clinical trials;


the beneficial characteristics, and the potential safety, efficacy and therapeutic effects of our product candidates;
 

our ability to obtain and maintain regulatory approval of our product candidates;
 

our plans relating to the further development of our product candidates, including additional indications we may pursue;
 

existing regulations and regulatory developments in the United States, Europe and other jurisdictions;
 

our expectations regarding the impact of the COVID‑19 pandemic on our business;
 

our intellectual property position, including the scope of protection we are able to establish and maintain for intellectual property rights covering our current product candidates and other future product candidates we may develop, including the extensions of existing patent terms where available, the validity of intellectual property rights held by third parties, and our ability not to infringe, misappropriate or otherwise violate any third-party intellectual property rights;
 

our continued reliance on third parties to conduct ongoing and planned future preclinical studies and clinical trials of our product candidates, and for the manufacture of our product candidates for preclinical studies and clinical trials;
 

our ability to obtain, and negotiate favorable terms of, any collaboration, licensing or other arrangements that may be necessary or desirable to develop, manufacture or commercialize our product candidates;
 

the pricing and reimbursement of our current product candidates and other product candidates we may develop, if approved;
 

the rate and degree of market acceptance and clinical utility of our current product candidates and other product candidates we may develop;
 

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
 

our financial performance;
 

the period over which we estimate our existing cash and cash equivalents will be sufficient to fund our future operating expenses and capital expenditure requirements;
 

the impact of laws and regulations;
 

our expectations regarding the period during which we will remain an emerging growth company (EGC) under the Jumpstart Our Business Startups Act of 2012 (JOBS Act); and
 

our anticipated use of our existing resources.

We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10‑Q and are subject to a number of risks, uncertainties and assumptions described in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10‑Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, investors should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events or otherwise.
 
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10‑Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
 
PART I—FINANCIAL INFORMATION
 
Item 1.
Financial Statements.

KINNATE BIOPHARMA INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and par value amounts)

 
   
March 31, 2022
   
December 31, 2021
 
Assets
           
Current assets:
           
Cash and cash equivalents
 
$
33,099
   
$
116,096
 
Cash at consolidated joint venture
    30,998       33,593  
Short-term investments
   
206,164
     
103,362
 
Prepaid expenses and other current assets
   
4,935
     
5,639
 
Total current assets
   
275,196
     
258,690
 
Property and equipment, net
   
3,213
     
956
 
Right-of-use lease assets
    3,979       -  
Long-term investments
   
63,131
     
105,449
 
Restricted cash
    371       371  
Deferred offering costs
    641       641  
Other non-current assets
    2,089       757  
Total assets
 
$
348,620
   
$
366,864
 
                 
Liabilities, Redeemable Convertible Noncontrolling Interests and Stockholders’ Equity
               
Current liabilities:
               
Accounts payable
 
$
4,419
   
$
3,148
 
Accrued expenses
   
8,783
     
9,239
 
Current portion of operating lease liabilities     454       -  
Total current liabilities
   
13,656
      12,387  
Operating lease liabilities, long-term     4,143       -  
Total liabilities
    17,799       12,387  
Commitments and contingencies (See Note 12)
           
Redeemable convertible noncontrolling interests     35,000       35,000  
Stockholders’ equity:
               
Preferred stock, $0.0001 par value; 200,000,000 shares authorized at March 31, 2022 and December 31, 2021; 0 shares outstanding at March 31, 2022 and December 31, 2021
   
-
     
-
 
Common stock, $0.0001 par value; 1,000,000,000 shares authorized at March 31, 2022 and December 31, 2021; 43,956,049 and 43,855,944 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
   
4
     
4
 
Additional paid-in capital
   
467,991
     
463,089
 
Accumulated other comprehensive loss
   
(2,180
)
   
(524
)
Accumulated deficit
   
(169,994
)
   
(143,092
)
Total stockholders’ equity
   
295,821
     
319,477
 
Total liabilities, redeemable convertible noncontrolling interests and stockholders’ equity
 
$
348,620
   
$
366,864
 

See accompanying notes to unaudited condensed consolidated financial statements.

KINNATE BIOPHARMA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(in thousands, except share and per share amounts)

   
Three Months Ended March 31,
 
   
2022
   
2021
 

           
Operating expenses:
           
Research and development
 
$
19,647
   
$
12,666
 
General and administrative
   
7,412
     
4,815
 
Total operating expenses
   
27,059
     
17,481
 
Loss from operations
   
(27,059
)
   
(17,481
)
Other income, net
    157       24  
Net loss     (26,902 )     (17,457 )
Net loss attributable to redeemable convertible noncontrolling interests
    -       -  
Net loss attributable to Kinnate
 
$
(26,902
)
  $ (17,457 )
                 
Weighted-average shares outstanding, basic and diluted
    43,882,920       43,477,439  
Net loss per share, basic and diluted
  $ (0.61 )   $ (0.40 )
                 
Comprehensive loss:                
Net loss   $ (26,902 )   $ (17,457 )
Other comprehensive loss:
               
Unrealized loss on investments
    (1,656 )     (31 )
Total comprehensive loss     (28,558 )     (17,488 )
Comprehensive loss attributable to redeemable convertible noncontrolling interests
   
-
     
-
 
Comprehensive loss attributable to Kinnate
 
$
(28,558
)
 
$
(17,488
)

See accompanying notes to unaudited condensed consolidated financial statements.

KINNATE BIOPHARMA INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands, except share amounts)


 
Common Stock
   
Additional
Paid-in
   
Accumulated Other Comprehensive
   
Accumulated
   
Total
Stockholders’
   
Redeemable Convertible Noncontrolling
 
 
 
Shares
   
Amount
   
Capital
   
Loss
   
Deficit
   
Equity
   
Interests
 
 
                                         
Balance at December 31, 2021
   
43,855,944
   
$
4
   
$
463,089
   
$
(524
)
 
$
(143,092
)
 
$
319,477
   
$
35,000
 
Stock-based compensation expense
   
-
     
-
     
4,777
     
-
     
-
     
4,777
     
-
 
Exercise of stock options
   
100,105
     
-
     
125
     
-
     
-
     
125
     
-
 
Net loss
   
-
     
-
     
-
     
-
     
(26,902
)
   
(26,902
)
   
-
 
Other comprehensive loss
   
-
     
-
     
-
     
(1,656
)
   
-
     
(1,656
)
   
-
 
Balance at March 31, 2022
   
43,956,049
   
$
4
   
$
467,991
   
$
(2,180
)
 
$
(169,994
)
 
$
295,821
   
$
35,000
 
 
                                                       
Balance at December 31, 2020
   
43,477,439
   
$
4
   
$
446,601
   
$
(9
)
 
$
(53,329
)
 
$
393,267
   
$
-
 
Stock-based compensation expense
   
-
     
-
     
2,793
     
-
     
-
     
2,793
     
-
 
Net loss
   
-
     
-
     
-
     
-
     
(17,457
)
   
(17,457
)
   
-
 
Other comprehensive loss
   
-
     
-
     
-
     
(31
)
   
-
     
(31
)
   
-
 
Balance at March 31, 2021
   
43,477,439
   
$
4
   
$
449,394
   
$
(40
)
 
$
(70,786
)
 
$
378,572
   
$
-
 

See accompanying notes to unaudited condensed consolidated financial statements.

KINNATE BIOPHARMA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
 
Three Months Ended March 31,
 
 
 
2022
   
2021
 
Cash flows from operating activities:
           
Net loss
 
$
(26,902
)
 
$
(17,457
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Stock-based compensation expense
   
4,777
     
2,793
 
Depreciation
   
58
     
31
 
Amortization/accretion of investments
   
474
     
276
 
Loss on disposal of property and equipment
   
-
     
58
 
Changes in operating assets and liabilities:
               
Prepaid expenses and other assets
   
(628
)
   
368
 
Operating lease right-of-use assets and liabilities, net
   
618
     
-
 
Accounts payable and accrued expenses
   
516
     
489
 
Net cash used in operating activities
   
(21,087
)
   
(13,442
)
Cash flows from investing activities:
               
Purchases of short-term and long-term investments
   
(73,577
)
   
(169,627
)
Sales and maturities of short-term and long-term investments
   
10,963
     
-
 
Purchases of property and equipment
   
(2,016
)
   
(4
)
Net cash used in investing activities
   
(64,630
)
   
(169,631
)
Cash flows from financing activities:
               
Proceeds from stock option exercises
   
125
     
-
 
Net cash provided by financing activities
   
125
     
-
 
Net decrease in cash, cash equivalents and restricted cash
   
(85,592
)
   
(183,073
)
Cash, cash equivalents and restricted cash at the beginning of the period
   
150,060
     
365,462
 
Cash, cash equivalents and restricted cash at the end of the period
 
$
64,468
   
$
182,389
 
 
               
Supplemental non-cash investing and financing activity:
               
Purchases of property and equipment in accounts payable and accrued expenses
 
$
299
   
$
-
 
Capitalized value of tenant improvement allowance
 
$
606
   
$
-
 
Operating lease liabilities arising from obtaining right-of-use assets
 
$
4,569
   
$
-
 

See accompanying notes to unaudited condensed consolidated financial statements.

KINNATE BIOPHARMA INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Basis of Presentation

Organization and Nature of Operations


Kinnate Biopharma Inc. (Kinnate or the Company) was incorporated in the State of Delaware in January 2018 and is headquartered in San Francisco, California. The Company is a biopharmaceutical company focused on the discovery and development of small molecule kinase inhibitors for difficult-to-treat, genomically defined cancers.


Since its inception, the Company has devoted substantially all of its resources to research and development activities, business planning, establishing and maintaining its intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. It has incurred losses and negative cash flows from operations since commencement of its operations. The Company had an accumulated deficit of $170.0 million and had cash and cash equivalents and short-term and long-term investments totaling $302.4 million as of March 31, 2022, exclusive of $31.0 million at its consolidated joint venture discussed in the paragraph below. From its inception through March 31, 2022, the Company has financed its operations primarily through issuances of common stock, including in the Company’s initial public offering (IPO), and private placements of convertible preferred stock.


In May 2021, the Company announced the closing of a Series A preferred stock financing of a China joint venture, Kinnjiu Biopharma Inc. (Kinnjiu), to enable the potential development and commercialization of certain targeted oncology product candidates across Greater China (PRC, Hong Kong, Taiwan, and Macau). Contributions from noncontrolling interest members totaled $35.0 million before issuance costs of $0.2 million. As of March 31, 2022, the Company held a 54.9% equity interest in Kinnjiu.



As the Company continues to pursue its business plan, it expects to finance its operations through the sale of equity, debt financings or other capital resources, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. However, there can be no assurance that any additional financing or strategic transactions will be available to the Company on acceptable terms, if at all. If events or circumstances occur such that the Company does not obtain additional funding, it may need to delay, reduce or eliminate its product development or future commercialization efforts, which could have a material adverse effect on the Company’s business, results of operations or financial condition. The accompanying financial statements do not include any adjustments that might be necessary if the Company were unable to continue as a going concern. Management believes that it has sufficient working capital on hand to fund operations through at least the next twelve months from the date this Quarterly Report on Form 10-Q is filed with the U.S. Securities and Exchange Commission (SEC).

Basis of Presentation


The Company’s condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, since they are interim statements, the accompanying condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements.


The accompanying unaudited interim consolidated financial statements include all known adjustments which, in the opinion of management, are necessary for a fair presentation of the results as required by GAAP. These adjustments consist primarily of normal recurring accruals and estimates that impact the carrying value of assets and liabilities. The Condensed Consolidated Balance Sheet at December 31, 2021 has been derived from the audited financial statements at that date, but does not include all information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2022.


The condensed consolidated financial statements include the accounts of the Company’s variable interest entity (VIE), Kinnjiu, for which the Company is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.
 

The Company evaluates its ownership, contractual and other interests in entities that are not wholly-owned to determine if these entities are VIEs, and, if so, whether the Company is the primary beneficiary of the VIE. In determining whether the Company is the primary beneficiary of a VIE and therefore required to consolidate the VIE, the Company applies a qualitative approach that determines whether the Company has both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE. As of March 31, 2022, the Company held a 54.9% equity interest in Kinnjiu. Based on the Company’s assessment, the Company concluded that Kinnjiu is a VIE and the Company is the primary beneficiary.
 

The Company will continuously assess whether it is the primary beneficiary of a VIE, as changes to existing relationships or future transactions may result in the consolidation or deconsolidation of such VIE. During the periods presented, the Company has not provided any other financial or other support to the Company’s VIE that it was not contractually required to provide.



Operating results presented in these unaudited condensed consolidated financial statements are not necessarily indicative of future results, particularly in light of the COVID-19 pandemic and its impact on domestic and global economies. To limit the spread of the novel coronavirus that causes COVID-19, governments have taken various actions including the issuance of stay-at-home orders and physical distancing guidelines. Accordingly, businesses have adjusted, reduced or suspended operating activities. Between March 2020 and June 2021, the Company’s employees worked almost exclusively from home. Since June 2021, the Company’s employees have been working in a hybrid model both in the Company’s offices and also from home. Although some of the governmental orders and guidelines have terminated or are now less restrictive than when originally implemented, the Company continues to monitor and assess the spread of COVID-19 and may need to further adjust its working model from time to time. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change, based, in part, on the length and severity of any additional restrictions and other limitations that may be imposed on the Company’s business. As a result, research and development expenses and general and administrative expenses may vary significantly if there is an increased impact from the COVID-19 pandemic on the costs and timing associated with the conduct of the clinical activities and other related business activities.

2. Summary of Significant Accounting Policies

Use of Estimates


The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Accounting estimates and management judgments reflected in the financial statements include: normal recurring accruals, including the accrual of research and development expenses; valuation of deferred tax assets; and stock-based compensation. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may materially differ from these estimates and assumptions. Although the impact of the COVID-19 pandemic to the Company’s business and operating results presents additional uncertainty, the Company continues to use the best information available to update its critical accounting estimates.

Leases


The Company determines if an arrangement is or contains a lease at inception. For leases with a term greater than one year, right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate which represents an estimated rate of interest that the Company would have to pay to borrow equivalent funds on a collateralized basis at the lease commencement date. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the Condensed Consolidated Statement of Operations and Comprehensive Loss. The Company’s leases often include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that the Company will exercise that option. As of March 31, 2022, it is not reasonably certain that these options will be exercised and they are not included within the lease term.

Redeemable Convertible Noncontrolling Interests


The shares third parties own in Kinnjiu represent an interest in the equity the Company does not control. The redeemable convertible noncontrolling interests attributable to other owners has been classified in temporary equity on the Condensed Consolidated Balance Sheets as the preferred stock is redeemable by the noncontrolling interests.



Since the preferred stock held at Kinnjiu does not represent a residual equity interest, net losses of Kinnjiu are not allocated to the preferred shares. As a result, the balance of the preferred stock classified as a redeemable convertible noncontrolling interest equals its carrying value.


Net Loss Per Share


Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, the Company’s common stock options are considered to be potentially dilutive securities. As the Company has reported a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.
 

The following table sets forth the computation of the basic and diluted net loss per share (in thousands, except share and per share amounts):

   
Three Months Ended March 31,
 
   
2022
   
2021
 
Numerator
           
Net loss attributable to Kinnate
 
$
(26,902
)
 
$
(17,457
)
Denominator
               
Weighted-average shares outstanding used in computing net loss per share, basic and diluted
   
43,882,920
     
43,477,439
 
Net loss per share, basic and diluted
 
$
(0.61
)
 
$
(0.40
)


The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share for the periods presented because including them would have been anti-dilutive:

   
Three Months Ended March 31,
 
   
2022
   
2021
 
Options to purchase common stock
   
9,235,652
     
7,261,364
 

Recently Adopted Accounting Pronouncements


From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) under its accounting standard codifications (ASC) or other standard setting bodies and adopted by the Company as of the specified effective date, unless otherwise discussed below.



In February 2016, the FASB issued Accounting Standard Update (ASU) No. 2016-02, Leases (Topic 842) (ASC 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. ASC 842 provides a lessee with an option to not account for leases with a term of 12 month or less as leases in the scope of the new standard. ASC 842 supersedes the previous leases standard, ASC 840 Leases. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and should be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. As amended by ASU No. 2020-05, for all other entities, this ASU is effective for fiscal years beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU No. 2016-02 is effective for the Company for the year ended December 31, 2022, and all interim periods within. In July 2018, the FASB issued supplemental adoption guidance and clarification to ASC 842 within ASU No. 2018-10, Codification Improvements to Topic 842, Leases and ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. ASU No. 2018-11 provides another transition method in addition to the existing modified retrospective transition method by allowing entities to initially apply the new leasing standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. On January 1, 2022, the Company adopted ASC 842 using the modified retrospective approach. Accordingly, prior period financial information and disclosures have not been adjusted and continue to be reported in accordance with the Company’s historical accounting under the previous lease standard. In addition, the Company elected the package of practical expedients available for existing contracts, which allowed it to carry forward historical assessments of lease identification, lease classification, and initial direct costs. As a result of adopting ASC 842, the Company recognized right-of-use assets and lease liabilities of $3.7 million and $4.2 million, respectively, on January 1, 2021, which are related to the Company’s facility operating leases. The difference between the right-of-use assets and lease liabilities is primarily attributed to unamortized lease incentives. There was no adjustment to the opening balance of accumulated deficit as a result of the adoption of ASC 842.

Recently Issued Accounting Pronouncements Not Yet Adopted


In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) (ASC 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in ASU No. 2016-13 added Topic 326, Financial Instruments—Credit Losses, made several consequential amendments to the Codification. ASU No. 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The guidance is effective for public business entities for annual periods beginning after December 15, 2019, including interim periods within those years. For all other entities, the standard is effective for annual periods beginning after December 15, 2022 and interim periods, therein. Early adoption is permitted. Since the Company has elected to use the extended transition period under the JOBS Act available to EGCs, the ASU is effective for the Company for fiscal years beginning after December 15, 2022. The Company does not expect the adoption to have a material impact on its financial statements.


In December 2019, the FASB issued ASU No. 2019-12, Income Taxes—Simplifying the Accounting for Income Taxes (ASU No. 2019-12). Among other items, the amendments in ASU No. 2019-12 simplify the accounting treatment of tax law changes and year-to-date losses in interim periods. An entity generally recognizes the effects of a change in tax law in the period of enactment; however, there is an exception for tax laws with delayed effective dates. Under current guidance, an entity may not adjust its annual effective tax rate for a tax law change until the period in which the law is effective. This exception was removed under ASU No. 2019-12, thereby providing that all effects of a tax law change are recognized in the period of enactment, including adjustment of the estimated annual effective tax rate. Regarding year-to-date losses in interim periods, an entity is required to estimate its annual effective tax rate for the full fiscal year at the end of each interim period and use that rate to calculate its income taxes on a year-to-date basis. However, current guidance provides an exception that when a loss in an interim period exceeds the anticipated loss for the year, the income tax benefit is limited to the amount that would be recognized if the year-to-date loss were the anticipated loss for the full year. ASU No. 2019-12 removes this exception and provides that, in this situation, an entity would compute its income tax benefit at each interim period based on its estimated annual effective tax rate. ASU No. 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those annual periods. Early adoption is permitted. For EGCs, the standard is effective for fiscal years beginning after December 15, 2021, and for interim periods beginning after December 15, 2022. The Company does not expect the ASU to have a material impact on its financial statements and related disclosures.

3. Cash, cash equivalents and restricted cash


The following table provides a reconciliation of the components of cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows (in thousands):

   
March 31, 2022
   
December 31, 2021
 
Cash and cash equivalents
 
$
33,099
   
$
116,096
 
Cash at consolidated joint venture     30,998
      33,593
 
Restricted cash, non-current
   
371
     
371
 
Total cash, cash equivalents and restricted cash reported in the Condensed Consolidated Statements of Cash Flows
 
$
64,468
   
$
150,060
 


The cash at the consolidated joint venture represents cash held at Kinnjiu and the use of such cash is limited to the operations of Kinnjiu (see Note 11). The restricted cash balance relates to the Company’s office lease in San Diego, California (see Note 12).

4. Property and Equipment, Net


Property and equipment, net consisted of the following (in thousands):

   
March 31, 2022
   
December 31, 2021
 
Furniture and fixtures
 
$
606
   
$
5
 
Computers and equipment
   
432
     
381
 
Computer software
   
69
     
69
 
Leasehold improvements
    2,301       638  
Property and equipment
   
3,408
     
1,093
 
Less accumulated depreciation
   
(195
)
   
(137
)
Property and equipment, net
 
$
3,213
   
$
956
 

5. Accrued Expenses


Accrued expenses consisted of the following (in thousands):

   
March 31, 2022
   
December 31, 2021
 
Accrued research and development
 
$
6,237
   
$
4,842
 
Accrued compensation
   
1,403
     
3,344
 
Accrued legal fees
   
478
     
425
 
Other accruals
   
665
     
628
 
Total
 
$
8,783
   
$
9,239
 

6. Investments


The Company has invested its excess cash in marketable securities as of March 31, 2022 and December 31, 2021. The following is a summary by significant investment category (in thousands):

   
March 31, 2022
 
   
Maturity
in Years
   
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Estimated
Fair Value
 
Corporate debt securities
 
less than 1
   
$
26,148
   
$
1
   
$
(89
)
 
$
26,060
 
Commercial paper
 
less than 1
     
3,462
     
-
     
-
     
3,462
 
U.S. Treasury securities
  less than 1       170,602       3       (1,061 )     169,544  
Asset-backed securities   less than 1       7,127       -       (29 )     7,098  
Short-term investments
       
$
207,339
   
$
4
   
$
(1,179
)
 
$
206,164
 
                                       
Corporate debt securities
   
1 - 2
   
$
14,275
   
$
-
   
$
(94
)
 
$
14,181
 
U.S. Treasury securities
   
1 - 2
     
45,200
     
-
     
(891
)
   
44,309
 
Asset-backed securities
   
1 - 2
     
4,661
     
-
     
(20
)
   
4,641
 
Long-term investments
         
$
64,136
   
$
-
   
$
(1,005
)
 
$
63,131
 

    December 31, 2021
 
 
 
Maturity
in Years
   
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
Losses
   
Estimated
Fair Value
 
Corporate debt securities
  less than 1     $ 27,450     $ -     $ (25 )   $ 27,425  
U.S. Treasury securities   less than 1       60,226       -       (67 )     60,159  
Asset-backed securities
  less than 1       15,798       -       (20 )     15,778  
Short-term investments
        $ 103,474     $ -     $ (112 )   $ 103,362  
                                       
 U.S. Treasury securities     1 - 2     $ 105,861     $ -     $ (412 )   $ 105,449  
Long-term investments
          $ 105,861     $ -     $ (412 )   $ 105,449  


At March 31, 2022 and December 31, 2021, the Company held securities in a total unrealized loss position of $2.2 million and $0.5 million, respectively. The Company generally does not intend to sell any investments prior to recovery of their amortized cost basis for any investment in an unrealized loss position. Further, such investments are invested in high grade securities. As such, the Company has classified these losses as temporary in nature.


The Company has determined that there were no material declines in fair value of its investments due to credit-related factors as of March 31, 2022 and December 31, 2021.

7. Fair Value Measurements


The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

 Level 1: Observable inputs such as quoted prices in active markets;

 Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

 Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.


The carrying amounts of the Company’s prepaid expenses and other current assets, accounts payable and accrued expenses are generally considered to be representative of their fair value because of the short-term nature of these instruments. The Company’s investments, which may include money market funds and available-for-sale investment securities consisting of high-quality, marketable debt instruments of corporations and the U.S. government are measured at fair value in accordance with the fair value hierarchy.


The following tables present the hierarchy for assets measured at fair value on a recurring basis (in thousands):

   
Fair Value Measurements at March 31, 2022
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Money market funds
 
$
32,094
   
$
-
   
$
-
   
$
32,094
 
Corporate debt securities
   
-
     
40,241
     
-
     
40,241
 
Commercial paper
   
-
     
3,462
     
-
     
3,462
 
U.S. Treasury securities
   
-
     
213,853
     
-
     
213,853
 
Asset-backed securities
   
-
     
11,739
     
-
     
11,739
 
Total cash equivalents and investments
 
$
32,094
   
$
269,295
   
$
-
   
$
301,389
 

   
Fair Value Measurements at December 31, 2021
 
   
Level 1
   
Level 2
   
Level 3
   
Total
 
Money market funds
 
$
115,049
   
$
-
   
$
-
   
$
115,049
 
Corporate debt securities
   
-
     
27,425
     
-
     
27,425
 
U.S. Treasury securities     -       165,608       -       165,608  
Asset-backed securities
   
-
     
15,778
     
-
     
15,778
 
Total cash equivalents and investments
 
$
115,049
   
$
208,811
   
$
-
   
$
323,860
 


Money market funds are classified as cash and cash equivalents in the Company’s balance sheets at March 31, 2022 and December 31, 2021.

8. Stockholders’ Equity


Under its Amended and Restated Articles of Incorporation dated December 7, 2020, the Company had a total of 1,200,000,000 shares of capital stock authorized for issuance, consisting of 1,000,000,000 shares of common stock, par value of $0.0001 per share, and 200,000,000 shares of preferred stock, par value of $0.0001 per share.

9. Equity Incentive Plans and Stock-Based Compensation

2020 Equity Incentive Plan



In December 2020, the Company adopted the 2020 Equity Incentive Plan (2020 Plan), which replaced the 2018 Equity Incentive Plan (2018 Plan). The 2020 Plan allows the Company to issue options for shares of its common stock, among other award types, up to a total of 5,218,000 shares (Option Pool), subject to appropriate adjustments for stock splits, combinations and other similar events for issuance pursuant to awards made under the 2020 Plan. As of March 31, 2022, 2,221,150 shares of common stock remained available for future grants under the 2020 Plan.
 

The options that are granted under the 2020 and 2018 Plans are exercisable at various dates as determined upon grant and terminate within 10 years of the date of grant, unless the optionee owns 10% or more of the common shares at which point the expiration period is 5 years, or upon the employee’s termination (whereupon the terminated employee has thirty days after termination to exercise vested options from the date of termination). The vesting period generally occurs over two to four years unless there is a specific performance vesting trigger at which time those shares will vest when the performance trigger is probable to occur.



Stock option activity, is as follows:

   
Options
   
Weighted-
Average
Exercise Price
   
Weighted-
Average
Remaining
Contractual
Term (in years)
   
Aggregate
Intrinsic
Value
(in thousands)
 
Outstanding at January 1, 2022
   
7,477,568
   
$
11.11
     
8.3
   
$
74,268
 
Granted
   
1,908,514
     
10.18
                 
Exercised
   
(100,105
)
   
1.25
                 
Forfeited
   
(50,325
)
   
15.67
                 
Outstanding at March 31, 2022
   
9,235,652
   
$
11.00
     
8.4
   
$
41,419
 
Exercisable at March 31, 2022
   
2,982,163
   
$
7.16
     
7.5
   
$
19,929
 


All exercisable options are vested and all outstanding options are vested or expected to vest. Total intrinsic value of options exercised during the three months ended March 31, 2022 was $0.8 million. No options were exercised during the three months ended March 31, 2021.

2020 Employee Stock Purchase Plan



The 2020 Employee Stock Purchase Plan (ESPP) permits eligible employees who elect to participate in an offering under the ESPP to have up to 15% of their eligible earnings withheld, subject to certain limitations, to purchase shares of common stock pursuant to the ESPP. The price of common stock purchased under the ESPP is equal to 85% of the lower of the fair market value of the common stock at the commencement date of each offering period or the relevant date of purchase. Each offering period is six months, with new offering periods commencing every six months on or about the dates of May 15 and November 15 of each year. A total of 435,000 shares of common stock were initially reserved for issuance under the ESPP.

Kinnjiu Equity Incentive Plan


In May 2021, Kinnjiu adopted the 2021 Equity Incentive Plan (2021 Plan), which allows for the issuance of options for shares of common stock and share appreciation rights, among other award types, up to a total of 9,000,000 shares subject to appropriate adjustments for stock splits, combinations and other similar events for issuance pursuant to awards made under the 2021 Plan. As of March 31, 2022, 2,882,500 shares of common stock remained available for future grants under the 2021 Plan.


Stock-Based Compensation Expense



The Company estimated the fair value of stock options using the Black-Scholes valuation model. The Company accounts for any forfeitures of options when they occur. Previously recognized compensation expense for an award is reversed in the period that the award is forfeited. The fair value of stock options was estimated using the following assumptions:


 
 
Three Months Ended March 31,
 
 
 
2022
 
2021
 
 
         
Expected term (in years)
   
6
   
6
 
Expected volatility
   
84% - 85%
   
87% - 89%

Risk-free interest rate
   
1.62% - 1.88%
   
0.68% - 1.01%

Expected dividend
   
0%
   
0%



The weighted-average grant-date fair value of options granted was $7.32 and $25.80 for the three months ended March 31, 2022 and 2021, respectively.



The assumptions used for the three months ended March 31, 2022 and 2021 under the ESPP were as follows:
 
 
 
Three Months Ended March 31,
 
 
 
2022
   
2021
 
 
           
Expected term (in years)
   
0.50
     
0.41
 
Expected volatility
   
50%

   
51%
 
Risk-free interest rate
   
0.07%

   
0.09%
 
Expected dividend
   
0%

   
0%
 
 

Stock-based compensation expense related to the Company’s stock options and ESPP totaled the following (in thousands):

 
 
Three Months Ended March 31,
 
 
 
2022
   
2021
 
Research and development
 
$
2,063
   
$
1,276
 
General and administrative
   
2,714
     
1,517
 
Total stock-based compensation
 
$
4,777
   
$
2,793



As of March 31, 2022, there was approximately $53.8 million of total unrecognized stock-based compensation expense related to nonvested stock-based compensation arrangements, which is expected to be recognized over a weighted-average period of approximately 2.76 years.



As of March 31, 2022, there was approximately $0.1 million of total unrecognized stock-based compensation expense related to the ESPP.

10. Related Party Transactions


Series A Preferred Stock Financing of Kinnjiu
 

In connection with the Series A preferred stock financing of Kinnjiu, contributions from noncontrolling interest members totaled $35.0 million. Such noncontrolling interest members are also investors or affiliates of investors in the Company and have representatives that serve on both the Company’s board of directors and the board of directors of Kinnjiu.

11. Variable Interest Entity


As disclosed above, in May 2021, the Company announced the closing of a Series A preferred stock financing of Kinnjiu to enable the potential development and commercialization of certain targeted oncology product candidates across Greater China. Contributions from noncontrolling interest members totaled $35.0 million before issuance costs of $0.2 million. As of March 31, 2022, the Company held a 54.9% equity interest in Kinnjiu. As the Company determined it was the primary beneficiary of this VIE, the VIE has been consolidated in the Company’s condensed consolidated financial statements.


The Company provides certain general and administrative and research and development services to Kinnjiu pursuant to intercompany agreements; however, the Company does not provide any financial support and has no obligation to fund operations of Kinnjiu.


The following table summarizes the fair value of Kinnjiu as of May 13, 2021 recorded upon initial consolidation in the Company’s Condensed Consolidated Balance Sheets and the carrying amount of such assets and liabilities as of March 31, 2022, excluding intercompany balances (in thousands):



 
 
March 31, 2022
   
May 13, 2021
 
Cash at consolidated joint venture
 
$
30,998
   
$
35,011
 
Prepaid expenses and other current assets
   
395
     
-
 
Right-of-use lease assets
   
356
     
-
 
Other non-current assets
   
106
     
-
 
Accounts payable and accrued expenses
   
319
     
-
 
Operating lease liabilities
   
356
     
-
 

12. Commitments and Contingencies

Litigation


The Company, from time to time, is involved in legal proceedings, regulatory actions, claims and litigation arising in the ordinary course of business. The Company was not a defendant in any lawsuit for the three months ended March 31, 2022 and 2021 that, in the opinion of Company’s management, is likely to have a material adverse effect on the Company’s business.

Operating Leases


In June 2021, the Company entered into an agreement to lease 8,088 rentable square feet of office space (SD Permanent Space) located in San Diego, California (SD Lease) for a period of five years and four months expiring on July 31, 2027. Additionally, the Company has an option to extend the SD Lease for an additional five years at the end of the initial term. The SD Lease commenced in March 2022.


In connection with the execution of the SD Lease, the Company provided a standby letter of credit for $0.4 million in lieu of a security deposit, which is classified as restricted cash on the Condensed Consolidated Balance Sheets. So long as the Company is not in default under the SD Lease, this amount will decrease after each of years three and four of the SD Lease term to $0.3 million.


In August 2021, the Company entered into an agreement to lease 5,698 rentable square feet of office space located in San Francisco, California (SF Lease). The SF Lease commenced in January 2022 and expires on June 30, 2026. The Company has an option to extend the SF Lease for an additional three years at the end of the initial term.


The operating lease right-of-use assets and liabilities on the Company’s Condensed Consolidated Balance Sheet related to these facility leases. The right-of-use lease assets were $4.0 million as of March 31, 2022. Operating lease liabilities were $4.6 million as of March 31, 2022, including $0.5 million classified as a current liability.


Our facility leases require us to pay property taxes, insurance and common area maintenance. While these payments are not included as part of our lease liabilities, they are recognized as variable lease cost in the period they are incurred.


Operating lease costs under operating leases for the three months ended March 31, 2022 was approximately $0.1 million. The weighted-average discount rate used was 7.0%. The weighted-average remaining lease term for operating leases was 4.8 years.


Future lease payments of operating lease liabilities as of March 31, 2022 were as follows (in thousands):


 
 
Operating Leases
 
2022 remaining 9 months
 
$
630
 
2023
   
1,247
 
2024
   
1,113
 
2025
   
1,112
 
2026
   
927
 
Thereafter
   
428
 
Total minimum lease payments
   
5,457
 
Less: imputed interest
   
(860
)
Total operating lease liabilities
   
4,597
 
Less: current portion
   
(454
)
Lease liability, net of current portion
 
$
4,143
 


Under ASC 840, Future minimum lease payments under non-cancelable operating leases as of December 31, 2021 were as follows (in thousands):

Year Ending December 31,
 
Operating Leases
 
2022
 
$
638
 
2023
   
1,045
 
2024
   
1,076
 
2025
   
1,108
 
2026
   
924
 
Thereafter
   
365
 
Total mimium lease payments
 
$
5,156


Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Investors should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included elsewhere in this Quarterly Report on Form 10‑Q. This discussion contains forward-looking statements that involve risks and uncertainties, including those described in the section titled “Special Note Regarding Forward-Looking Statements.” Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth under the section titled “Risk Factors” included elsewhere in this report.
 
Overview
 
We are a clinical stage biopharmaceutical company focused on the discovery and development of small molecule kinase inhibitors for difficult-to-treat, genomically defined cancers. Our mission is to expand the reach of targeted therapeutics by developing products that are designed to address significant unmet need. Our Kinnate Discovery Engine, which starts with the identification of an unmet need among validated oncogenic drivers, utilizes our deep expertise in medicinal chemistry and the tailored ecosystems of our partners to develop our targeted therapies. We focus our discovery and development efforts on three patient populations: (1) those with cancers that harbor known oncogenic drivers (gene alterations that cause cancers) with no currently available targeted therapies, (2) those with genomically well-characterized tumors that have intrinsic resistance to currently available treatments (non-responders), and (3) those whose tumors have acquired resistance over the course of therapy to currently available treatments. Our Kinnate Discovery Engine, together with the biomarker-driven approach of our drug development strategy and our continual translational research and early global expansion in development, may enable us to develop drugs with an increased probability of clinical success while reducing the cost and risk of drug development.

Our most advanced product candidate is KIN-2787, which is a Rapidly Accelerated Fibrosarcoma (RAF) inhibitor we are developing for the treatment of patients with lung cancer, melanoma and other solid tumors. Unlike currently available treatments that target only Class I B-Rapidly Accelerated Fibrosarcoma (BRAF) kinase alterations, we have designed KIN-2787 to target Class II and Class III BRAF alterations, where it would be a first-line targeted therapy, in addition to covering Class I BRAF alterations. In April 2021, we filed an IND for KIN-2787 with the FDA. In May 2021, the FDA cleared our IND for KIN-2787 and we initiated a Phase 1 clinical trial for KIN-2787. We began dosing KIN-2787 in humans in the second half of 2021.

Additionally, we are evaluating KIN-3248, a Fibroblast Growth Factor Receptors (FGFR) inhibitor, for the treatment of patients with intrahepatic cholangiocarcinoma, a cancer of the bile ducts in the liver, and urothelial carcinoma, a cancer of the bladder lining as well as other solid tumors. KIN-3248, is designed to address clinically observed kinase domain mutations in FGFR2 and FGFR3 that drive resistance to current therapies. In January 2022, the FDA cleared our IND for KIN-3248. We initiated a Phase 1 clinical trial for KIN-3248 in humans in the first quarter of 2022 and began dosing in April 2022. KIN-3248 has demonstrated proof of concept in preclinical models showing activity across both initial FGFR 2/3 genomic alterations and a broad range of common resistant variants that arise from first generation FGFR 2/3 targeted therapies.

We are also advancing a number of other small molecule research programs, including a Cyclin-Dependent Kinase 12 (CDK12) inhibitor in our KIN004 program to target the treatment of ovarian carcinoma, triple-negative breast cancer and metastatic castration-resistant prostate cancer.

In May 2021, we announced the closing of a Series A preferred stock financing of our China joint venture, Kinnjiu Biopharma Inc. (Kinnjiu), to enable the potential development and commercialization of certain targeted oncology product candidates across Greater China (PRC, Hong Kong, Taiwan, and Macau). Contributions from noncontrolling interest members totaled $35.0 million before issuance costs of $0.2 million. As of March 31, 2022, we held a 54.9% equity interest in Kinnjiu. Kinnjiu expects to initiate a Phase 1 trial for KIN-2787 in Greater China in mid-2022.

Since our inception in 2018, we have devoted substantially all of our resources to research and development activities, including with respect to our RAF and FGFR programs and other research programs, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.
 
We do not have any products approved for commercial sale, and we have not generated any revenue from product sales or other sources since inception. Our ability to generate product revenue sufficient to achieve profitability, if ever, will depend on the successful development and eventual commercialization of one or more of our product candidates which we expect, if it ever occurs, will take a number of years. We also do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial manufacturing if any of our product candidates obtain marketing approval. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment and personnel while also enabling us to focus our expertise and resources on the development of our product candidates.
 
To date, we have financed our operations primarily through proceeds from the issuance of common stock (including our IPO) and private placements of our convertible preferred stock. As of March 31, 2022, we had cash and cash equivalents and short-term and long-term investments of $302.4 million, exclusive of $31.0 million at Kinnjiu. Based on our current operating plan, we believe that our current cash and cash equivalents and short-term and long-term investments will be sufficient to fund our planned operating expenses and capital expenditure requirements into early 2024.
 
We have incurred significant losses since the commencement of our operations. Our consolidated net loss for the three months ended March 31, 2022 was $26.9 million, and we expect to continue to incur significant and increasing losses for the foreseeable future as we continue to advance our product candidates and any future product candidates from discovery through preclinical development and into clinical trials as we seek regulatory approval for these product candidates. Our net losses may fluctuate significantly from period to period, depending on the timing of expenditures on our research and development activities. As of March 31, 2022, we had an accumulated deficit of $170.0 million.
 
We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities as we:
 

advance our RAF and FGFR programs through clinical development;
 

advance the development of our other small molecule research programs, including our CDK12 inhibitor and next-generation programs for our product candidates;
 

expand our pipeline of product candidates through our own product discovery and development efforts;


seek to discover and develop additional product candidates;
 

seek regulatory approvals for any product candidates that successfully complete clinical trials;
 

establish a sales, marketing and distribution infrastructure to commercialize any approved product candidates and related additional commercial manufacturing costs;
 

implement operational, financial and management systems;
 

attract, hire and retain additional clinical, scientific, management and administrative personnel;
 

maintain, expand, protect and enforce our intellectual property portfolio, including patents, trade secrets and know how; and
 

operate as a public company.
 
We will require substantial additional funding to develop our product candidates and support our continuing operations. Until such time that we can generate significant revenue from product sales or other sources, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID‑19 pandemic and otherwise. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, including requiring us to have to delay, reduce or eliminate our product development or future commercialization efforts. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot provide assurance that we will ever be profitable or generate positive cash flow from operating activities.
 
The global COVID‑19 pandemic continues to evolve. The extent of the impact of the COVID‑19 pandemic on our business, operations and development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the outbreak and its impact on our development activities, ongoing and planned future clinical trial enrollment, current and future trial sites, contract research organizations (CROs), third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to our employee travel and work processes, including having our employees work from home (which our employees did almost exclusively between March 2020 and June 2021) and as part of a hybrid model both in our offices and also from home (which we are currently executing). Although some of the governmental orders and guidelines have terminated or are now less restrictive than when originally implemented, we will continue to actively monitor the evolving situation related to COVID‑19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the ultimate extent to which the COVID‑19 pandemic may affect our business, operations and development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain and is subject to change.

We were incorporated in the State of Delaware in January 2018, and our principal executive offices are in San Francisco, California. Our research and development team is primarily based in San Diego, California, with a portion of our management team based in San Francisco, California.
 
Components of Our Results of Operations
 
Revenue
 
To date, we have not generated any revenue and we do not expect to generate any revenue from the sale of products or from other sources in the foreseeable future.
 
Operating Expenses
 
Research and Development
 
Research and development expenses account for a significant portion of our operating expenses and consist primarily of external and internal expenses incurred in connection with the discovery and development of our product candidates.
 
External expenses include:
 

expenses incurred in connection with the discovery, preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants and CROs;
 

the cost of manufacturing compounds for use in our preclinical and clinical studies, including under agreements with third parties, such as consultants and contract manufacturing organizations (CMOs); and
 

costs associated with consultants for chemistry, manufacturing and controls,  development, regulatory, statistics and other services, including expenses for technology and facilities.

Internal expenses include employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development functions.
 
We expense research and development expenses in the periods in which they are incurred. External expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers or our estimate of the level of service that has been performed at each reporting date. We track external expenses on the basis of lead programs and other programs. However, we do not track internal costs on a program specific basis because these costs are deployed across multiple programs and, as such, are not separately classified. We utilize third party contractors for our research and development activities and CMOs for our manufacturing activities and we do not have our own laboratory or manufacturing facilities. Therefore, we have no material facilities expenses attributed to research and development.
 
Product candidates in later stages of development generally have higher development costs than those in earlier stages. As a result, we expect that our research and development expenses will increase substantially over the next several years as we advance our product candidates through preclinical studies into and through clinical trials, continue to discover and develop additional product candidates and expand our pipeline, maintain, expand, protect and enforce our intellectual property portfolio, and hire additional personnel.

The successful development of our product candidates is highly uncertain, and we do not believe it is possible at this time to accurately project the nature, timing and estimated costs of the efforts necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. To the extent our product candidates continue to advance into clinical trials, as well as advance into larger and later-stage clinical trials, our expenses will increase substantially and may become more variable. We are also unable to predict when, if ever, we will generate revenue from our product candidates to offset these expenses. Our expenditures on current and future preclinical and clinical programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
 

the timing and progress of preclinical and clinical development activities;
 

the number and scope of preclinical and clinical programs we decide to pursue;
 

our ability to maintain our current research and development programs and to establish new ones;
 

establishing an appropriate safety profile with IND-enabling toxicology studies;
 

successful patient enrollment in, and the initiation and completion of, clinical trials;
 

per-subject trial costs;
 

the number of clinical trials required for regulatory approval;
 

the countries in which the clinical trials are conducted;
 

the length of time required to enroll eligible subjects and initiate clinical trials;
 

the number of subjects that participate in the clinical trials;
 

the drop-out and discontinuation rate of subjects;
 

potential additional safety monitoring requested by regulatory authorities;
 

the duration of subject participation in the clinical trials and follow-up;
 

the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to applicable regulatory authorities;
 

the receipt of regulatory approvals from applicable regulatory authorities;
 

the timing, receipt and terms of any marketing approvals and post-marketing approval commitments from applicable regulatory authorities;
 

the extent to which we establish collaborations, strategic partnerships or other strategic arrangements with third parties, if any, and the performance of any such third party;
 

obtaining and retaining research and development personnel;


establishing commercial manufacturing capabilities or making arrangements with CMOs;
 

development and timely delivery of commercial-grade drug formulations that can be used in our ongoing and planned future clinical trials and for commercial launch; and
 

obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights.
 
Any changes in the outcome of any of these factors could significantly impact the costs, timing and viability associated with the development of our product candidates.
 
General and Administrative

General and administrative expenses consist of salaries and benefits, travel and stock-based compensation expense for personnel in executive, human resources, finance and administrative functions; professional fees for legal, patent, consulting, accounting and audit services; and expenses for technology and facilities. We expense general and administrative expenses in the periods in which they are incurred.
 
We expect that our general and administrative expenses will increase over the next several years as we hire additional personnel to support the continued research and development of our programs and growth of our business. We also expect to continue to incur increased expenses as a result of operating as a public company, including expenses related to accounting, audit, legal, regulatory, compliance with the rules and regulations of the SEC, Sarbanes-Oxley Act of 2002, as amended (Sarbanes-Oxley Act), and those of any national securities exchange on which our securities are traded, director and officer insurance, investor and public relations, and other administrative and professional services.
 
Other Income, Net
 
Other Income, Net
 
Other income, net primarily consists of interest income generated from our cash equivalents in interest-bearing money market accounts and short-term and long-term investments.
 
Results of Operations
 
Comparison of Three Months Ended March 31, 2022 and 2021
 
The following table summarizes our results of operations for the periods indicated:
 
   
Three Months Ended March 31,
   
Change
 
   
2022
   
2021
     
   
(in thousands)
       
Operating expenses:
                 
Research and development
 
$
19,647
   
$
12,666
   
$
6,981
 
General and administrative
   
7,412
     
4,815
     
2,597
 
Total operating expenses
   
27,059
     
17,481
     
9,578
 
Loss from operations
   
(27,059
)
   
(17,481
)
   
(9,578
)
Other income, net
   
157
     
24
     
133
 
Net loss
   
(26,902
)
   
(17,457
)
   
(9,445
)
Net loss attributable to redeemable convertible noncontrolling interests
   
-
     
-
     
-
 
Net loss attributable to Kinnate
 
$
(26,902
)
 
$
(17,457
)
 
$
(9,445
)

Research and Development Expenses
 
The following table summarizes our research and development expenses incurred during the periods indicated:

 
Three Months Ended March 31,
   
Increase
(Decrease)
 
   
2022
   
2021
     
   
(in thousands)
       
External expenses:
                 
RAF
 
$
5,354
   
$
4,604
   
$
750
 
FGFR
   
2,841
     
2,493
     
348
 
Other programs and other unallocated costs
   
4,017
     
2,012
     
2,005
 
Total external expenses
   
12,212
     
9,109
     
3,103
 
Internal expenses
   
7,435
     
3,557
     
3,878
 
Total research and development expenses
 
$
19,647
   
$
12,666
   
$
6,981
 
 
Research and development expenses were $19.6 million for the three months ended March 31, 2022 compared to $12.7 million for the three months ended March 31, 2021, an increase of $7.0 million. The increase was attributable to an increase of $1.1 million in external expenses for our RAF and FGFR programs given the increased activity as these programs advanced, including costs associated with the Phase 1 clinical trial for KIN-2787, our RAF product candidate, as well as an increase of $2.0 million in external expenses for other non-lead programs reflecting increased spend in early-stage pipeline research. In addition, internal research and development expenses increased $3.9 million as a result of a significant increase in research and development personnel and higher stock-based compensation. Research and development expenses included $0.6 million incurred at Kinnjiu during the three months ended March 31, 2022, as the entity began operations in the second quarter of 2021. We expect research and development expenses to continue to increase throughout 2022 due to higher external costs and increasing headcount in connection with advancing our RAF, FGFR and other programs into later stages of development.
 
General and Administrative Expenses
 
General and administrative expenses were $7.4 million for the three months ended March 31, 2022 compared to $4.8 million for the three months ended March 31, 2021, an increase of $2.6 million. This increase was primarily driven by an increase in headcount, higher stock-based compensation and increased consulting expenses. We expect general and administrative expenses to continue to increase throughout 2022 as we expand our operations, including increasing our headcount.
 
Other Income, Net
 
Other income, net was $0.2 million for the three months ended March 31, 2022 compared to an immaterial amount for the three months ended March 31, 2021. The increase was primarily driven by a higher average investment balance during the first quarter of 2022 as our excess cash was more fully invested, as well as a general increase in interest rates during the first quarter of 2022.

Liquidity and Capital Resources
 
Sources of Liquidity

On December 7, 2020, we completed our IPO. In connection with our IPO, we issued and sold 13,800,000 shares of our common stock at a price to the public of $20.00 per share resulting in gross proceeds of $276.0 million before deducting underwriting discounts and commissions and other offering expenses. Additionally, in January 2022, we filed a shelf registration with the SEC on Form S-3ASR (File No. 333-261970). The shelf registration statement included a prospectus supplement for an at-the-market offering (ATM Offering) to sell up to an aggregate of $150.0 million of shares of our common stock that may be issued and sold from time to time under a sales agreement with SVB Leerink LLC. To date, no shares have been issued and sold pursuant to the ATM Offering. In March 2022, we filed certain post-effective amendments to the Form S-3ASR for the purpose of, among other things, converting the registration statement to the proper submission type for a non-automatic shelf registration statement and providing that the base prospectus included in the registration statement covers the offering, sale and issuance by us of up to $350.0 million in the aggregate of the securities identified in the registration statement in one or more offerings. The $150.0 million of common stock that may be offered, issued and sold under the sales agreement prospectus supplement is included in the $350.0 million of securities that may be offered, issued and sold by us under the base prospectus. Prior to our IPO, we funded our operations primarily through private placements of our convertible preferred stock with aggregate gross proceeds of $191.6 million.
 
Our primary uses of cash to date have been to fund our research and development activities, including with respect to our RAF and FGFR programs and other research programs, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.
 
Future Funding Requirements

To date, we have not generated any revenue. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if, that will occur. Until such time as we can generate significant revenue from product sales, if ever, we will continue to require substantial additional capital to develop our product candidates and fund operations for the foreseeable future. We expect our expenses to increase significantly in connection with our ongoing activities as described in greater detail below. We are subject to all the risks incident in the development of new biopharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business. We expect our expenses to increase significantly, as we:
 

advance our RAF and FGFR programs through clinical development;
 

advance the development of our other small molecule research programs, including our CDK12 inhibitor;
 

expand our pipeline of product candidates through our own product discovery and development efforts;
 

seek to discover and develop additional product candidates;
 

seek regulatory approvals for any product candidates that successfully complete clinical trials;
 

establish a sales, marketing and distribution infrastructure to commercialize any approved product candidates and related additional commercial manufacturing costs;
 

implement operational, financial and management systems;


attract, hire and retain additional clinical, scientific, management and administrative personnel;
 

maintain, expand, protect and enforce our intellectual property portfolio, including patents, trade secrets and know how; and
 

operate as a public company.
 
In order to complete the development of our product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding. Until we can generate a sufficient amount of revenue from the commercialization of our product candidates, we may seek to raise any necessary additional capital through the sale of equity, debt financings or other capital sources, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, including restricting our operations and limiting our ability to incur liens, issue additional debt, pay dividends, repurchase our common stock, make certain investments or engage in merger, consolidation, licensing or asset sale transactions. If we raise funds through collaborations, strategic partnerships and other similar arrangements with third parties, we may be required to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID‑19 pandemic and otherwise. If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts.

Based on our current operating plan, we believe that our current cash and cash equivalents and investments will be sufficient to fund our planned operating expenses and capital expenditure requirements into early 2024. We have based our projections of operating capital requirements on our current operating plan, which includes several assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect.
 
Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount and timing of our working capital requirements. Our future funding requirements will depend on many factors, including:
 

the scope, timing, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials;
 

the scope, timing, progress, results and costs of researching and developing other product candidates that we may pursue;
 

the costs, timing and outcome of regulatory review of our product candidates;


the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
 

the costs of manufacturing commercial-grade products and sufficient inventory to support commercial launch;
 

the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;
 

the cost and timing of attracting, hiring and retaining skilled personnel to support our operations and continued growth;
 

the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
 

our ability to establish and maintain collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties on favorable terms, if at all;
 

the extent to which we acquire or in-license other product candidates and technologies, if any;
 

the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any; and
 

the costs associated with operating as a public company.
 
A change in the outcome of any of these or other factors with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.
 
We lease office space in San Diego, California and San Francisco, California. In June 2021, we entered into an agreement to lease 8,088 rentable square feet of office space located in San Diego, California (SD Lease) for a period of five years and four months with a lease commencement date of March 2022. Additionally, we have an option to extend the SD Lease for an additional five years at the end of the initial term. In August 2021, we entered into an agreement to lease 5,698 rentable square feet of office space located in San Francisco, California (SF Lease) for an initial term that commenced on January 1, 2022 and expires June 30, 2026. Additionally, we have an option to extend the SF Lease for an additional three years at the end of the initial term. As of March 31, 2022, we have $0.5 million and $4.1 million in current and long-term operating lease liabilities, respectively.

In addition, we have entered into agreements in the normal course of business with certain vendors for the provision of goods and services, which includes manufacturing services with CMOs and development services with CROs. These agreements may include certain provisions for purchase obligations and termination obligations that could require payments for the cancellation of committed purchase obligations or for early termination of the agreements. The amount of the cancellation or termination payments vary and are based on the timing of the cancellation or termination and the specific terms of the agreement. These obligations and commitments are not separately presented.

Cash Flows
 
The following table sets forth the primary sources and uses of cash for the periods indicated:

   
Three Months Ended March 31,
 
   
2022
   
2021
 
   
(in thousands)
 
Net cash used in operating activities
 
$
(21,087
)