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, 2023

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 001-37345

CHINOOK THERAPEUTICS, INC.

(Exact name of Registrant as specified in its Charter)

 

Delaware

94-3348934

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

400 Fairview Avenue North, Suite 900

Seattle, WA 98109

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (206) 485-7241

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

KDNY

The Nasdaq Stock Market LLC

(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, 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

The number of shares of Registrant’s Common Stock outstanding as of April 30, 2023 was 66,889,369

 

 


Table of Contents

 

 

 

 

Page

 

PART I—FINANCIAL INFORMATION

 

Item 1.

Condensed Consolidated Financial Statements (unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022

3

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2023 and 2022

4

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2023 and 2022

5

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022

6

 

 

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

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

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

Controls and Procedures

29

 

 

PART II—OTHER INFORMATION

 

Item 1.

Legal Proceedings

30

Item 1A.

Risk Factors

30

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

69

Item 3.

Defaults Upon Senior Securities

69

Item 4.

Mine Safety Disclosures

69

Item 5.

Other Information

69

Item 6.

Exhibits

69

EXHIBIT INDEX

70

SIGNATURES

71

 

 

2


PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

 

Chinook Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

118,495

 

 

$

115,438

 

Marketable securities

 

 

231,881

 

 

 

262,887

 

Accounts receivable

 

 

2,444

 

 

 

1,091

 

Prepaid expenses and other current assets

 

 

5,824

 

 

 

6,176

 

Total current assets

 

 

358,644

 

 

 

385,592

 

Marketable securities

 

 

7,002

 

 

 

6,989

 

Property and equipment, net

 

 

16,974

 

 

 

16,908

 

Restricted cash

 

 

2,074

 

 

 

2,074

 

Operating lease right-of-use assets

 

 

47,345

 

 

 

48,970

 

Investment in equity securities

 

 

41,200

 

 

 

41,200

 

Equity method investment

 

 

2,653

 

 

 

4,071

 

Intangible assets, net

 

 

23,854

 

 

 

24,287

 

In-process research & development

 

 

36,550

 

 

 

36,550

 

Goodwill

 

 

117

 

 

 

117

 

Other assets

 

 

7,462

 

 

 

7,326

 

Total assets

 

$

543,875

 

 

$

574,084

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

 

9,774

 

 

 

9,751

 

Accrued and other current liabilities

 

 

33,605

 

 

 

33,636

 

Operating lease liabilities

 

 

5,085

 

 

 

4,948

 

Contingent value rights liability

 

 

2,500

 

 

 

2,500

 

Total current liabilities

 

 

50,964

 

 

 

50,835

 

Contingent value rights liability - non-current

 

 

37,794

 

 

 

37,318

 

Contingent consideration liability

 

 

4,470

 

 

 

4,420

 

Deferred tax liabilities

 

 

5,076

 

 

 

5,076

 

Operating lease liabilities, net of current maturities

 

 

33,178

 

 

 

34,494

 

Total liabilities

 

 

131,482

 

 

 

132,143

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000 shares authorized as of
   March 31, 2023 and December 31, 2022;
no shares issued and outstanding at
   March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Common stock, $0.0001 par value; 300,000 shares authorized as of
   March 31, 2023 and December 31, 2022;
66,822 and 65,471 shares issued
   and outstanding at March 31, 2023 and December 31, 2022

 

 

7

 

 

 

7

 

Additional paid-in capital

 

 

893,905

 

 

 

864,729

 

Accumulated deficit

 

 

(479,808

)

 

 

(419,631

)

Accumulated other comprehensive loss

 

 

(1,711

)

 

 

(3,164

)

Total stockholders’ equity

 

 

412,393

 

 

 

441,941

 

Total liabilities and stockholders’ equity

 

$

543,875

 

 

$

574,084

 

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

3


Chinook Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Collaboration and license revenue

 

$

1,828

 

 

$

2,697

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

50,883

 

 

 

26,252

 

General and administrative

 

 

11,404

 

 

 

7,868

 

Change in fair value of contingent consideration and
   contingent value rights liabilities

 

 

526

 

 

 

(1,038

)

Amortization of intangible assets

 

 

433

 

 

 

429

 

Total operating expenses

 

 

63,246

 

 

 

33,511

 

Loss from operations

 

 

(61,418

)

 

 

(30,814

)

Investment and other income (expense), net

 

 

3,102

 

 

 

(95

)

Loss before income taxes and equity method investment loss

 

 

(58,316

)

 

 

(30,909

)

Equity method investment loss

 

 

(1,861

)

 

 

(775

)

Net loss

 

$

(60,177

)

 

$

(31,684

)

Net loss per share attributable to common stockholders, basic and
   diluted

 

$

(0.85

)

 

$

(0.54

)

Weighted-average shares used in computing net loss per share
   attributable to common stockholders, basic and diluted

 

 

70,703

 

 

 

58,340

 

Other comprehensive income (loss):

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax of $0

 

 

470

 

 

 

107

 

Unrealized gain (loss) on marketable debt securities, net of tax of $0

 

 

983

 

 

 

(1,589

)

Total other comprehensive income (loss)

 

 

1,453

 

 

 

(1,482

)

Comprehensive loss

 

$

(58,724

)

 

$

(33,166

)

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

4


Chinook Therapeutics, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2022

 

 

65,471

 

 

$

7

 

 

$

864,729

 

 

$

(419,631

)

 

$

(3,164

)

 

 

441,941

 

Issuance of common stock upon exercise of stock options and
   vesting of restricted stock units

 

 

432

 

 

 

 

 

 

1,666

 

 

 

 

 

 

 

 

 

1,666

 

Issuance of common stock under the at-the-market sales agreement,
   net of issuance costs

 

 

919

 

 

 

 

 

 

19,600

 

 

 

 

 

 

 

 

 

19,600

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

7,910

 

 

 

 

 

 

 

 

 

7,910

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,453

 

 

 

1,453

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(60,177

)

 

 

 

 

 

(60,177

)

Balance at March 31, 2023

 

 

66,822

 

 

$

7

 

 

$

893,905

 

 

$

(479,808

)

 

$

(1,711

)

 

$

412,393

 

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Accumulated
Other
Comprehensive

 

 

Total
Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2021

 

 

54,761

 

 

$

5

 

 

$

685,459

 

 

$

(231,766

)

 

$

(55

)

 

$

453,643

 

Issuance of common stock upon exercise of stock options and
   vesting of restricted stock units

 

 

356

 

 

 

1

 

 

 

2,048

 

 

 

 

 

 

 

 

 

2,049

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,269

 

 

 

 

 

 

 

 

 

4,269

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,482

)

 

 

(1,482

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(31,684

)

 

 

 

 

 

(31,684

)

Balance at March 31, 2022

 

 

55,117

 

 

$

6

 

 

$

691,776

 

 

$

(263,450

)

 

$

(1,537

)

 

$

426,795

 

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

 

5


Chinook Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Cash Flows from Operating Activities

 

 

 

 

 

 

Net loss

 

$

(60,177

)

 

$

(31,684

)

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

 

 

 

 

 

 

Depreciation and amortization expense

 

 

872

 

 

 

866

 

Loss on disposal of property and equipment

 

 

 

 

 

234

 

Amortization of intangible assets

 

 

433

 

 

 

429

 

Non-cash operating lease expense

 

 

1,626

 

 

 

1,528

 

Stock-based compensation expense

 

 

7,910

 

 

 

4,269

 

Change in fair value of contingent consideration and contingent value rights liabilities

 

 

526

 

 

 

(1,038

)

Accretion of discounts and amortization of premiums on marketable securities

 

 

(1,384

)

 

 

406

 

Equity method investment loss

 

 

1,861

 

 

 

775

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(1,353

)

 

 

7,114

 

Prepaid expenses and other assets

 

 

218

 

 

 

(3,155

)

Accounts payable

 

 

13

 

 

 

745

 

Accrued and other liabilities

 

 

(33

)

 

 

(4,191

)

Operating lease liabilities

 

 

(1,180

)

 

 

(1,020

)

Net cash used in operating activities

 

 

(50,668

)

 

 

(24,722

)

Cash Flows from Investing Activities

 

 

 

 

 

 

Purchases of marketable securities

 

 

(64,140

)

 

 

(79,033

)

Proceeds from marketable securities

 

 

97,500

 

 

 

23,834

 

Purchases of property and equipment

 

 

(927

)

 

 

(374

)

Net cash provided by (used in) investing activities

 

 

32,433

 

 

 

(55,573

)

Cash Flows from Financing Activities

 

 

 

 

 

 

Proceeds from exercise of stock options and warrants

 

 

1,666

 

 

 

2,049

 

Proceeds from at-the-market-sales agreement, net of issuance costs

 

 

19,600

 

 

 

 

Previously incurred issuance costs related to an underwritten public
   offering paid during period

 

 

 

 

 

(286

)

Net cash provided by financing activities

 

 

21,266

 

 

 

1,763

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

26

 

 

 

308

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

3,057

 

 

 

(78,224

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

117,512

 

 

 

183,798

 

Cash, cash equivalents and restricted cash at end of period

 

$

120,569

 

 

$

105,574

 

Reconciliation of Cash, Cash Equivalents and Restricted Cash

 

 

 

 

 

 

Cash and cash equivalents

 

$

118,495

 

 

$

103,500

 

Restricted cash

 

 

2,074

 

 

 

2,074

 

Total cash, cash equivalents and restricted cash

 

$

120,569

 

 

$

105,574

 

Supplemental Cash Flow Information

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

$

1,895

 

 

$

1,861

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable and in accrued
   and other current liabilities

 

$

283

 

 

$

157

 

Receivable from option exercises

 

$

 

 

$

1,325

 

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

6


Chinook Therapeutics, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

1. Description of Business

Chinook Therapeutics, Inc. (the “Company”, “Chinook”, “we”, “our”, or “us”) is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing precision medicines for kidney diseases. Our lead clinical program is atrasentan, a potent and selective endothelin A receptor antagonist. We are currently conducting the phase 3 ALIGN trial of atrasentan for IgA nephropathy (“IgAN”) and the phase 2 AFFINITY basket trial for proteinuric glomerular diseases. Our second product candidate, BION-1301, is an anti-APRIL monoclonal antibody also in phase 2 development for patients with IgAN. Our third product candidate is CHK-336, an oral small molecule lactate dehydrogenase inhibitor for the treatment of primary and idiopathic hyperoxaluria that is currently in phase 1 development. In addition, we are building our precision medicine pipeline through research and discovery programs for other rare, severe chronic kidney diseases. We were incorporated in Delaware and are headquartered in Seattle, Washington.

 

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. These financial statements have been prepared on the same basis as our annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of financial information. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other interim period or for any other future year.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2022 included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 27, 2023.

The unaudited condensed consolidated financial statements include the accounts of Chinook Therapeutics, Inc. and our wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of consolidated 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 the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of expenses during the reporting periods. Such estimates include the valuation of intangible assets, acquired property and equipment, investments, contingent value rights (“CVR”) liability, contingent consideration liability, lease right-of-use assets, and lease obligations, as well as accruals for research and development activities, stock-based compensation expense, and income taxes. Actual results could differ from those estimates.

Significant Accounting Policies

There have been no significant changes to the accounting policies during the three months ended March 31, 2023, as compared to the significant accounting policies described in Note 2 of the “Notes to Consolidated Financial Statements” in our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

3. Reverse Merger and Contingent Value Rights

Chinook Therapeutics U.S., Inc. (“Private Chinook”) completed a merger with Aduro Biotech, Inc. (“Aduro”) on October 5, 2020 (the “Merger”). Refer to Note 1 “Description of Business” in our Annual Report on Form 10-K for the year ended December 31, 2022 for more information. At the effective time of the Merger, we also entered into an agreement pursuant to which Aduro’s common stockholders of record as of the close of business on October 2, 2020 received one CVR for each outstanding share of Aduro common stock held by such stockholder on such date (the “CVR Agreement”). Each CVR represents the contractual right to receive payments from us upon the receipt of consideration resulting from certain events described in the CVR Agreement, including taxes and certain other expenses.

7


4. Cash, Cash Equivalents and Marketable Securities

Cash, cash equivalents and marketable securities consisted of the following (in thousands):

 

 

 

March 31, 2023

 

 

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Estimated
Fair Value

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

5,649

 

 

$

 

 

$

 

 

$

5,649

 

Money market funds

 

 

54,439

 

 

 

 

 

 

 

 

 

54,439

 

Commercial paper

 

 

39,190

 

 

 

 

 

 

(9

)

 

 

39,181

 

U.S. government and agency securities

 

 

19,221

 

 

 

5

 

 

 

 

 

 

19,226

 

Total cash and cash equivalents

 

$

118,499

 

 

$

5

 

 

$

(9

)

 

$

118,495

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

 

$

51,990

 

 

$

39

 

 

$

(35

)

 

$

51,994

 

U.S. government and agency securities

 

 

153,003

 

 

 

34

 

 

 

(799

)

 

 

152,238

 

Corporate debt securities

 

 

34,952

 

 

 

 

 

 

(301

)

 

 

34,651

 

Total marketable securities

 

$

239,945

 

 

$

73

 

 

$

(1,135

)

 

$

238,883

 

 

 

 

December 31, 2022

 

 

 

Amortized
Cost

 

 

Unrealized
Gains

 

 

Unrealized
Losses

 

 

Estimated
Fair Value

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

15,724

 

 

$

 

 

$

 

 

$

15,724

 

Money market funds

 

 

45,443

 

 

 

 

 

 

 

 

 

45,443

 

Commercial paper

 

 

41,972

 

 

 

 

 

 

(15

)

 

 

41,957

 

U.S. government and agency securities

 

 

12,311

 

 

 

3

 

 

 

 

 

 

12,314

 

Total cash and cash equivalents

 

$

115,450

 

 

$

3

 

 

$

(15

)

 

$

115,438

 

Marketable securities: