# Cardiff Oncology, Inc. (CRDF) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Cardiff Oncology, Inc.'s 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1213037/000162828023006037/crdf-20221231.htm
Accession: 0001628280-23-006037
Filing date: 2023-03-02
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CRDF/
All MD&A years: /company/CRDF/mda/
Previous year: /company/CRDF/mda/fy2021/ (FY 2021)
Next year: /company/CRDF/mda/fy2023/ (FY 2023)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

We are a clinical-stage biotechnology company, headquartered in San Diego, CA, leveraging Polo-like Kinase 1 (“PLK1”) inhibition to develop novel therapies across a range of cancers. Our lead asset is onvansertib, a PLK1 inhibitor that is being evaluated in combination with standard of care therapies in clinical programs targeting indications such as KRAS/NRAS-mutated metastatic colorectal cancer, metastatic pancreatic cancer, as well as investigator-initiated trials in triple negative breast cancer and small cell lung cancer. These programs and our broader development strategy are designed to target tumor vulnerabilities in order to overcome treatment resistance and deliver superior clinical benefit compared to the standard of care alone. Our common stock is listed on the Nasdaq Capital Market under the ticker symbol "CRDF".

Company Updates

On February 2, 2023 we announced the appointment of Fairooz Kabbinavar, M.D., FACP, as Chief Medical Officer.

On January 11, 2022 we announced the appointment of Tod Smeal, Ph.D., as Chief Scientific Officer and Charles Monahan, R.Ph., as Senior Vice President, Regulatory Affairs.

Our accumulated deficit through December 31, 2022 is $298.1 million. To date, we have generated minimal revenues and expect to incur additional losses to perform further research and development activities. 

Our drug development efforts are in their early stages, and we cannot make estimates of the costs or the time that our development efforts will take to complete, or the timing and amount of revenues related to the sale of our drugs. The risk of completion of any program is high because of the many uncertainties involved in developing new drug candidates to market, including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of

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research and development expenses, and competing technologies being developed by organizations with significantly greater resources.

Critical Accounting Estimate

Our accounting policies are described in Part II, Item 8. Financial Statements—Note 2 Basis of Presentation and Summary of Significant Accounting Policies in this Annual Report on Form 10-K. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Actual results could differ from those estimates. We believe that the following discussion represents our critical accounting estimates.

Accrued Clinical Trial Expenses

We accrue and expense research and development expenditures as incurred, which include costs related to clinical trial activities. We accrue costs for clinical trial activities based upon estimates of the services received and related expenses incurred that have yet to be invoiced by the Clinical Research Organizations ("CROs"), professional service providers, and other vendors providing clinical trial services (collectively, the “service providers”). We accrue costs based on estimated work completed in accordance with agreements established with our service providers. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trial activities.

Results of Operations

Years Ended December 31, 2022 and 2021

Revenues

Our total revenues were $386,000 and $359,000 for the years ended December 31, 2022 and 2021, respectively. Revenues are from our annual minimum or sales-based royalties on other intellectual property licenses, unrelated to onvansertib. Revenue recognition of the royalty depends on the timing and overall sales activities of the licensees.

Research and Development Expenses

Research and development expenses consisted of the following:

[[GREPCENT_TABLE]]
[["","For the years ended December 31,"],["(in thousands)","2022","","2021","","Increase/(Decrease)"],["Salaries and staff costs","$","4,031","","","$","1,745","","","$","2,286"],["Stock-based compensation","1,035","","","491","","","544"],["Clinical trials, outside services, and lab supplies","20,556","","","14,174","","","6,382"],["Facilities and Other","1,485","","","966","","","519"],["Total research and development expenses","$","27,107","","","$","17,376","","","$","9,731"]]
[[/GREPCENT_TABLE]]

Research and development expenses increased by $9.7 million to $27.1 million for the year ended December 31, 2022 from $17.4 million for the year ended December 31, 2021. The overall increase in expenses was primarily related to CMC, clinical pharmacology and for studies to support the development of our lead drug candidate, onvansertib. Salaries and staff costs increased primarily due to additional hires in senior management and our clinical operations team (research and development average headcount grew by 93% over the comparative period). The increase in stock-based compensation is primarily due to additional stock option grants to employees granted subsequent to the prior period.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses consisted of the following:

[[GREPCENT_TABLE]]
[["","For the years ended December 31,"],["(in thousands)","2022","","2021","","Increase/(Decrease)"],["Salaries and staff costs","$","3,134","","","$","2,491","","","$","643"],["Stock-based compensation","3,221","","","2,743","","","478"],["Outside services and professional fees","4,192","","","4,439","","","(247)"],["Facilities and other","2,634","","","2,165","","","469"],["Total selling, general and administrative","$","13,181","","","$","11,838","","","$","1,343"]]
[[/GREPCENT_TABLE]]

Selling, general and administrative expenses increased by $1.3 million to $13.2 million for the year ended December 31, 2022, from $11.8 million for the year ended December 31, 2021. Salaries and staff costs increased due to merit increases and higher headcount (average headcount grew by 30% over the comparative period). The increase in stock-based compensation is primarily due to additional stock option grants to employees granted subsequent to the prior period. Facilities and other costs increased due to higher insurance costs and the amending of our operating lease. The decrease in outside services is primarily related to strategic valuation consulting related to our lead drug candidate, onvansertib performed during the prior period.

Net Loss

Net loss and per share amounts were as follows:

[[GREPCENT_TABLE]]
[["","For the years ended December 31,"],["(in thousands)","2022","","2021","","Increase/(Decrease)"],["Net loss","$","(38,704)","","","$","(28,291)","","","$","10,413"],["Preferred stock dividend","(24)","","","(24)","","","\u2014"],["Net loss attributable to common stockholders","$","(38,728)","","","$","(28,315)","","","$","10,413"],["Net loss per common share \u2014 basic and diluted","$","(0.89)","","","$","(0.73)","","","$","0.16"],["Weighted-average shares outstanding \u2014 basic and diluted","43,600","","","39,030","","","4,570"]]
[[/GREPCENT_TABLE]]

The increase of $10.4 million in net loss attributable to common shareholders was primarily the result of an increase in operating expenses for the year ended December 31, 2022 compared to the same period in the prior year. The $0.16 increase in basic and diluted net loss per share was impacted by the increase in net loss attributable to shareholders and was partially offset by the increase in weighted average shares outstanding resulting primarily from the issuance of approximately 2.7 million shares of common stock primarily from the conversion of Series E Convertible Preferred Stock during the twelve months ended December 31, 2022.

Liquidity and Capital Resources

As of December 31, 2022, we had $16.3 million in cash and cash equivalents and $88.9 million in short-term investments. Net cash used in operating activities for the year ended December 31, 2022 was $33.8 million, compared to $23.0 million for the year ended December 31, 2021. Our use of cash was primarily a result of the net loss of $38.7 million for the year ended December 31, 2022, adjusted for non-cash items mainly related to stock-based compensation of $4.3 million, and amortization of premiums on short-term investments of $0.6 million. The net change in our operating assets and liabilities was $0.4 million increasing cash used in operations. At our current and anticipated level of operating loss, we expect to continue to incur an operating cash outflow for the next several years.

Net cash provided by investing activities was $38.1 million primarily related to sales and maturities in excess of purchases of marketable securities, partially offset by purchases of capital equipment during the year ended December 31, 2022,

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compared to net cash used in investing activities of $131.4 million for net purchases of marketable securities during the same period in 2021.

Net cash provided by financing activities was $0.1 million from the exercise of stock options during the year ended December 31, 2022, compared to $35.5 million of proceeds from the sale of common stock and proceeds from warrant exercises for the same period in 2021.

As of December 31, 2022 and 2021, we had working capital of $103.5 million and $139.6 million, respectively. The decrease in working capital is primarily due to the net loss partially offset by the increase in cash and cash equivalents from financing activities during the year ended December 31, 2022. 

We have incurred net losses since our inception and have negative operating cash flows. As of December 31, 2022, we had $105.3 million in cash, cash equivalents and short-term investments and we believe we have sufficient cash to meet our funding requirements for at least the next 12 months following the issuance date of these financial statements. Based on our current projections we expect that our capital resources are sufficient to fund our operations into 2025.

For the foreseeable future, we expect to continue to incur losses and require additional capital to further advance our clinical trial programs and support our other operations. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we can raise additional funds by issuing equity securities, our stockholders may experience additional dilution.

Our working capital requirements will depend upon numerous factors including but not limited to the nature, cost and timing of our research and development programs. To date, our sources of cash have been primarily limited to the sale of equity securities. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more product candidates, all of which may have a material adverse impact on our operations. We may also be required to (i) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (ii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms. We are evaluating all options to raise additional capital, increase revenue, as well as reduce costs, in an effort to strengthen our liquidity position, which may include the following: (1) Raising capital through public and private equity offerings; (2) Introducing operation and business development initiatives to bring in new revenue streams; (3) Reducing operating costs by identifying internal synergies; and (4) Engaging in strategic partnerships. We continually assess our spending plans to effectively and efficiently address our liquidity needs.