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, 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: 001-39856

 

CULLINAN ONCOLOGY, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

81-3879991

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

One Main Street
Suite 520
Cambridge, MA

02142

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617) 410-4650

 

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

 

CGEM

 

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 ☒

The number of shares of the Registrant’s common stock outstanding as of April 25, 2022 was 44,782,502.

 

 


 

Table of Contents

 

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

 

Item 1.

Financial Statements (unaudited)

 

1

 

Consolidated Balance Sheets

 

1

 

Consolidated Statements of Operations and Comprehensive Income (Loss)

 

2

 

Consolidated Statements of Stockholders’ Equity

 

3

 

Consolidated Statements of Cash Flows

 

4

 

Notes to the Consolidated Financial Statements

 

5

Item 2.

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

 

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

31

Item 4.

Controls and Procedures

 

31

 

 

 

 

PART II.

OTHER INFORMATION

 

 

Item 1.

Legal Proceedings

 

33

Item 1A.

Risk Factors

 

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

84

Item 3.

Defaults Upon Senior Securities

 

84

Item 4.

Mine Safety Disclosures

 

84

Item 5.

Other Information

 

84

Item 6.

Exhibits

 

84

 

Signatures

 

86

 

 

 

 

i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These statements involve risks, uncertainties, and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management and expected market growth are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “would” and similar expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

These forward-looking statements include, among other things, statements about:

the success, cost and timing of our clinical development of our product candidates, including CLN-081, CLN-049 and CLN-619;
the initiation, timing, progress, results and cost of our research and development programs and our current and future preclinical and clinical studies, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and our research and development programs;
our ability to initiate, recruit and enroll patients in and conduct our clinical trials at the pace that we project;
our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations or warnings in the label of any of our product candidates, if approved;
our ability to compete with companies currently marketing or engaged in the development of treatments that our product candidates are designed to target;
our reliance on third parties to conduct our clinical trials and to manufacture drug substance for use in our clinical trials;
the size and growth potential of the markets for oncology diseases and any of our current product candidates or other product candidates we may identify and pursue, and our ability to serve those markets;
our ability to identify and advance through clinical development any additional product candidates;
the commercialization of our current product candidates and any other product candidates we may identify and pursue, if approved, including our ability to successfully build a specialty sales force and commercial infrastructure to market our current product candidates and any other product candidates we may identify and pursue;
the expected benefits of our hub-and-spoke business model, including our ability to identify research priorities and apply a risk-mitigated strategy to efficiently discover and develop product candidates;
our ability to retain and recruit key personnel;
our ability to obtain and maintain adequate intellectual property rights;
our expectations regarding government and third-party payor coverage and reimbursement;
our estimates of our expenses, ongoing losses, capital requirements and our needs for or ability to obtain additional financing;
the potential benefits of strategic collaboration agreements, our ability to enter into strategic collaborations or arrangements, and our ability to attract collaborators with development, regulatory and commercialization expertise;
our financial performance;
developments and projections relating to our competitors or our industry;
the effect of the COVID-19 pandemic, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations, including but not limited to our preclinical studies and future clinical trials; and
other risks and uncertainties, including those listed under the section titled “Risk Factors.”

 

ii


 

You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in or implied by any forward-looking statements we may make. No forward-looking statement is a guarantee of future performance.

You should read this Quarterly Report on Form 10-Q and the documents that we reference herein and have filed or incorporated by reference as exhibits hereto completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from our own internal estimates and research, as well as from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this Quarterly Report on Form 10-Q, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

 

 

iii


 

Summary of the Material and Other Risks Associated with Our Business

Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, are summarized in “Risk Factors” and should be carefully considered, together with other information in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission, before making an investment decision regarding our common stock.

We are early in our development efforts and are substantially dependent on our lead product candidates, CLN-081, CLN-049 and CLN-619. If we are unable to advance these or any of our other product candidates through clinical development, or to obtain regulatory approval and ultimately commercialize any such product candidates, either by ourselves or with or by third parties or if we experience significant delays in doing so, our business will be materially harmed.
Difficulty in enrolling patients could delay or prevent clinical trials of our product candidates, and ultimately delay or prevent regulatory approval.
Interim, “topline” and preliminary data from our clinical trials that we announce or publish may change as more patient data become available and are subject to confirmation, audit and verification procedures that could result in material changes in the final data.
Our product candidates may cause undesirable side effects or have other properties that delay or prevent their regulatory approval, limit their commercial potential or result in significant negative consequences following any potential marketing approval.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We have incurred significant losses since inception and we expect to incur losses over the next several years and may not be able to achieve or sustain revenues or profitability in the future.
We will require substantial additional funding to develop and commercialize our product candidates and identify and invest in new product candidates. If we are unable to raise capital when needed, we would be compelled to delay, reduce or eliminate our product development programs or other operations.
We may not be successful in our efforts to use our differentiated hub-and-spoke business model to build a pipeline of product candidates with commercial value.
Our subsidiaries are party to certain agreements that provide our licensors, collaborators or other shareholders in our subsidiaries with rights that could delay or impact the potential sale of our subsidiaries or could impact the ability of our subsidiaries to sell assets, or enter into strategic alliances, collaborations or licensing arrangements with other third parties.
Our ability to realize value from our subsidiaries may be impacted if we reduce our ownership to a minority interest or otherwise cede control to other investors through contractual agreements or otherwise.
A single or limited number of subsidiaries may comprise a large proportion of our value.
Our reliance on a central team consisting of a limited number of employees presents operational challenges that may adversely affect our business.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.
If we are unable to obtain and maintain patent and other intellectual property protection for our current and future product candidates and technology, or if the scope of intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to commercialize CLN-081, CLN-049 and CLN-619, or any other product candidates or technology may be adversely affected.
We currently rely and expect to continue to rely on the outsourcing of the majority of our development functions to third parties to conduct our preclinical studies and clinical trials. If these third parties do not properly and successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.
COVID-19 has and may continue to adversely impact our business, including our preclinical studies and clinical trials and our ability to source drug supply.

 

iv


 

We are highly dependent on our key personnel and anticipate hiring new key personnel. If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

 

v


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CULLINAN ONCOLOGY, INC.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share amounts)

 

 

 

March 31,
2022

 

 

December 31,
2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

76,118

 

 

$

59,774

 

Short-term investments

 

 

238,736

 

 

 

230,692

 

Prepaid expenses and other current assets

 

 

7,458

 

 

 

6,098

 

Total current assets

 

 

322,312

 

 

 

296,564

 

Property and equipment, net

 

 

64

 

 

 

77

 

Operating lease right-of-use assets

 

 

1,194

 

 

 

 

Other assets

 

 

147

 

 

 

147

 

Deferred tax assets

 

 

19,568

 

 

 

 

Long-term investments

 

 

94,178

 

 

 

140,397

 

Total assets

 

$

437,463

 

 

$

437,185

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,306

 

 

$

3,169

 

Accrued expenses and other current liabilities

 

 

10,432

 

 

 

8,577

 

Operating lease liabilities, current

 

 

519

 

 

 

 

Total current liabilities

 

 

17,257

 

 

 

11,746

 

Long-term liabilities:

 

 

 

 

 

 

Operating lease liabilities, net of current portion

 

736

 

 

 

 

Deferred rent

 

 

 

 

 

65

 

Total liabilities

 

 

17,993

 

 

 

11,811

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 shares authorized as of March 31, 2022 and December 31, 2021; 44,660,026 and 44,292,102 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively.

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

592,839

 

 

 

584,714

 

Accumulated other comprehensive loss

 

 

(3,134

)

 

 

(838

)

Accumulated deficit

 

 

(171,007

)

 

 

(158,909

)

Total Cullinan stockholders' equity

 

 

418,702

 

 

 

424,971

 

Noncontrolling interests

 

 

768

 

 

 

403

 

Total stockholders' equity

 

 

419,470

 

 

 

425,374

 

Total liabilities and stockholders' equity

 

$

437,463

 

 

$

437,185

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

1


 

CULLINAN ONCOLOGY, INC.

Consolidated Statements of Operations and Comprehensive INCOME (LOSS)

(unaudited)

(in thousands, except share and per share amounts)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

License revenue

 

$

 

 

$

18,943

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

24,536

 

 

 

12,415

 

General and administrative

 

 

8,121

 

 

 

5,156

 

Total operating expenses

 

 

32,657

 

 

 

17,571

 

Income/(loss) from operations

 

 

(32,657

)

 

 

1,372

 

Other income (expense):

 

 

 

 

 

 

Interest income

 

197

 

 

49

 

Other income (expense), net

 

 

 

 

 

(2

)

Net income/(loss) before income taxes

 

 

(32,460

)

 

 

1,419

 

Income tax expense/(benefit)

 

 

(19,568

)

 

 

 

Net income/(loss)

 

 

(12,892

)

 

 

1,419

 

Net income/(loss) attributable to noncontrolling interest

 

 

(794

)

 

 

1,489

 

Net loss attributable to common stockholders of Cullinan

 

$

(12,098

)

 

$

(70

)

Net loss per share, basic and diluted

 

$

(0.27

)

 

$

(0.00

)

Total weighted-average shares used in computing net loss per share, basic and diluted

 

 

44,431,657

 

 

 

41,977,336

 

Comprehensive income/(loss):

 

 

 

 

 

 

Net income/(loss)

 

$

(12,892

)

 

$

1,419

 

Unrealized gain/(loss) on investments

 

 

(2,296

)

 

 

(58

)

Comprehensive income/(loss)

 

 

(15,188

)

 

 

1,361

 

Comprehensive income/(loss) attributable to noncontrolling interest

 

 

(794

)

 

 

1,489

 

Comprehensive income/(loss) attributable to Cullinan

 

$

(14,394

)

 

$

(128

)

 

See accompanying notes to the unaudited consolidated financial statements.

 

2


 

CULLINAN ONCOLOGY, INC.

Consolidated Statements of STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands, except share amounts)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated
Other
Comprehensive

 

 

Accumulated

 

 

Noncontrolling
Interest in

 

 

Total Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss)

 

 

Deficit

 

 

Subsidiaries

 

 

Equity

 

Balances at December 31, 2020

 

 

29,831,125

 

 

$

3

 

 

$

292,348

 

 

$

(2

)

 

$

(93,339

)

 

$

1,304

 

 

$

200,314

 

Initial public offering net of issuance costs of $22,870

 

 

13,685,000

 

 

 

1

 

 

 

264,515

 

 

 

 

 

 

 

 

 

 

 

 

264,516

 

Equity-based compensation

 

 

 

 

 

 

 

 

3,503

 

 

 

 

 

 

 

 

 

5

 

 

 

3,508

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(58

)

 

 

 

 

 

 

 

 

(58

)

Net income/(loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(70

)

 

 

1,489

 

 

 

1,419

 

Balances at March 31, 2021

 

 

43,516,125

 

 

$

4

 

 

$

560,366

 

 

$

(60

)

 

$

(93,409

)

 

$

2,798

 

 

$

469,699

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2021

 

 

44,292,102

 

 

$

4

 

 

$

584,714

 

 

$

(838

)

 

$

(158,909

)

 

$

403

 

 

$

425,374

 

Issuance of subsidiary preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,153

 

 

 

1,153

 

Issuance of common stock upon vesting of RSUs

 

 

5,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares tendered for withholding taxes

 

 

(1,566

)

 

 

 

 

 

(22

)

 

 

 

 

 

 

 

 

 

 

 

(22

)

Forfeiture of unvested restricted stock

 

 

(5,711

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation

 

 

 

 

 

 

 

 

6,559

 

 

 

 

 

 

 

 

 

6

 

 

 

6,565

 

Stock option exercises

 

 

369,222

 

 

 

 

 

 

1,588

 

 

 

 

 

 

 

 

 

 

 

 

1,588

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(2,296

)

 

 

 

 

 

 

 

 

(2,296

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,098

)

 

 

(794

)

 

 

(12,892

)

Balances at March 31, 2022

 

 

44,660,026

 

 

$

4

 

 

$

592,839

 

 

$

(3,134

)

 

$

(171,007

)

 

$

768

 

 

$

419,470

 

 

See accompanying notes to the unaudited consolidated financial statements.

 

3


 

CULLINAN ONCOLOGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

 

Net income/(loss)

 

$

(12,892

)

 

$

1,419

 

Adjustments to reconcile net income/(loss) to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

13

 

 

 

15

 

Equity-based compensation expense

 

 

6,565

 

 

 

3,508

 

Amortization or accretion on marketable securities

 

 

946

 

 

 

229

 

Deferred income tax benefit

 

 

(19,568

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,140

)

 

 

(4,352

)

Accounts payable

 

 

3,137

 

 

 

(4,124

)

Accrued expenses and other current liabilities

 

 

1,031

 

 

 

1,790

 

Net cash used in operating activities

 

 

(21,908

)

 

 

(1,515

)

Investing activities:

 

 

 

 

 

 

Purchase of marketable securities

 

 

(57,020

)

 

 

(149,763

)

Proceeds from sales and maturities of marketable securities

 

 

91,731

 

 

 

12,037

 

Net cash used in investing activities

 

 

34,711

 

 

 

(137,726

)

Financing activities:

 

 

 

 

 

 

Proceeds from initial public offering

 

 

 

 

 

267,268

 

Payment of deferred offering costs

 

 

 

 

 

(2,688

)

Proceeds from issuance of noncontrolling interests

 

 

1,153

 

 

 

 

Proceeds from issuance of convertible note

 

 

800

 

 

 

 

Proceeds from exercise of stock options

 

 

1,588

 

 

 

 

Net cash provided by financing activities

 

 

3,541

 

 

 

264,580

 

Net increase in cash and cash equivalents

 

 

16,344

 

 

 

125,339

 

Cash and cash equivalents at beginning of period

 

 

59,774

 

 

 

168,198

 

Cash and cash equivalents at end of period

 

$

76,118

 

 

$

293,537

 

SUPPLEMENTAL NONCASH DISCLOSURE

 

 

 

 

 

 

Noncash financing activities

 

 

 

 

 

 

Deferred offering costs paid in the prior year

 

$

 

 

$

65

 

Tax withholding on stock awards not yet paid

 

$

22

 

 

$

 


See accompanying notes to the unaudited consolidated financial statements.

 

4


 

CULLINAN ONCOLOGY, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(1)
Nature of Business and Basis of Presentation

Organization

Cullinan Oncology, Inc., together with its consolidated subsidiaries (Cullinan or the Company), is a biopharmaceutical company developing a diversified pipeline of targeted oncology therapies for cancer patients. Cullinan’s predecessor company, Cullinan Pharmaceuticals, LLC was formed in September 2016 and was subsequently renamed Cullinan Oncology, LLC (the LLC) in November 2017. The LLC’s wholly-owned subsidiary, Cullinan Management, Inc. (Management), was formed in September 2016 and became the surviving entity in a reverse merger with the LLC in January 2021. In February 2021, the Company changed its name from Cullinan Management, Inc. to Cullinan Oncology, Inc.

As of March 31, 2022 and December 31, 2021, the Company had four development subsidiaries, or Asset Subsidiaries: Cullinan Amber Corp. (Amber), Cullinan Florentine Corp. (Florentine), Cullinan MICA Corp. (MICA) and Cullinan Pearl Corp. (Pearl).

Reorganization, Reverse Stock Split and Initial Public Offering

In January 2021, the Company completed its initial public offering (IPO) in which it issued and sold 13,685,000 shares of its common stock, including 1,785,000 shares sold pursuant to the full exercise of the underwriters’ option to purchase additional shares, at a price to the public of $21.00 per share. The shares began trading on the Nasdaq Global Select Market on January 8, 2021 under the symbol “CGEM”. The net proceeds received by the Company from the offering were $264.5 million, after deducting underwriting discounts, commissions and other offering expenses.

Immediately prior to the effectiveness of the Company’s registration statement, the Company completed its reorganization, whereby the LLC merged with and into Management and Management was the surviving entity. Management was the registrant in the IPO.

Liquidity

The Company has incurred operating losses and negative cash flows from operations since its inception and expects to continue to generate operating losses for the foreseeable future. The Company’s ultimate success depends on the outcome of its research and development activities as well as the ability to commercialize the Company’s product candidates. The Company is subject to a number of risks including, but not limited to, the need to obtain adequate additional funding for the ongoing and planned clinical development of its product candidates. Due to the numerous risks and uncertainties associated with pharmaceutical products and development, the Company is unable to accurately predict the timing or amount of funds required to complete development of its product candidates, and costs could exceed the Company’s expectations for a number of reasons, including reasons beyond the Company’s control. The Company has incurred losses since inception and has an accumulated deficit of $171.0 million as of March 31, 2022.

Since inception, the Company has funded its operations primarily through the sale of equity securities. The Company expects that its cash, cash equivalents and short-term investments of $314.9 million and long-term investments and interest receivable of $95.4 million as of March 31, 2022, will be sufficient to fund its operating expenses and capital expenditure requirements through at least the next twelve months from the date of issuance of these unaudited consolidated financial statements. Interest receivable is included in prepaid expenses and other current assets on the consolidated balance sheet and represents accrued and unpaid interest on our marketable securities.

(2)
Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and in accordance with applicable rules and regulations of the United States Securities and Exchange Commission (SEC) for interim financial reporting. The unaudited consolidated financial statements include accounts of the Company and its consolidated subsidiaries. All intercompany balances have been eliminated in consolidation. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Updates (ASUs) of the Financial Accounting Standards Board (FASB).

 

5


 

The unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and in the opinion of the Company's management, reflect all adjustments, consisting of normal and recurring adjustments, considered necessary for a fair statement of the Company’s financial position, its results of operations and comprehensive income (loss) and its cash flows for the periods presented.

The unaudited consolidated financial statements herein do not include all of the disclosures required by GAAP for a complete set of annual audited financial statements, as is permitted by such rules and regulations. The accompanying financial information should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K filed with the SEC on March 17, 2022 for the year ended December 31, 2021 (the 2021 Form 10-K).

Use of Estimates

The preparation of the accompanying unaudited consolidated financial statements in accordance with GAAP requires the Company’s management to make estimates and judgments that may affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company’s management evaluates the estimates, including those related to expenses and accruals. The Company’s management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Estimates and assumptions reflected in these unaudited consolidated financial statements include, but are not limited to, the fair value of the royalty transfer agreements, accrued research and development expenses, the fair value of equity awards issued by the Company and its subsidiaries prior to the IPO, income taxes and valuation allowance on deferred tax assets. Actual results may differ from these estimates under different assumptions or conditions.

Principles of Consolidation

The Company consolidates entities in which it has a controlling financial interest. The Company evaluates each of its subsidiaries to determine whether the entity represents a variable interest entity (VIE) for which consolidation should be evaluated under the VIE model, or alternatively, if the entity is a voting interest entity, for which consolidation should be evaluated using the voting interest model (VOE). The Company concluded that none of its subsidiaries is a VIE and has consolidated each subsidiary under the VOE. Under the VOE, the Company consolidates the entity if it determines 1) that it directly, or indirectly, has greater than 50% of the voting shares or other equity holders do not have substantive voting, participation, or liquidation rights, or 2) when the company has a controlling financial interest through its control of the board of directors, and the significant decisions of the entity are made at the board level.

The Company has either created or made investments in the following Asset Subsidiaries:

 

Consolidated Entities

 

Relationship as of March 31, 2022

 

Date Control First Acquired

Cullinan Amber Corp.

 

Partially-owned Subsidiary

 

December 2019

Cullinan Florentine Corp.

 

Partially-owned Subsidiary

 

December 2019

Cullinan Mica Corp.

 

Partially-owned Subsidiary

 

May 2020

Cullinan Pearl Corp.

 

Partially-owned Subsidiary

 

November 2018

 

Noncontrolling Interests

To the extent that ownership interests in the subsidiaries are held by entities other than the Company, management reports these as noncontrolling interests on the consolidated balance sheets. Earnings or losses are attributed to noncontrolling interests under the hypothetical liquidation at book value (HLBV) method. The HLBV method is a point in time calculation that utilizes inputs to determine the amount that the Company and the noncontrolling interest holders would receive upon a hypothetical liquidation at each balance sheet date based on the liquidation provisions of the respective articles of incorporation. At March 31, 2022, investors and licensors held noncontrolling interests in Amber, Florentine, MICA and Pearl. At March 31, 2021, investors and licensors held noncontrolling interests in Amber, Cullinan Apollo Corp. (Apollo), Florentine, MICA and Pearl. Apollo was dissolved in August 2021. Refer to Note 4 for details relating to the noncontrolling interests.

For the three months ended March 31, 2022 and 2021, $0.8 million of net loss and $1.5 million of net income, respectively, were attributable to noncontrolling interests and recorded in the consolidated statements of operations and comprehensive income (loss) and disclosed within the noncontrolling interests in subsidiaries column in the consolidated statements of stockholders’ equity.

 

6


 

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of March 31, 2022 and December 31, 2021, cash equivalents consist of government-backed money market funds.

Investments

Investments not classified as cash equivalents with maturities of less than twelve months are classified as short-term investments in the consolidated balance sheets. Investments with maturities greater than twelve months for which the Company has the intent and ability to hold the investment for greater than twelve months are classified as long-term investments in the consolidated balance sheets. The Company generally holds investments in marketable securities.

Marketable securities are carried at estimated fair value, with unrealized gains or losses included in accumulated other comprehensive income (loss) in stockholders’ equity. The fair value of marketable securities is based on available market information. The amortized cost of marketable securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Interest and dividends are also included in interest income. The Company periodically reviews its marketable securities for impairment and adjusts these investments to their fair value when a decline in market value is deemed to be other than temporary. Declines in fair value judged to be other-than-temporary on marketable securities, if any, are included in other income (expense), net.

The Company recognized its short-term and long-term investments by security type at March 31, 2022:

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Estimated
Fair Value

 

 

 

(in thousands)

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

$

107,976

 

 

$

 

 

$

(842

)

 

$

107,134

 

Asset-backed securities

 

 

3,034

 

 

 

 

 

 

(36

)

 

 

2,998

 

Commercial paper

 

 

75,918

 

 

 

 

 

 

(189

)

 

 

75,729

 

US government notes

 

 

53,246

 

 

 

 

 

 

(371

)

 

 

52,875

 

Total short-term investments

 

 

240,174

 

 

 

 

 

 

(1,438

)

 

 

238,736

 

Long-term investments

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

 

88,886

 

 

 

 

 

 

(1,584

)

 

 

87,302

 

Commercial paper

 

 

6,989

 

 

 

 

 

 

(113

)

 

 

6,876

 

Total long-term investments

 

 

95,875

 

 

 

 

 

 

(1,697

)

 

 

94,178

 

Total investments

 

$

336,049

 

 

$

 

 

$

(3,135

)

 

$

332,914

 

 

The Company recognized its short-term and long-term investments by security type at December 31, 2021:

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gains

 

 

Gross
Unrealized
Losses

 

 

Estimated
Fair Value

 

 

 

(in thousands)

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

Corporate notes

 

$

98,642

 

 

$

 

 

$

(95

)

 

$

98,547

 

Commercial paper

 

 

114,174

 

 

 

 

 

 

(27

)

 

 

114,147

 

US government notes

 

 

18,033

 

 

 

 

 

 

(35

)

 

 

17,998

 

Total short-term investments