SEC Filing — Finch Therapeutics

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10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 June 30, 2022


☐	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: 001-40227

FINCH THERAPEUTICS GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware	82-3433558
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

200 Inner Belt Road, Suite 400 Somerville, Massachusetts	02143
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 229-6499

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, $0.001 par value per share

FNCH

The Nasdaq Stock Market LLC

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.

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 August 8, 2022 there were 47,688,433 outstanding shares of the registrant’s common stock, par value $0.001 per share.

FINCH THERAPEUTICS, INC.

FORM 10-Q

For the quarterly period ended June 30, 2022

Table of Contents


		Page

	SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	ii
	SPECIAL NOTE REGARDING COMPANY REFERENCES	iii
	SPECIAL NOTE REGARDING TRADEMARKS	iii

PART I.	FINANCIAL INFORMATION	1
Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021	2
	Condensed Consolidated Statements of Stockholders' Equity (Deficit) for the Three and Six Months Ended June 30, 2022 and 2021	3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION	34
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 5.	Other Information	38
Item 6.	Exhibits	39
	Signatures	40

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will” or “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

•

the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and related preparatory work and the period during which the results of the trials will become available, as well as our research and development programs, including our ability to satisfactorily address FDA correspondence;

•

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

•

our ability to obtain regulatory approval of CP101, FIN-211 and any other current or future product candidates that we develop;

•

our ability to identify and develop additional product candidates;

•

our ability to advance product candidates into, and successfully complete, preclinical studies and clinical trials;

•

our ability to contract with contract research organizations, contract manufacturing organizations, third-party suppliers and manufacturers and other third parties with which the Company does business and their ability to perform adequately;

•

our expectations regarding the potential market size and the rate and degree of market acceptance for any product candidates that we develop;

•

our ability to fund our working capital requirements and to service any debt obligations we may incur;

•

our intellectual property position, including the scope of protection we are able to establish, maintain and enforce for intellectual property rights covering our product candidates;

•

our financial performance and our ability to effectively manage our anticipated growth; and

•

our ability to obtain additional funding for our operations;

These forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions and are not guarantees of future performance or development. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including the risk that correspondence from the FDA may require us to collect additional data or information beyond what we currently expect; uncertainties relating to regulatory applications and related filing and approval timelines; our limited operating history and historical losses; the possibility that we may be delayed in initiating, enrolling or completing any clinical trials; unexpected regulatory actions or delays, such as requests for additional safety and/or efficacy data or analysis of data, and including with respect to the FDA's planned review of the validation package for one of our release tests, which is utilized for both CP101 and FIN-211, or government regulation generally; our ability to comply with regulatory requirements; the possibility that we may experience unanticipated regulatory or other development problems with any of our product candidates; ongoing regulatory obligations and continued regulatory review may result in significant additional expense and we may be subject to penalties for failure to comply; our ability to maintain patent and other intellectual property protection and the possibility that our intellectual property rights may be infringed, invalid or unenforceable or will be threatened by third parties; our ability to qualify and scale our manufacturing capabilities to support multiple global clinical trials; our dependence on third parties in connection with manufacturing, clinical trials and preclinical studies; the impact and duration of the COVID-19 pandemic on our business, as well as those described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 and in any other reports we file with the Securities and Exchange Commission, including this Quarterly Report on Form 10-Q. 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 any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

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 report, and such information may be limited or incomplete.

These 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.

You should read this Quarterly Report on Form 10-Q, completely and with the understanding that our actual future results may be materially different from what we expect. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance, or events and circumstances reflected in our forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to new information, actual results or changes in our expectations, except as required by law. We qualify all of our forward-looking statements by these cautionary statements.

SPECIAL NOTE REGARDING COMPANY REFERENCES

Unless the context otherwise requires, references in this Quarterly Report on Form 10-Q to “FTG,” the “Company,” “we,” “us” and “our” refer to Finch Therapeutics Group, Inc. and its subsidiaries.

SPECIAL NOTE REGARDING TRADEMARKS

All trademarks, trade names and service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

iii

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

FINCH THERAPEUTICS GROUP, INC.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except share and per share data)


	JUNE 30, 2022			DECEMBER 31, 2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	104,673		$	133,481
Accounts receivable		174			494
Prepaid expenses and other current assets		5,698			8,576
Total current assets		110,545			142,551
Property and equipment, net		18,445			19,635
Operating right-of-use assets		41,189			5,053
In-process research and development		32,900			32,900
Goodwill		18,057			18,057
Restricted cash, non-current		2,568			2,268
Other assets		4,597			4,905
TOTAL ASSETS	$	228,301		$	225,369
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	1,013		$	3,737
Accrued expenses and other current liabilities		9,415			9,925
Operating lease liabilities, current		4,755			1,128
Total current liabilities		15,183			14,790
Deferred tax liability		3,461			3,461
Loan payable, non-current		14,620			—
Operating lease liabilities, non-current		35,865			4,887
Other liabilities		80			7
Total liabilities		69,209			23,145
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS’ EQUITY:
Common stock, $0.001 par value; 200,000,000 shares authorized as of June 30, 2022 and December 31, 2021; 47,685,713 and 47,512,182 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively		48			47
Additional paid-in capital		367,306			363,172
Accumulated deficit		(208,262	)		(160,995	)
Total stockholders’ equity		159,092			202,224
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	228,301		$	225,369

See notes to unaudited condensed consolidated financial statements.

FINCH THERAPEUTICS GROUP, INC.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except share and per share data)


	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2022			2021			2022			2021
REVENUE:
Collaboration revenue	$	361		$	2,830		$	715		$	6,383
Total revenue		361			2,830			715			6,383
OPERATING EXPENSES:
Research and development		(13,923	)		(13,964	)		(29,453	)		(26,939	)
General and administrative		(8,164	)		(5,882	)		(17,568	)		(10,433	)
Restructuring expense		(903	)		—			(903	)		—
Total operating expenses		(22,990	)		(19,846	)		(47,924	)		(37,372	)
Net loss from operations		(22,629	)		(17,016	)		(47,209	)		(30,989	)
OTHER (EXPENSE) INCOME, NET:
Gain on extinguishment of PPP Loan		—			1,827			—			1,827
Interest (expense) income, net		(65	)		7			(52	)		6
(Loss) gain on disposal of fixed assets, net		(6	)		28			(6	)		28
Other expense, net		—			(15	)		—			(22	)
Total other (expense) income, net		(71	)		1,847			(58	)		1,839
Loss before income taxes		(22,700	)		(15,169	)		(47,267	)		(29,150	)
Income tax provision		—			—			—			—
Net loss	$	(22,700	)	$	(15,169	)	$	(47,267	)	$	(29,150	)
Net loss attributable to common stockholders—basic and diluted (Note 17)	$	(22,700	)	$	(15,169	)	$	(47,267	)	$	(29,150	)
Net loss per share attributable to common stockholders—basic and diluted	$	(0.48	)	$	(0.32	)	$	(0.99	)	$	(0.95	)
Weighted-average common stock outstanding—basic and diluted		47,576,349			47,379,887			47,552,780			30,798,698

See notes to unaudited condensed consolidated financial statements.

FINCH THERAPEUTICS GROUP, INC.

Condensed Consolidated Statements of Redeemable Convertible

Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited, in thousands, except share and per share data)


	REDEEMABLE CONVERTIBLE PREFERRED STOCK
	$0.001 PAR VALUE SERIES A						$0.001 PAR VALUE SERIES B						$0.001 PAR VALUE SERIES C						$0.001 PAR VALUE SERIES D						COMMON STOCK $0.001 PAR VALUE					ADDITIONAL PAID-IN			ACCUMULATED			TOTAL STOCKHOLDERS’
	SHARES			AMOUNT			SHARES			AMOUNT			SHARES			AMOUNT			SHARES			AMOUNT			SHARES			AMOUNT		CAPITAL			DEFICIT			EQUITY (DEFICIT)
BALANCE, January 1, 2021		11,596,280		$	53,593			5,166,203		$	36,336			7,588,254		$	53,221			6,902,872		$	89,904			8,391,793		$	8	$	7,109		$	(102,835	)	$	(95,718	)
Conversion of redeemable convertible preferred stock into common stock upon initial public offering		(11,596,280	)		(53,593	)		(5,166,203	)		(36,336	)		(7,588,254	)		(53,221	)		(6,902,872	)		(89,904	)		31,253,609			31		233,022			—			233,053
Initial public offering, net of underwriting discounts, commissions and net of offering costs of $11,786		—			—			—			—			—			—			—			—			7,500,000			8		115,706			—			115,714
Exercise of common stock options		—			—			—			—			—			—			—			—			81,901			—		54			—			54
Stock-based compensation		—			—			—			—			—			—			—			—			—			—		335			—			335
Net loss		—			—			—			—			—			—			—			—			—			—		—			(13,981	)		(13,981	)
BALANCE, March 31, 2021		—		$	—			—		$	—			—		$	—			—		$	—			47,227,303		$	47	$	356,226		$	(116,816	)	$	239,457
Underwriters' exercise of overallotment option, net of underwriting discounts, commissions and initial public offering costs of $276		—			—			—			—			—			—			—			—			192,877			—		3,003			—			3,003
Exercise of common stock options		—			—			—			—			—			—			—			—			6,793			—		7			—			7
Shares repurchased for cashless exercise		—			—			—			—			—			—			—			—			(1,221	)		—		(10	)		—			(10	)
Stock-based compensation		—			—			—			—			—			—			—			—			—			—		905			—			905
Net loss		—			—			—			—			—			—			—			—			—			—		—			(15,169	)		(15,169	)
BALANCE, June 30, 2021		—		$	—			—		$	—			—		$	—			—		$	—			47,425,752		$	47	$	360,131		$	(131,985	)	$	228,193

FINCH THERAPEUTICS GROUP, INC.

Condensed Consolidated Statements of Redeemable Convertible

Preferred Stock and Stockholders’ Equity (Deficit) (Continued)

(Unaudited, in thousands, except share and per share data)



	COMMON STOCK $0.001 PAR VALUE		ADDITIONAL PAID-IN	ACCUMULATED	TOTAL STOCKHOLDERS’
	SHARES	AMOUNT	CAPITAL	DEFICIT	EQUITY
BALANCE, January 1, 2022	47,512,182	$47	$363,172	$(160,995)	$202,224
Exercise of common stock options	20,406	1	13	—	14
Stock-based compensation	—	—	2,120	—	2,120
Net loss	—	—	—	$(24,567)	(24,567)
BALANCE, March 31, 2022	47,532,588	$48	$365,305	$(185,562)	$179,791
Exercise of common stock options	98,370	—	61	—	61
Issuance of common stock under employee stock purchase plan	54,755	—	110	—	110
Stock-based compensation	—	—	1,830	—	1,830
Net loss	—	—	—	(22,700)	(22,700)
BALANCE, June 30, 2022	47,685,713	$48	$367,306	$(208,262)	$159,092

See notes to unaudited condensed consolidated financial statements.

FINCH THERAPEUTICS GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)


	SIX MONTHS ENDED JUNE 30,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(47,267	)	$	(29,150	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense		2,694			985
Stock-based compensation expense		3,950			1,240
Gain on extinguishment of PPP Loan		—			(1,808	)
Non-cash interest expense		44			—
Loss (gain) on sale of property and equipment		6			(28	)
Other non-cash operating lease cost		959			440
Changes in operating assets and liabilities:
Accounts receivable		320			(1,211	)
Due from related party		—			56
Prepaid expenses and other current assets		(4,858	)		(1,258	)
Other non-current assets		308			(3,824	)
Accounts payable		(2,431	)		(1,467	)
Accrued expenses and other current liabilities		(506	)		591
Other non-current liabilities		50			—
Due to related party		—			(258	)
Deferred revenue		—