Replimune Group Inc.
11/06/2025 | Press release | Distributed by Public on 11/06/2025 07:08
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
Management's discussion and analysis of financial condition and results of operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, or this Quarterly Report, and with our audited consolidated financial statements and notes thereto for the year ended March 31, 2025, included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2025.
In addition to historical information, some of the statements contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report, particularly including those risks identified in Part II, Item 1A "Risk Factors" and our other filings with the Securities Exchange Commission, or SEC.
We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. Statements made herein are as of the date of the filing of this Quarterly Report with the SEC and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
Overview
General
We are a clinical-stage biotechnology company committed to applying our leading expertise in the field of oncolytic immunotherapy to transform the lives of cancer patients through our novel oncolytic immunotherapies. Our proprietary oncolytic immunotherapy product candidates are intended to maximally activate the immune system against cancer.
Oncolytic immunotherapy is an emerging drug class, which we intend to establish as the second cornerstone of immune-based cancer treatments, alongside checkpoint blockade. Oncolytic immunotherapy exploits the ability of certain viruses to selectively replicate in and directly kill tumors, as well as induce a potent, patient-specific, anti-tumor immune response. Our product candidates incorporate multiple mechanisms of action into a practical "off-the-shelf" approach that is intended to maximize the immune response against a patient's cancer and to offer significant advantages over other approaches to inducing anti-tumor immunity, including personalized vaccine approaches. We believe that the bundling of multiple approaches for the treatment of cancer into single therapies will increase clinical efficacy and simplify the development path of our product candidates, while also improving patient outcomes.
Our proprietary RPx platform is based on a novel, engineered strain of herpes simplex virus 1, or HSV-1, backbone with added payloads intended to maximize immunogenic cell death and induce a systemic anti-tumor immune response. The RPx platform is intended to ignite local activity consisting of direct selective virus-mediated killing of the tumor resulting in the release of tumor-derived antigens and altering of the tumor microenvironment to then activate a strong and durable systemic response. Our product candidates are expected to be synergistic with most established and experimental cancer treatment modalities, and with an attractive safety profile, the RPx platform is expected to have the versatility to be developed alone or combined with a variety of other treatment options. We currently have three RPx product candidates in our development pipeline, RP1 (vusolimogene oderparepvec), our lead product candidate, RP2 and RP3. Although our fiscal year ends March 31st, our programs and program updates are reported on a calendar year basis.
We are conducting a number of clinical trials of RP1, both as a monotherapy and in combination with anti-PD-1 therapy, with a focus on establishing a major skin cancer franchise, assuming approval of our product candidates by the U.S. Food and Drug Administration, or the FDA, and similar applicable foreign regulatory agencies.
Our leading clinical trial of RP1 is referred to as the IGNYTE trial, which is a multi-cohort clinical trial being conducted in collaboration with Bristol Myers Squibb Company, or BMS, under which BMS has granted us a non-exclusive, royalty-free license to, and is supplying at no cost, its anti-PD-1 therapy, nivolumab, for use in combination with RP1.
The leading tumor specific cohort in the IGNYTE trial is our registration directed Phase 2 expansion cohort in anti-PD-1 failed cutaneous melanoma. The anti-PD-1 failed melanoma cohort from the IGNYTE trial includes 140 patients who received RP1 in combination with nivolumab. The primary analysis by independent central review was triggered once all patients had been followed for at least 12 months. As reported in the Journal of Clinical Oncology, July 8, 2025 (https://doi.org/10.1200/JCO-25-01346), of the 140 patients enrolled, 48.6% had stage IVM1b/c/d disease, 65.7% had primary anti-PD-1 resistance, 56.4% were PD-L1 negative, and 46.4% received prior anti-PD-1 and anti-cytotoxic T-lymphocyte antigen-4, or anti-CTLA-4, therapy. The confirmed ORR was 32.9% (15.0% complete response) and the responses occurred with similar frequency, depth, duration, and kinetics for injected and non-injected lesions, including visceral lesions. The median duration of response was 33.7 months and overall survival rates at 1 and 2 years were 75.3% and 63.3% , respectively. RP1 combined with nivolumab continues to be well-tolerated, with mainly Grade 1-2 "on target" side effects, observed.
In November 2024, we announced submission of a biologics license application, or BLA, to the FDA for RP1 (vusolimogene oderparepvec) in combination with nivolumab for the treatment of adult patients with advanced melanoma who have previously received an anti-PD-1 containing regimen, and that the FDA has granted Breakthrough Therapy designation for RP1 in combination with nivolumab in the same setting. The submission was made under the accelerated approval pathway. The FDA accepted our BLA and granted priority review with a Prescription Drug User Fee Act, or PDUFA, goal date of July 22, 2025. On July 21, 2025 the FDA issued a complete response letter, or CRL, for the RP1 BLA for the treatment of advanced melanoma. The FDA stated in the CRL that it was unable to approve the application in its present form and that the IGNYTE trial was not considered to be an adequate and well-controlled clinical investigation that provided substantial evidence of effectiveness, including contribution of components. Furthermore, the FDA said the trial could not be adequately interpreted due to the heterogeneity of the patient population. On September 2, 2025 we announced a type A meeting with the FDA had been scheduled to discuss the CRL following our submission of a briefing book addressing the points raised in the CRL, highlighting prior agreements related to the patient population, criteria for PD-1 resistance, and use of literature to support contribution of components. The briefing book also included an additional analysis of data from the BLA and addressed comments about the phase 3 confirmatory trial design raised by the FDA in the CRL. On September 18, 2025 we announced that, following the type A meeting with the FDA to discuss the CRL, which was conducted on September 16, 2025, we were evaluating feedback received during the meeting to determine our next steps and that, at that time, a path forward under the accelerated approval pathway had not been determined. Following the evaluation of FDA feedback and minutes from the type A meeting, we resubmitted the BLA on October 9, 2025. On October 20, 2025 we announced that the FDA had accepted the resubmission of the BLA for RP1 in combination with nivolumab for the treatment of advanced melanoma in patients who progress on an anti-PD-1 containing regimen. The resubmission included additional information, data and analyses that will be part of the BLA review. The FDA indicated that the resubmission is considered to be a complete response to the CRL and set a PDUFA date of April 10, 2026 based on a Class II resubmission timeline.
We plan to interact with the FDA during the review of the resubmitted BLA and, if approved, intend to bring RP1 to adult patients with advanced melanoma who have previously received an anti-PD-1 containing regimen who otherwise have limited treatment options. Without an approval of RP1 from this resubmitted BLA we might not be able to continue the development of RP1 for this indication, if at all, and we may be required to implement a restructuring plan and review our priorities across the RPx portfolio.
In August 2024, we announced the dosing of the first patient in the IGNYTE-3 trial, or the I-3 trial, a confirmatory study design concept consisting of a 2-arm randomized Phase 3 clinical trial with physician's choice of treatment as a comparator arm in anti-PD-1 failed melanoma patients. With over 100 sites planned globally and an expectation to enroll 400 patients, the I-3 trial will assess RP1 in combination with nivolumab in patients with advanced melanoma who have progressed on anti-PD-1 and anti-CTLA-4 therapies or are ineligible for anti-CTLA-4 treatment. In the type A meeting minutes following the CRL, the FDA stated a control arm of nivolumab in combination with relatlimab (OpdualagTM) may be an acceptable comparator for the I-3 randomized controlled trial. We continue to enroll patients in the I-3 trial.
On October 19, 2025 we announced data from a new ad hoc analysis from the IGNYTE phase 2 cohort of RP1 plus nivolumab, which was released at the European Society for Medical Oncology (ESMO) Congress 2025 held in Berlin. This ad hoc analysis focused on acral melanoma data from patients in the IGNYTE anti-PD-1 failed melanoma cohort and showed treatment with RP1 combined with nivolumab resulted in an objective response rate of 44% (8/18) with a median duration of response of 11.9 months. The safety profile was favorable with generally transient grade 1 and 2 treatment related adverse events, similar to those of the full IGNYTE patient population previously reported. Acral melanoma is a rare and aggressive type of cutaneous melanoma (2-3% of all melanoma cases) that frequently occurs on the palms of the hands, soles of the feet, and nailbeds, and often has poor outcomes with many patients presenting with in-transit metastases. Acral melanoma does not typically respond well to available therapies, such as immune checkpoint inhibitors. Following progression on first-line therapy,
aside from targeted therapy for a subset of patients with BRAF mutation-positive tumors, few viable treatment options exist for these patients.
In our non-melanoma skin cancer, or NMSC, cohort of the IGNYTE trial, we provided a data update in December 2023 from the first 30 patients with at least 6 months of follow up including patients with cutaneous squamous cell carcinoma, or CSCC, Merkel cell carcinoma, or MCC, basal cell carcinoma, or BCC, and angiosarcoma in this cohort. The data showed that treatment with RP1 in combination with nivolumab led to an ORR of 30% which is consistent with data from the anti-PD-1 failed melanoma cohort with approximately one-third of patients responding and 60% demonstrating clinical benefit. The combination of RP1 and nivolumab was well tolerated in this patient population with a safety profile consistent with the overall experience seen with this treatment regimen to date. We provided updated data from the NMSC cohort in our June 2025 Investor Day and in October 2025 at ESMO. Responses to RP1 plus nivolumab occurred across the NMSC tumor types enrolled, with confirmed responses seen in patients with both anti-PD-1 naïve and anti-PD-1 failed disease, as well as both in locally advanced and metastatic disease. The ORR by NMSC tumor type for anti-PD-1 naïve patients was 100.0% (n=4) in MCC, 33.3% (n=3) in BCC, 66.7% (n=6) in angiosarcoma, and 56.3% (n=16) in CSCC. The ORR by NMSC tumor type for anti-PD-1 failed patients was 26.3% (n=19) in MCC, 30.0% (n=10) in BCC, 37.5% (n=8) in angiosarcoma, and 15.2% (n=33) in CSCC. We are planning on closing enrollment in this cohort in the fourth quarter of 2025.
Furthering development of RP1, we have open for enrollment a Phase 1b/2 clinical trial of single agent RP1 in solid organ transplant recipients with skin cancers, including CSCC, which we refer to as the ARTACUS trial. We believe that the ARTACUS trial may be potentially registrational (in its own right or, subject to discussion with regulatory authorities, following enrollment of additional patients, including as a potential label expansion after an initial approval of RP1 in a different indication). We are currently planning to enroll up to 65 patients in the ARTACUS trial to assess the safety and efficacy of RP1 in liver, kidney, heart, lung, and hematopoietic cell transplant patients with skin cancers. In November 2023 we presented initial data from the ARTACUS trial of RP1 monotherapy in solid organ transplant recipients with skin cancers at the Society for Immunotherapy of Cancer's, or SITC, 38th Annual Meeting. The data included 23 evaluable patients with CSCC (n=20) and MCC (n=3), demonstrating an ORR of 34.5% and a complete response, or CR, of 21%. RP1 monotherapy was well tolerated in these patients and the safety profile was similar to that observed in our other RP1 clinical trials in patients who are not immune suppressed. No immune-mediated adverse events or evidence of allograft rejection were observed to result from RP1. This data was also presented during oral presentation at the American Association of Cancer Research 2024 Annual Meeting in April 2024. More recently, Dr. Michael R. Migden presented updated data from the ARTACUS trial at the Society for Melanoma Research 22nd International Congress in October 2025. We continue to enroll patients into the ARTACUS trial and are planning a publication of the ARTACUS data in 2026.
As previously reported, our clinical trial of RP1 in patients with CSCC, which we refer to as the CERPASS trial, continues as planned to follow patients that were dosed in the trial.
We are also developing or are continuing to develop additional product candidates, RP2 and RP3, that have been further engineered to enhance anti-tumor immune responses and are intended to address additional tumor types, including traditionally less immune responsive tumor types. In addition to the expression of GALV-GP R(-) and human GM-CSF as in RP1, RP2 has been engineered to express an antibody-like molecule intended to block the activity of CTLA-4, a protein that inhibits the full activation of an immune response, including to tumors. RP3 has been engineered with the intent to further stimulate an anti-tumor immune response through activation of immune co-stimulatory pathways through the additional expression of the ligands for CD40 and 4-1BBL, as well as anti-CTLA-4 and GALV-GP R(-), but without the expression of GM-CSF.
We continue the development of our product candidate RP2 with the goal of moving beyond skin cancers and aiming to treat the more prevalent tumor types commonly found in liver and lung metastasis and including those involving primary liver cancer. Notably, as previously reported, from our Phase-1 clinical trial of RP2 alone and in combination with nivolumab, we have seen durable responses from a monotherapy cohort in a variety of difficult to treat tumors as well as in combination with anti-PD-1 and in particular in patients with metastatic uveal melanoma, or mUM. In November 2023, we presented updated data from a cohort of mUM patients during a Plenary Session at the 20th Annual International Society for Melanoma Research Congress. The updated data showed RP2 led to an ORR of 29.4% (5 of 17 patients; one of the responding patients was treated with RP2 monotherapy and four of the responding patients were treated with RP2 combined with nivolumab), including responses in patients with liver, lung, and bone metastases. The median DOR at the data cutoff was 11.47 months (range of 2.78 to 21.22 with responses ongoing). Nearly all patients (15 of 17, 88.2%) in the study had progressed on or after immunotherapy with 12 of 17 patients (70.6%) having previously received both anti-PD-1 and anti-CTLA-4 therapies, including four of the responding patients. RP2 was generally well tolerated both as monotherapy and in combination with nivolumab with no additive adverse events observed. The most common grade 1 or 2 treatment related adverse events, or TRAEs, overall in both cohorts were pyrexia, chills, fatigue, hypotension and pruritis. Six patients had grade 3 TRAEs, including two cases of hypotension. There were no grade 4 or 5 TRAEs. In June 2024, we presented that the disease control rate for this cohort of mUM patients was 58.8%.
We have initiated and are enrolling patients in a registration-directed study, or the REVEAL study, of RP2 in mUM patients who are immune checkpoints inhibitor-naïve. The REVEAL study is a randomized, phase 2/3 open label study expected to enroll approximately 280 patients to investigate the efficacy and safety of RP2 in combination with nivolumab vs. ipilimumab in combination with nivolumab in immune checkpoint inhibitor naïve adult patients with metastatic uveal melanoma. The primary endpoints of the trial are overall survival and progression free survival, and key secondary endpoints are overall response rate and disease control rate.
We continue our signal finding trial of RP2 in combination with atezolizumab and bevacizumab in the 2L setting of patients with hepatocellular carcinoma, or HCC, in collaboration with Roche. This Phase 2 clinical trial is currently open and enrollment is underway. The protocol is currently being amended to include RP2 as monotherapy and we plan to release preliminary HCC data by the end of 2026.
We are also planning to open a cohort in our RP2 study to enroll patients with biliary tract cancer, or BTC, and dose RP2 in combination with durvalumab. This cohort is expected to enroll the first patient in the fourth quarter of 2025.
RP1, RP2 and RP3 are administered by direct injection into solid tumors, guided either visually or by ultrasound, computerized tomography or other imaging methods. We believe that direct injection maximizes virus-mediated tumor cell death, provides the most efficient delivery of virus-encoded immune activating proteins into the tumor with the goal of activating systemic immunity, and limits the systemic toxicities that could be associated with intravenous administration. Activation of systemic immunity through local administration is intended to lead to the induction of anti-tumor immune responses leading to clinical response of tumors that have not themselves been injected.
Financial
Since our inception, we have devoted substantially all of our resources to developing our proprietary RPx platform, building our intellectual property portfolio, conducting research and development of our product candidates, business planning, raising capital and providing general and administrative support for our operations. To date, we have incurred significant operating losses and we have financed our operations primarily with proceeds from the sale of equity securities and to a lesser extent, proceeds from borrowing under secured loan facilities. Our ability to generate product revenue sufficient to achieve profitability will dependon the successful development and eventual commercialization of one or more of our product candidates. We do not have any products approved for sale and have not generated any revenue from product sales.
Since our initial public offering, or IPO, on July 20, 2018, we have raised an aggregate of approximately $1,101.8 million in net proceeds to fund our operations, of which $101.2 million was from our IPO, $862.0 million was from four separate follow-on offerings, or the Public Offerings, that we closed in November 2019, June 2020, October 2020, December 2022, and November 2024, respectively, $96.7 million was from our private investment in public equity offering in June 2024, and $41.9 million was from at-the-market offerings. We sold 7,407,936 shares of common stock in our IPO, an aggregate of 28,968,857 shares of our common stock and pre-funded warrants to purchase 13,330,422 shares of common stock in the Public Offerings, 5,668,937 shares of our common stock and pre-funded warrants to purchase 5,669,578 shares of common stock through our private investment in public equity in June 2024, and 2,313,997 shares of common stock through our at-the-market facilities.
Our net losses were $83.1 million and $53.1 million for the three months ended September 30, 2025 and 2024, respectively, and $169.8 million and $106.8 million for the six months ended September 30, 2025 and 2024, respectively. As of September 30, 2025, we had an accumulated deficit of $1,118.4 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years.
We anticipate that our expenses and capital requirements will fluctuate from period to period depending upon the Company's development programs and priorities. We expect to continue to incur costs and expenses in the future and our expenses may increase if and as we:
•continue to conduct our current and future clinical trials;
•further preclinical development of our platform;
•operate our in-house manufacturing facility;
•seek to identify and develop additional product candidates;
•seek marketing approvals for any of our product candidates that successfully complete clinical trials, if any;
•establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;
•maintain, expand, protect and defend our intellectual property portfolio;
•hire and retain additional clinical, quality control, scientific and general and administration personnel;
•acquire or in-license other drugs, technologies or intellectual property rights; and
•add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and operations as a public company.
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses orwhen, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of September 30, 2025, we had cash and cash equivalents and short-term investments of $323.6 million. Based on our current operating plan including the commercialization of RP1 in the near term, we believe that our existing cash and cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements through at least 12 months from the issuance of the condensed consolidated financial statements included in this Quarterly Report.
See "-Liquidity and capital resources" and "Risk factors-Risks related to our financial position and need for additional capital."
Components of our results of operations
Revenue
To date, we have not generated any revenue from product sales as we do not have any approved products and we can not be certain we will generate any revenue from the sale of products in the future. If our development efforts for RP1 or any other product candidates that we may develop in the future are successful and result in regulatory approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from those collaborations or license agreements.
Operating expenses
Our expenses since inception have consisted solely of research and development costs and general and administrative costs.
Research and development expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates, and include:
•expenses incurred under agreements with third parties, including clinical research organizations, or CROs, that conduct research, preclinical activities and clinical trials on our behalf as well as contract manufacturing organizations, or CMOs, that manufacture raw materials and supplies for our product candidates and their manufacturing, packaging and labeling;
•salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
•costs of outside consultants engaged in research and development functions, including their fees, stock-based compensation and related travel expenses;
•the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials;
•costs related to compliance with regulatory requirements in connection with the development of our product candidates; and
•facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
These costs may be partially offset by cost-sharing arrangements under collaboration agreements that we may enter from time to time.
We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as prepaid or accrued research and development expenses.
Direct research and development costs, consisting of costs, such as fees paid to consultants, contractors, CMOs and CROs in connection with our preclinical and clinical development activities, are tracked by study. Additional costs, consisting primarily of our initial manufacturing costs, including materials, supplies, depreciation and facility costs, are allocated at a program level, based upon manufacturing runs, as the drug product can be utilized across multiple studies for any particular program. Additional costs to label, package and distribute the drug product is then directly allocated to the specific studies when incurred, as that drug product has then been assigned to a particular study. In the event our additional future or ongoing study costs become meaningful to investors, we will present those costs by study.
We do not allocate personnel costs, costs associated with our discovery efforts, laboratory supplies or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase for the foreseeable future as we continue enrollment in, and the initiation of, additional clinical trials, as well as the continued discovery and development of additional product candidates. However, if we determine that the continued development of RP1 is not viable, our outlook and plans may be uncertain and the impact on our research and development expenses will also be uncertain. At this time the ability to fund and successfully develop, and commercialize, if approved, our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:
•to what extent we are able to reach a mutually agreeable path forward with the FDA with respect to the scope, design, implementation and timing of an approval for RP1 (vusolimogene oderparepvec) in combination with nivolumab for the treatment of adult patients with advanced melanoma who have previously received an anti-PD-1 containing regimen the scope, rate of progress, expense and results of our ongoing clinical trials, as well as future clinical trials or other product candidates and other research and development activities that we may conduct;
•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;
•uncertainties in clinical trial design;
•the rate of enrollment in clinical trials;
•the successful completion of clinical trials with safety, tolerability, and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;
•the receipt of regulatory approvals from applicable regulatory authorities;
•our success in operating our manufacturing facility, or securing manufacturing supply through relationships with third parties;
•our ability to obtain and maintain patents, trade secret protection, and regulatory exclusivity, both in the United States and internationally;
•our ability to maintain, expand, protect and defend our rights in our intellectual property portfolio;
•the commercialization of our product candidates, if and when approved and the timing of such approval;
•the acceptance of our product candidates, if approved, by patients, the medical community, and third-party payors;
•our ability to successfully develop our product candidates for use in combination with third-party products or product candidates;
•negative developments in the field of immuno-oncology;
•competition with other products; and
•significant and changing government regulation and regulatory guidance and the views and implementation of such regulation and guidance from the leadership of the applicable regulatory agencies.
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, to modify the clinical design of any of our clinical trials as contemplated in the CRL or otherwise, if we experience significant trial delays due to patient enrollment or other reasons, we could be required to expend significant additional financial resources and time on the completion of clinical development. We may never succeed in obtaining regulatory approval for any of our product candidates.
Selling, general and administrative expenses
Selling, general and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate, commercial and business development and administrative functions. Selling, general and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services, pre-commercial planning, travel expenses, and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We expect that our selling, general and administrative expenses will continue to increase in the future as we increase our selling, general and administrative headcount to support our continued research and development and pre-launch activities to prepare for potential commercialization of our product candidates. We also expect to continue to incur increased expenses, including accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements; director and officer insurance costs; and investor and public relations costs. If we determine that the continued development of RP1 is not viable, we expect that our selling, general and administrative expenses will decrease but to what extent we are uncertain.
Other income (expense), net
Research and development incentives
Research and development incentives consists of reimbursements of research and development expenditures. We participate, through our subsidiary in the United Kingdom, in the research and development program provided by the United Kingdom tax relief program, such that a percentage of up to 16.2% of our qualifying research and development expenditures are reimbursed by the United Kingdom government, and such incentives are reflected as other income.
Investment income
Investment income consists of income earned on our cash and cash equivalents and short-term investments.
Interest expense on debt obligations
Interest expense on debt obligations consists of the amortization of debt discount and cash paid for interest under the loan agreement with Hercules.
Interest expense on finance lease liability
Interest expense on finance lease liability consists of amortization of finance charges under our financing lease.
Other (expense) income
Other (expense) income consists primarily of realized and unrealized foreign currency transaction gains and losses.
Income taxes
The Company's tax provision and the resulting effective tax rate for interim periods is determined based upon its estimated annual effective tax rate ("AETR"), adjusted for the effect of discrete items arising in that quarter. The impact of such inclusions could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings or losses versus annual projections. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, a cumulative adjustment is made in that quarter. For the three and six months ended September 30, 2025 and 2024, the Company excluded the United States and the United Kingdom from the calculation of the AETR as the Company anticipates an ordinary loss in this jurisdiction for which no tax benefit can be recognized.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets both in the United States and United Kingdom, which primarily consist of net operating loss carryforwards. The Company has considered its history of cumulative net losses, estimated future taxable income and prudent and feasible tax planning strategies and has concluded that it is more likely than not that the Company will not realize the benefits of its deferred tax assets. As a result, as of September 30, 2025 and March 31, 2025, the Company has recorded a full valuation allowance against its net deferred tax assets.
Results of operations
Comparison of the three months ended September 30, 2025 and 2024
The following chart summarizes our results of operations for the three months ended September 30, 2025 and 2024:
|
Three Months Ended
September 30,
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| 2025 | 2024 | Change | |||||||||||||||
| (Amounts in thousands) | |||||||||||||||||
| Operating expenses: | |||||||||||||||||
| Research and development | $ | 57,877 | $ | 43,448 | $ | 14,429 | |||||||||||
| Selling, general and administrative | 26,414 | 15,468 | 10,946 | ||||||||||||||
| Total operating expenses | 84,291 | 58,916 | 25,375 | ||||||||||||||
| Loss from operations | (84,291) | (58,916) | (25,375) | ||||||||||||||
| Other income (expense): | |||||||||||||||||
| Research and development incentives | 377 | 408 | (31) | ||||||||||||||
| Investment income | 3,696 | 5,394 | (1,698) | ||||||||||||||
| Interest expense on finance lease liability | (518) | (531) | 13 | ||||||||||||||
| Interest expense on debt obligations | (1,488) | (1,438) | (50) | ||||||||||||||
| Other (expense) income, net | (876) | 2,028 | (2,904) | ||||||||||||||
| Total other income (expense), net | 1,191 | 5,861 | (4,670) | ||||||||||||||
| Net loss | $ | (83,100) | $ | (53,055) | $ | (30,045) | |||||||||||
Research and development expenses
Research and development expenses for the three months ended September 30, 2025 were $57.9 million, compared to $43.4 million for the three months ended September 30, 2024. The following table summarizes our research and development expenses for the three months ended September 30, 2025 and 2024:
|
Three Months Ended
September 30,
|
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| 2025 | 2024 | Change | |||||||||||||||
| Direct research and development expenses by program | |||||||||||||||||
| RP1 program costs by study: | |||||||||||||||||
| IGNYTE | 2,562 | 3,700 | (1,138) | ||||||||||||||
| ARTACUS | 1,616 | 1,985 | (369) | ||||||||||||||
| CERPASS | 1,433 | 2,009 | (576) | ||||||||||||||
| IGNYTE-3 | 6,474 | 1,672 | 4,802 | ||||||||||||||
| Other RP1 study costs | 5,539 | 1,985 | 3,554 | ||||||||||||||
| Total RP1 costs | 17,624 | 11,351 | 6,273 | ||||||||||||||
| RP2 | 5,253 | 1,829 | 3,424 | ||||||||||||||
| RP3 | 580 | 1,118 | (538) | ||||||||||||||
| Unallocated research and development expenses: | |||||||||||||||||
| Personnel related (including stock-based compensation) | 26,642 | 20,817 | 5,825 | ||||||||||||||
| Other | 7,778 | 8,333 | (555) | ||||||||||||||
| Total research and development expenses | $ | 57,877 | $ | 43,448 | $ | 14,429 | |||||||||||
The overall increase of $14.4 million in total research and development expenses was driven by an increase of approximately $9.2 million in direct research costs, which includes an increase of $6.3 million in RP1 costs consisting primarily of $4.8 million in costs related to the IGNYTE-3 confirmatory study, which ramped up activity and enrollment in this current fiscal year. The increase in RP1 also includes $3.6 million of other study costs including lab and operating supplies to support the Company's anticipated commercial and clinical demand. In addition to the increases in RP1, there was an increase of $3.4 million in spending on RP2 as a result of increased enrollment as compared to the same quarter prior year.
The increase in spend of $5.3 million in our unallocated expenses is comprised of a $5.8 million increase in personnel related costs as a result of higher headcount year over year, slightly offset by a $0.6 million decrease in other costs. The increase in personnel related costs during the quarter was driven by the additional headcount that the Company hired in preparation for the potential launch of RP1 in advanced melanoma.
Selling, general and administrative expenses
Selling, general and administrative expenses were $26.4 million for the three months ended September 30, 2025, compared to $15.5 million for the three months ended September 30, 2024. The increase of $10.9 million is primarily the result of an increase of $9.5 million in sales and marketing costs, driven by personnel costs, as the Company continues preparation for its first potential commercial launch of RP1. Personnel related costs increased by approximately $7.2 million, including an increase of $7.9 million in payroll and fringe benefits, offset slightly by a decrease of $0.6 million in stock-based compensation expense. The increase in personnel related costs during the quarter was driven by continued focus on additional pre-launch planning and continued building of the Company's commercial infrastructure.
Total other income (expense), net
Other income (expense), net was $1.2 million for the three months ended September 30, 2025, compared to income of $5.9 million for the three months ended September 30, 2024. The net change of $4.7 million is primarily attributable to an increase in expense of $2.9 million in the current quarter compared to the prior year due to exchange rate fluctuations related to the changes in foreign exchange rates of the British Pound Sterling to the United States Dollar, specifically on intercompany and other non-functional currency transactions. In addition, there was a decrease in investment income of $1.7 million as a result of a lower investment balance year over year.
Comparison of the six months ended September 30, 2025 and 2024
The following chart summarizes our results of operations for the six months ended September 30, 2025 and 2024:
|
Six Months Ended September 30, |
|||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| (Amounts in thousands) | |||||||||||||||||
| Operating expenses: | |||||||||||||||||
| Research and development | $ | 115,721 | $ | 86,420 | $ | 29,301 | |||||||||||
| Selling, general and administrative | 58,994 | $ | 29,863 | 29,131 | |||||||||||||
| Total operating expenses | 174,715 | 116,283 | 58,432 | ||||||||||||||
| Loss from operations | (174,715) | (116,283) | (58,432) | ||||||||||||||
| Other income (expense): | |||||||||||||||||
| Research and development incentives | 797 | 846 | (49) | ||||||||||||||
| Investment income | 8,411 | 10,106 | (1,695) | ||||||||||||||
| Interest expense on finance lease liability | (1,039) | (1,065) | 26 | ||||||||||||||
| Interest expense on debt obligations | (2,963) | (2,864) | (99) | ||||||||||||||
| Other (expense) income, net | (284) | 2,433 | (2,717) | ||||||||||||||
| Total other income (expense), net | 4,922 | 9,456 | (4,534) | ||||||||||||||
| Net loss | $ | (169,793) | $ | (106,827) | $ | (62,966) | |||||||||||
Research and development expenses
Research and development expenses for the six months ended September 30, 2025 were $115.7 million, compared to $86.4 million for the six months ended September 30, 2024. The following table summarizes our research and development expenses for the six months ended September 30, 2025 and 2024:
| Six Months Ended September 30, | |||||||||||||||||
| 2025 | 2024 | Change | |||||||||||||||
| Direct research and development expenses by program | |||||||||||||||||
| RP1 program costs by study: | |||||||||||||||||
| IGNYTE | 6,014 | 7,604 | (1,590) | ||||||||||||||
| ARTACUS | 3,235 | 3,423 | (188) | ||||||||||||||
| CERPASS | 2,640 | 3,962 | (1,322) | ||||||||||||||
| IGNYTE-3 | 11,335 | 2,534 | 8,801 | ||||||||||||||
| Other RP1 study costs | 9,963 | 5,487 | 4,476 | ||||||||||||||
| Total RP1 costs | 33,187 | 23,010 | 10,177 | ||||||||||||||
| RP2 | 9,128 | 3,913 | 5,215 | ||||||||||||||
| RP3 | 1,437 | 2,422 | (985) | ||||||||||||||
| Unallocated research and development expenses: | |||||||||||||||||
| Personnel related (including stock-based compensation) | 53,966 | 42,603 | 11,363 | ||||||||||||||
| Other | 18,003 | 14,472 | 3,531 | ||||||||||||||
| Total research and development expenses | $ | 115,721 | $ | 86,420 | $ | 29,301 | |||||||||||
The total increase of $29.3 million in research and development expenses was attributable to an increase of $14.9 million in unallocated expenses, as well as an increase of $14.4 million in our direct research and development costs. The increase in unallocated expenses includes $11.4 million in personnel-related costs and $3.5 million in other costs. The increase in personnel-related costs is primarily attributable to a $10.6 million increase in payroll and fringe benefits as well as a $0.8 million increase in stock-based compensation expense. The increase in personnel-related costs largely reflected the increase in personnel in our research and development functions year over year as we expanded the development plan in multiple indications. The increase in other costs is driven primarily by an increase in consulting costs, medical affairs and facility costs.
The increase of approximately $14.4 million in our direct research and development costs primarily relates to an increase of $10.2 million in RP1 as a result of an increase of $8.8 million in spending related to the confirmatory study, which ramped up activity and enrollment in this current fiscal year, as well as $4.5 million in other RP1 study costs, specifically operating and lab supplies, and facility costs. These increases were slightly offset by decreases in the IGNYTE and CERPASS studies as a result of the completion of enrollment in the IGNYTE advanced melanoma cohort and declining enrollment and the wind down of the CERPASS study. In addition to the increases in RP1, there was a $5.2 million increase in spending on RP2 as a result of increased enrollment as compared to the prior year.
Selling, general and administrative expenses
Selling, general and administrative expenses were $59.0 million for the six months ended September 30, 2025, compared to $29.9 million for the six months ended September 30, 2024. The increase of approximately $29.1 million in sales, general and administrative costs is driven by an increase of $14.6 million in personnel-related costs, as well as $10.6 million in sales and marketing costs related to promotional materials, market access and insights and analytics, as the Company prepares for a potential commercial launch of RP1.
Total other income (expense), net
Other income (expense), net was $4.9 million for the six months ended September 30, 2025, compared to income of $9.5 million for the six months ended September 30, 2024. The net change of $4.5 million is primarily attributable to an increase in expense of $2.7 million in the current year compared to the prior year due to exchange rate fluctuations related to the changes in foreign exchange rates of the British Pound Sterling to the United States Dollar, specifically on intercompany and other non-functional currency transactions, as well as a decrease in investment income of $1.7 million as a result of the cash and investment balance being lower throughout the year as compared to the prior year due to normal cash burn.
Liquidity and capital resources
Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized any of our product candidates, which are in various phases of preclinical and clinical development, and we can not predict when we may generate revenue from sales of any products, if at all.
Sources of liquidity
To date, we have financed our operations primarily with proceeds from the sale of equity securities and, to a lesser extent, proceeds from borrowing under a secured loan facility. Through September 30, 2025, we had received net proceeds of $1,101.8 million through the sale of shares of common stock and pre-funded warrants exercisable for common stock in public offerings, a private investment in a public entity, and at-the-market offerings, as well as net $42.8 million from our incurrence of debt under the term loan agreement with Hercules. As of September 30, 2025, we had cash and cash equivalents and short-term investments of $323.6 million.
Cash flows
The following table summarizes our cash flows for each of the periods presented:
| Six Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| (Amounts in thousands) | |||||||||||
| Net cash used in operating activities | $ | (158,228) | $ | (87,806) | |||||||
|
Net cash provided by investing activities
|
149,217 | 30,224 | |||||||||
| Net cash provided by (used in) financing activities | 166 | 96,598 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 26 | 26 | |||||||||
| Net (decrease) increase in cash and cash equivalents | $ | (8,819) | $ | 39,042 | |||||||
Operating activities
During the six months ended September 30, 2025, net cash used in operating activities was $158.2 million, primarily resulting from our net loss of $169.8 million partially offset by non-cash charges of $18.9 million, which primarily consist of stock-based compensation expense of $17.1 million and depreciation and amortization of $3.3 million, somewhat offset by net amortization of premiums and discounts on short-term investments of $2.1 million, and a decrease in cash of $7.3 million related to changes in our operating assets and liabilities. Changes in our operating assets and liabilities for the six months ended September 30, 2025 consisted primarily of a $5.2 million decrease in accounts payable, a $2.8 million decrease in accrued expenses and other current liabilities, and a $1.3 million decrease in research and development incentives receivable from the United Kingdom government due to the timing and amount of our qualifying expenditures.
During the six months ended September 30, 2024, net cash used in operating activities was $87.8 million, primarily resulting from our net loss of $106.8 million partially offset by non-cash charges of $12.9 million, which primarily consist of stock-based compensation expense of $18.1 million, somewhat offset by net amortization of premiums and discounts on short-term investments of $5.2 million, and an increase in cash of $6.1 million related to changes in our operating assets and liabilities. Changes in our operating assets and liabilities for the six months ended September 30, 2024 consisted primarily of a $5.8 million increase in accounts payable, a $2.8 million decrease in accrued expenses and other current liabilities, a $2.2 million decrease in research and development incentives receivable from the United Kingdom government due to the timing and amount of our qualifying expenditures, and a net $1.2 million change in operating and financing right-of-use assets and lease liabilities.
Investing activities
During the six months ended September 30, 2025, net cash provided by investing activities was $149.2 million, consisting of $200.7 million in proceeds from sales and maturities of short-term investments, partially offset by $47.4 million in purchases of available for sale securities and $4.1 million in purchases of property, plant and equipment and capitalized software.
During the six months ended September 30, 2024, net cash provided by investing activities was $30.2 million, consisting of $228.9 million in proceeds from sales and maturities of short-term investments, partially offset by $194.9 million in purchases of available for sale securities, and $3.8 million in purchases of property, plant and equipment and capitalized software.
Financing Activities
During the six months ended September 30, 2025, net cash provided by financing activities was $0.2 million, relating to proceeds from the exercise of stock options and pre funded warrants, somewhat offset by principal payments of the Company's financing lease obligation.
During the six months ended September 30, 2024, net cash provided by financing activities was $96.6 million, consisting primarily of $96.7 million in proceeds from the Company's private investment in a public entity in June 2024.
Funding requirements
Our plan of operation is to continue implementing our business strategy, continue research and development of RP1 and our other product candidates and continue to expand our research pipeline and our internal research and development capabilities. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates and if and as we:
•conduct our current and future clinical trials with RP1, RP2 and RP3;
•further preclinical development of our RPx platform;
•operate, qualify and maintain our in-house manufacturing facility and qualify and maintain our product candidates made therein for use in our clinical trials;
•seek to identify and develop additional product candidates;
•seek marketing approvals for any of our product candidates that successfully complete clinical trials, if any;
•establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;
•until our planned manufacturing facility is fully validated, continued limited manufacturing by third parties for clinical development.
•maintain, expand, protect and defend our intellectual property portfolio;
•hire and retain additional clinical, quality control, scientific and general and administration personnel;
•acquire or in-license other drugs, technologies or third-party intellectual property; and
•add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and operations as a public company.
Following discussions with the FDA related to the CRL, we may determine that the continued development of RP1 is not viable. If we determine that the continued development of RP1 is not viable, our outlook and plans may be uncertain and the impact on our research and development expenses will also be uncertain.
As of September 30, 2025, we had cash and cash equivalents and short-term investments of $323.6 million. Based on our current operating plan, we believe that our existing cash, cash equivalents and short-term investments as of September 30, 2025, will enable us to fund operations late into the fourth quarter of 2026 which includes the potential commercialization of RP1 in skin cancers and for working capital and general corporate purposes and excludes any potential revenue. We have based these estimates on assumptions that may prove to be wrong, including the assumption that the development of RP1 will remain viable, and we could utilize our available capital resources sooner than we expect.
Because of the numerous risks and uncertainties associated with the development of RP1 and other product candidates and programs, and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future capital requirements will depend on many factors, including those described in this section and above under "-Operating expenses-Research and development expenses."
Developing novel biopharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any product candidates or generate revenue from the sale of any products for which we may obtain marketing approval. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of therapies that we can not be certain will become commercially available. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.
Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of our equity or convertible debt securities, our shareholders' interest may be diluted, and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect the rights of our common stockholder. Additional debt or preferred equity financing, if available, may involve agreements that include restrictive covenants that may limit our ability to take specific actions, such as incurring debt adversely impact our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute your ownership interest.
If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technology, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or collaborations, strategic alliances or licensing arrangements with third parties when needed, we may be required to delay, limit, reduce and/or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual obligations and commitments
During the three months ended September 30, 2025, there were no material changes to our contractual obligations and commitments from those described under the heading "Management's Discussion and Analysis of Financial Condition and
Results of Operations-Contractual Obligations and Commitments" in our Annual Report on Form 10-K for the year ended March 31, 2025, which was filed with the SEC on May 22, 2025.
Collaborations
BMS
In February 2018, we entered into a Clinical Trial Collaboration and Supply Agreement with BMS. Pursuant to the agreement, BMS is providing to us, at no cost, nivolumab, its anti-PD-1 therapy, for use in combination with RP1 in our ongoing Phase 1/2 clinical trial. Under the agreement, we will sponsor, fund and conduct the clinical trial in accordance with an agreed-upon protocol. BMS granted us a non-exclusive, non-transferrable, royalty-free license (with a right to sublicense) under its intellectual property to use nivolumab in the clinical trial and has agreed to supply nivolumab, at no cost to us, for use in the clinical trial. Both parties will own the study data produced in the clinical trial, other than study data related solely to nivolumab, which will belong solely to BMS, or study data related solely to RP1, which will belong solely to us. In January 2020, this agreement was expanded to cover an additional cohort of 125 patients with anti-PD-1 failed melanoma.
Unless earlier terminated, the agreement will remain in effect until (i) the completion of the clinical trial, (ii) all related clinical trial data have been delivered to both parties and (iii) the completion of any statistical analyses and bioanalyses contemplated by the clinical trial protocol or any analysis otherwise agreed upon by the parties. The agreement may be terminated by either party (x) in the event of an uncured material breach by the other party, (y) in the event the other party is insolvent or in bankruptcy proceedings or (z) for safety reasons. Upon termination, the licenses granted to us to use nivolumab in the clinical trial will terminate. The agreement contains representations, warranties, undertakings and indemnities customary for a transaction of this nature.
In April 2019, we entered into a separate agreement with BMS on terms similar to the terms set forth in the agreement described above, pursuant to which BMS will provide, at no cost to us, nivolumab for use in our Phase 1 clinical trial of RP2 in combination with nivolumab.
Roche
In December 2022, we entered into a Master Clinical Trial Collaboration and Supply Agreement with Roche in relation to our RP2 and RP3 programs in colorectal cancer, or CRC, and HCC. Under the agreement, the companies intended to collaborate in 30 patient cohort signal finding studies in third-line, or 3L, CRC and in first- and second-line, or 1L and 2L, respectively, HCC. Following our re-prioritization of our product development portfolio in December 2023, we have agreed with Roche to terminate the CRC collaboration and pursue the 2L cohort in HCC with RP2 only. Roche has continued to supply its currently approved drugs, atezolizumab and bevacizumab for the 2L cohort in HCC but is not sharing costs following our re-prioritization. Under the terms of the initial agreement we retained the responsibility of operating the clinical trials as well as retaining all the rights to the development and commercialization of our product candidates. The agreement may be terminated by either party upon sixty days prior written notice to the other party.
Critical accounting policies and estimates
Our management's discussion and analysis of financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in greater detail in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our condensed consolidated financial statements.
Accrued research and development expenses
As part of the process of preparing our condensed consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in the condensed consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to:
•CROs in connection with performing research activities and conducting preclinical studies and clinical trials on our behalf;
•CMOs in connection with the production of preclinical and clinical trial materials;
•investigative sites or other service providers in connection with clinical trials;
•vendors in connection with preclinical and clinical development activities; and
•vendors related to product manufacturing and development and distribution of preclinical and clinical supplies.
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Stock-based compensation
We issue stock-based awards to employees, directors, consultants and non-employees in the form of stock options and restricted stock units. We measure such stock-based awards in accordance with ASC 718, Compensation - Stock Compensation, which requires all stock-based awards to be recognized in the consolidated statements of operations and comprehensive loss based on their fair value on the date of the grant and the related compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. We have, to date, only issued stock-based awards with service-based vesting conditions and record the expense for these awards using the straight-line method. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and our expected dividend yield. See Note 10 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report for more information. Forfeitures are accounted for as they occur. The fair value of each stock-based award is estimated on the date of grant based on the fair value of our common stock on that same date.
We classify stock-based compensation expense in our consolidated statements of operations in the same manner in which the award recipient's payroll costs are classified or in which the award recipient's service payments are classified.
Recently issued accounting pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report.
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