Acumen Pharmaceuticals, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the audited financial statements and notes thereto as of and for the year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report. This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading “Special Note Regarding Forward-Looking Statements” in this Quarterly Report on Form 10-Q. You should review the disclosure under the heading “Risk Factors” in the Annual Report for a discussion of important factors that could cause our actual results to differ materially from those described in or implied by these forward-looking statements. Overview We are a clinical-stage biopharmaceutical company developing a novel disease-modifying approach to target what we believe to be a key underlying cause of Alzheimer’s disease, or AD. Alzheimer’s disease is a progressive neurodegenerative disease of the brain that leads to loss of memory and cognitive functions and ultimately results in death. Our scientific founders pioneered research on soluble amyloid-beta oligomers, or AßOs, which are globular assemblies of the amyloid-beta, or Aß, peptide that are distinct from Aß monomers and amyloid plaques. Based on decades of research and supporting evidence, AßOs have gained increasing scientific acceptance as primary toxins involved in the initiation and propagation of AD pathology. We are currently focused on advancing a targeted immunotherapy drug candidate, ACU193. ACU193 is a recombinant humanized immunoglobulin gamma 2, or IgG2, monoclonal antibody, or mAb, that was designed to selectively target AßOs, has demonstrated functional and protective effects in in vitro assays, and has demonstrated in vivo safety and pharmacologic activity in multiple animal species, including transgenic mouse models for AD. We initiated a Phase 1 clinical trial of ACU193 in the second quarter of 2021, which we named “INTERCEPT-AD.” This trial enrolled 65 participants with “early AD.” INTERCEPT-AD was a U.S.-based, multi-center, randomized, double-blind, placebo-controlled clinical trial with overlapping single ascending dose, or SAD, and multiple ascending dose, or MAD, cohorts evaluating patients with early AD. The overall objective of the trial was to evaluate the safety and tolerability of ACU193 and to establish clinical proof of mechanism of ACU193 administered intravenously. The primary trial endpoints were focused on safety and immunogenicity. An important safety measure was the use of magnetic resonance imaging, or MRI, to assess the presence or absence of amyloid-related imaging abnormalities, or ARIA. Secondary endpoints included pharmacokinetics in plasma and cerebrospinal fluid, or CSF, and target engagement as evidenced by detection of ACU193 bound to AßOs in CSF. Clinical scales typically used in AD trials as well as computerized cognitive testing and arterial spin labelling with MRI scans (which can be used to assess cerebral blood flow) were included as exploratory measures. In July 2023, we announced topline results from INTERCEPT-AD, which demonstrated that ACU193 met the primary and secondary objectives of this study in 60 participants with early Alzheimer’s disease. Dose levels were 2, 10, 25 and 60 mg/kg for one to three doses administered intravenously. • An analysis of change in amyloid plaque load, as measured by positron emission tomography, PET, SUVr, demonstrated a rapid, dose-related mean decrease at the higher dose levels studied. ACU193 (60 mg/kg every 4 weeks [Q4W] and 25 mg/kg every 2 weeks [Q2W]) showed a statistically significant reduction in amyloid plaque load as determined by amyloid PET after 6-12 weeks (from baseline to endpoint within cohorts (p = 0.01)). This finding provides evidence that ACU193 is active in the brain. • ACU193 was well-tolerated throughout the SAD and MAD dose cohorts. Three treatment-emergent serious adverse events were observed after administration of ACU193; all were deemed not related or unlikely related to ACU193. The most common treatment-emergent adverse events from all dose groups combined were ARIA-E (10.4%), ARIA-H (hemorrhage) (8.3%), COVID-19 (6.3%), hypersensitivity (6.3%), bronchitis (4.2%), headache (4.2%), fall (4.2%) and post LP syndrome (4.2%). The overall rate of ARIA-E was 10.4%, which included one case of symptomatic ARIA-E (2.1%). Of note, no apolipoprotein E, or APOE4, homozygote patients exhibited ARIA-E (n=6 treated). • Pharmacokinetic, or PK, results in CSF demonstrated statistically significant dose proportionality. Serum PK was dose-related without drug accumulation, and CSF PK was dose- and dose-regimen proportional. Levels of ACU193 detected in CSF in all cohorts were in excess of endogenous levels of AßOs reported in CSF. Evidence 18 Table of Contents of treatment emergent immunogenicity was observed; anti-drug antibodies were consistently low titer and preliminary assessment revealed no apparent effect on serum PK. These data support monthly dosing of ACU193. • Statistically significant, dose-related central target engagement was observed as measured by ACU193-AßO complex, establishing the first target engagement assay developed that is specific to an AßO-targeting antibody. An exposure response relationship (Emax) model revealed near maximal target engagement with repeated dosing at 25 mg/kg and 60 mg/kg. • Exploratory measures of potential acute drug effects including assessment of cognition, as determined by a computerized cognitive battery, and changes in cerebral blood flow, as determined by arterial spin labelling with magnetic resonance imaging (Siemens MRI), did not show discernible effects from the immediate administration of ACU193. This was not unexpected due to the short duration and small sample size of INTERCEPT-AD. • Additional biofluids for assessment of biomarkers of downstream neurodegeneration were collected during the study. Analyses of plasma biomarker samples are in progress. CSF biomarker data shows an observed dose dependent trend in the multiple ascending dose cohorts toward drug effect in CSF levels that ACU193 had on p-tau181, total tau, neurogranin and the Aß-42/40 ratio. At the 60 mg/kg Q4W dose of ACU193, nominally statistically significant improvements in neurogranin and p-tau181 were observed as compared to the placebo group (p=0.037 and p=0.049, respectively). Nominally significant correlation was also observed between target engagement of AßOs and change in CSF neurogranin across all doses, and a trend was seen for change in target engagement versus CSF p-tau181. Additional data from the INTERCEPT-AD study were presented at the 2023 Clinical Trials on Alzheimer’s Disease and have been submitted for publication in a peer-reviewed clinical journal. Additionally, we interacted with the U.S. Food and Drug Administration, or FDA, in the fourth quarter of 2023 to assess the next steps for the clinical development of ACU193, and determine the feasibility of and timeline for progressing to a Phase 2/3 clinical study. The FDA had no objection to Acumen progressing to a Phase 2/3 clinical study, and we plan to initiate the Phase 2 portion of the study in the first half of 2024. In alignment with the guidance from the FDA, and as a means to avoid bias and protect the study’s integrity, the timing of and data from the interim readouts of Phase 2 will not be publicly disclosed. Earlier this year, we completed drug formulation studies to confirm that we can concentrate ACU193 to a level that enables subcutaneous administration. On November 5, 2023, we entered into a Non-exclusive Collaboration and License Agreement, or the Halozyme License Agreement, with Halozyme, Inc., or Halozyme. Under the terms of the Halozyme License Agreement, Halozyme granted us a non-exclusive license to Halozyme’s ENHANZE® drug delivery technology for the development of a subcutaneous formulation of ACU193. Halozyme will also be our exclusive supplier of clinical and commercial supplies of the API for Halozyme’s PH20 product. We have incurred net losses and negative cash flows from operations since our inception. Our net losses were $35.9 million and $30.0 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, we had an accumulated deficit of $206.3 million and working capital of $212.5 million. Our net losses and cash flows from operations may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of nonclinical studies, clinical trials and our expenditures on other research and development activities. We expect our expenses and operating losses will increase substantially for the foreseeable future as we advance ACU193 in clinical trials, seek to expand our product candidate portfolio through developing additional product candidates, grow our clinical, regulatory and quality capabilities, and incur additional costs associated with operating as a public company. It is likely that we will seek third-party collaborators for the future, late stage clinical development and commercialization of ACU193 or any other product candidate that is approved for marketing. Should we seek to commercialize our products at our own expense, this would require us to incur significant additional expenses for marketing, sales, manufacturing and distribution. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings and debt financings or other sources, such as potential collaboration 19 Table of Contents agreements, strategic alliances and licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. However, global economic conditions have been worsening, with disruptions to, and volatility in, the credit and financial markets in the U.S. and worldwide, rising inflation and supply disruptions resulting from the effects of COVID-19, the ongoing conflict between Russia and Ukraine and related sanctions, and otherwise. If these conditions persist and deepen, we could experience an inability to access additional capital, or our liquidity could otherwise be impacted. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs and/or future commercialization efforts. Our failure to raise capital or enter into such agreements as, and when needed, could have a material adverse effect on our business, results of operations and financial condition. As of September 30, 2023, we had cash and cash equivalents and marketable securities totaling $282.7 million. On November 10, 2023, we received the first tranche of $30.0 million under our Loan and Security Agreement with K2 HealthVentures LLC, or the Loan Agreement. Based on our current operating plan, we expect that our existing cash and cash equivalents and marketable securities, inclusive of the funds received pursuant to the Loan Agreement, will be sufficient to enable us to fund our oper ating expenses and capital expenditure requirements into the second half of 2026. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect, including based on our decision to initiate other clinical trials or programs. See “—Liquidity and Capital Resources.” Components of Results of Operations Operating Expenses Our operating expenses consist of research and development expenses and general and administrative expenses. Research and Development Expenses Research and development costs primarily consist of direct costs associated with consultants and materials, biologic storage, third party contract research organization, or CRO, costs and contract manufacturing organization, or CMO, expenses, and salaries and other personnel-related expenses. Research and development costs are expensed as incurred. More specifically, these costs include: • costs of funding research performed by third parties that conduct research and development and nonclinical and clinical activities on our behalf; • costs of manufacturing drug supply and drug product; • costs of conducting nonclinical studies and clinical trials of our product candidates; • consulting and professional fees related to research and development activities, including stock-based compensation to non-employees; • costs related to compliance with clinical regulatory requirements; and • employee-related expenses, including salaries, benefits and stock-based compensation expense for our research and development personnel. As we currently only have one product candidate, ACU193, in development, we do not separately track expenses by program. Further, we have historically relied primarily on consultants for research and development activities; our internal research and development personnel costs currently represent approximately 22% of our total research and development expenses. Our research and development expenses increased substantially since initiating the clinical trial for our ACU193 program in 2021. We expect that our research and development expenses will increase substantially in connection with our clinical development activities for our ACU193 program. General and Administrative Expenses General and administrative expenses consist primarily of employee-related expenses, including stock-based compensation costs, as well as business insurance, management and business consultants and other related costs. General and administrative expenses also include professional fees for legal, accounting, auditing, tax and patent services, investor and public relations, board of directors’ expenses, information technology, franchise taxes, rent, travel expenses and dues and subscriptions. 20 Table of Contents We expect that our general and administrative expenses will increase as our organization and headcount needed in the future grows to support continued research and development activities and potential commercialization of our product candidates. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, attorneys and accountants, among other expenses. Additionally, we expect to continue to incur increased expenses associated with being a public company, including costs of additional personnel, accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs, and investor and public relations costs. Other Income (Expense) Other income (expense) primarily includes interest income, net and other expense, net. Following both our initial public offering, or IPO, and the public offering we completed on July 21, 2023, or the Offering, we made investments in marketable securities and the interest income earned, as well as the amortization and accretion of premiums and discounts are recorded in interest income, net. Other expense, net generally consists of fees incurred on our investments in marketable securities partially offset by sublease income. Results of Operations Comparison of the Three Months Ended September 30, 2023 and 2022 The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022 (in thousands): Three Months Ended September 30, Change 2023 2022 $ % Operating expenses Research and development $ 11,179 $ 8,309 $ 2,870 35 % General and administrative 4,860 3,062 1,798 59 % Total operating expenses 16,039 11,371 4,668 41 % Loss from operations (16,039) (11,371) (4,668) (41) % Other income (expense) Interest income, net 3,124 663 2,461 * Other expense, net (42) (2) (40) * Total other income 3,082 661 2,421 * Net loss $ (12,957) $ (10,710) $ (2,247) (21) % * Not meaningful Research and Development Expenses Research and development expenses were $11.2 million and $8.3 million for the three months ended September 30, 2023 and 2022, respectively. The $2.9 million increase was primarily due to increases of $1.8 million for materials, $1.0 million for consulting costs, $0.6 million in additional personnel expense, including a $0.2 million increase for non-cash stock compensation expense, $0.2 million for storage, shipping and packaging costs and $0.2 million for other miscellaneous, net; all of which were partially offset by decreases of $0.6 million for CRO costs and $0.3 million for other clinical trial expenses. The decrease in CRO costs was primarily driven by the completion of our Phase 1 trial, resulting in lower expenses that were only partially offset by the costs incurred during the current planning phase for our upcoming Phase 2 clinical trial, which is expected to begin in the first half of 2024. General and Administrative Expenses General and administrative expenses were $4.9 million and $3.1 million for the three months ended September 30, 2023 and 2022, respectively. The $1.8 million increase was primarily due to increases of $1.1 million in personnel expenses, including a $0.6 million increase for non-cash stock compensation expenses, $0.4 million in consulting expenses mainly related to business development and financial consultants, $0.4 million for professional fees associated with legal expenses 21 Table of Contents and patent services, and $0.1 million for audit fees; all of which were partially offset by a decrease of $0.2 million for insurance expense. Other Income (Expense) Other income was $3.1 million and $0.7 million for the three months ended September 30, 2023 and 2022, which was primarily related to net interest income on our portfolio of marketable securities. The $2.5 million increase in interest income was mainly due to higher interest rates, but our increased investment in marketable securities following the Offering also contributed. Other expense, net increased as a result of both higher fees on our marketable securities investments and a reduction in sublease income during the three months ended September 30, 2023. Results of Operations Comparison of the Nine Months Ended September 30, 2023 and 2022 The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022 (in thousands): Nine Months Ended September 30, Change 2023 2022 $ % Operating expenses Research and development $ 29,025 $ 21,615 $ 7,410 34 % General and administrative 13,627 9,374 4,253 45 % Total operating expenses 42,652 30,989 11,663 38 % Loss from operations (42,652) (30,989) (11,663) (38) % Other income (expense) Interest income, net 6,840 1,000 5,840 * Other expense, net (62) (1) (61) * Total other income 6,778 999 5,779 * Net loss $ (35,874) $ (29,990) $ (5,884) (20) % * Not meaningful Research and Development Expenses Research and development expenses were $29.0 million and $21.6 million for the nine months ended September 30, 2023 and 2022, respectively. The $7.4 million increase in research and development expenses was primarily due to $2.6 million for higher personnel costs, which included a $0.7 million increase for non-cash stock compensation expenses, a $2.2 million increase related to services provided by research and development contractors and consultants, increases of $1.4 million for CRO costs, as well as $0.7 million for materials, $0.5 million for storage, shipping and packaging, and $0.4 million for license agreement costs; all of which were partially offset by a decrease of $0.4 million for other clinical trial expenses. The increase in CRO costs of $1.4 million was primarily due to $2.3 million of costs incurred associated with planning for our anticipated Phase 2 clinical trial, which we expect to begin in the first half of 2024, and such expenses were partially offset by a $0.9 million decrease in CRO costs associated with our Phase 1 clinical trial, which was initiated in 2021 and for which topline results were announced in July 2023. General and Administrative Expenses General and administrative expenses were $13.6 million and $9.4 million for the nine months ended September 30, 2023 and 2022, respectively. The $4.3 million increase was primarily due to increases of $3.5 million in personnel costs, including a $1.6 million increase for non-cash stock compensation expenses, $0.7 million for consulting expenses mainly related to business development, human resources and marketing, $0.5 million for professional fees associated with patent services, audit and tax, legal expenses and public relations costs and $0.1 million for computer hardware and software licenses and $0.1 million for travel; all of which were partially offset by a decrease of $0.6 million for insurance expense. 22 Table of Contents Other Income (Expense) Other income was $6.8 million and $1.0 million for the nine months ended September 30, 2023 and 2022, respectively; which was primarily related to net interest income on our portfolio of marketable securities. The $5.8 million increase in interest income was primarily due to higher interest rates, but our increased investment in marketable securities following the Offering also contributed. Other expense, net increased as a result of both higher fees on our marketable securities investments and a reduction in sublease income during the nine months ended September 30, 2023. Liquidity and Capital Resources We have incurred net losses since inception. We have not generated any revenue from product sales or any other sources other than grant revenue and have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of any drug candidates for at least several years, if ever. Our operations have been financed primarily by net proceeds from the sale and issuance of our common stock and convertible preferred stock, net proceeds from our IPO, the issuance of notes, grant revenue and, during our collaboration with Merck & Co., Inc. which was in place from 2003 to 2011, certain payments received under our collaboration agreement. On July 1, 2022, we filed a shelf registration statement on Form S-3, or the Registration Statement. Pursuant to the Registration Statement, we may offer and sell securities having an aggregate public offering price of up to $200.0 million. In connection with the filing of the Registration Statement, we also entered into a sales agreement, or the Sales Agreement, with BofA Securities, Inc. and Stifel, Nicolaus & Company, Incorporated, as sales agents, pursuant to which we may issue and sell shares of our common stock for an aggregate offering price of up to $50.0 million under an at-the-market offering program, or ATM, which is included in the $200.0 million of securities that may be offered pursuant to the Registration Statement. On April 23, 2023, we entered into an amendment to the Sales Agreement, or, as amended, the Amended Sales Agreement, to add BTIG, LLC as a sales agent under the Amended Sales Agreement. Pursuant to the Amended Sales Agreement, we will pay the sales agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of our common stock. We are not obligated to make any sales of shares of our common stock under the ATM. We did not sell any shares of our common stock under the ATM during the nine months ended September 30, 2023. On July 21, 2023, we issued 16,774,193 shares of our common stock in the Offering at a price to the public of $7.75 per share. The net proceeds from the Offering, after underwriting discounts and commissions and other offering expenses, were $122.3 million. As of September 30, 2023, we had cash and cash equivalents and marketable securities totaling $282.7 million. On November 10, 2023, we received the first tranche of $30.0 million under the Loan Agreement. Our available-for-sale marketable securities mature over the next 2 years. Based on our current operating plan, we expect that our existing cash and cash equivalents and marketable securities, inclusive of the funds received pursuant to the Loan Agreement, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the second half of 2026. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect, including based on our decision to initiate other clinical trials or programs. We enter into contracts in the normal course of business with CROs and CMOs for clinical trials, nonclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts do not contain any minimum purchase commitments and are generally cancellable by us after giving a certain amount of notice. Payments due upon cancellation consist only of payments for services provided and expenses incurred up to the date of cancellation. Cash Flows The following table summarizes our sources and uses of cash (in thousands): Nine Months Ended September 30, 2023 2022 Net cash used in operating activities $ (34,750) $ (23,950) Net cash provided by (used in) investing activities (122,864) 59,605 Net cash provided by (used in) financing activities 122,619 (277) Net change in cash and cash equivalents $ (34,995) $ 35,378 23 Table of Contents Operating Activities Net cash used in operating activities increased by $10.8 million to $34.8 million for the nine months ended September 30, 2023 from $24.0 million for the nine months ended September 30, 2022 . Increased net loss for the nine months ended September 30, 2023 , adjusted for non-cash expenses such as stock-based compensation and amortization and accretion on marketable securities, was responsible for $5.4 million of the increase in cash used as compared to the prior period. Working capital changes, including increases in cash used for prepaid expenses and other current assets of $2.5 million, related primarily to advances for research and development, accrued clinical trial expenses of $2.5 million and accounts payable of $1.3 million, were partially offset by increases in cash provided by accrued expenses and other current liabilities of $0.9 million. Investing Activities Cash used in investing activities increased by $182.5 million to $122.9 million for the nine months ended September 30, 2023 from cash provided by investing activities of $59.6 million for the nine months ended September 30, 2022, and was primarily due to an increase in purchases of marketable securities of $166.7 million and a decrease in maturities of marketable securities of $15.9 million; partially offset by a decrease of $0.1 million for purchases of property and equipment. Financing Activities Cash provided by financing activities increased $122.9 million primarily due to net proceeds of $122.3 million from the Offering. Funding Requirements We expect our expenses to increase in connection with our ongoing activities, particularly as we continue our research and development, conduct clinical trials, and seek marketing approval for our current and any of our future product candidates. Furthermore, we have and expect to incur additional costs associated with operating as a public company. It is likely that we will seek third-party collaborators for the future, late stage clinical development and commercialization of ACU193 or any other product candidate that is approved for marketing. Should we seek to commercialize our products at our own expense, this would require us to incur significant additional expenses for marketing, sales, manufacturing and distribution, which costs we may seek to offset through entry into collaboration agreements with third parties. As a result, we expect that we will need to obtain substantial additional funding in connection with our future operations. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts. Based on our current operating plan, we expect that our existing cash and cash equivalents and marketable securities, inclusive of the funds received pursuant to the Loan Agreement, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements into the second half of 2026. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect, including based on our decision to initiate other clinical trials or programs. Our future capital requirements will depend on many factors, including: • the scope, progress, results and costs of discovery, nonclinical development, laboratory testing and clinical trials for other potential product candidates we may develop, if any; • the costs, timing and outcome of regulatory review of ACU193 or any future product candidates; • our ability to establish and maintain collaborations on favorable terms, if at all; • the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we might have at such time; • the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for ACU193 or any future product candidates for which we receive marketing approval; • the amount of revenue, if any, received from commercial sales of ACU193 or any future product candidates, should any of our product candidates receive marketing approval; • the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; 24 Table of Contents • our headcount growth and associated costs as we expand our business operations and our research and development activities; and • the costs of operating as a public company. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our longer-term cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect the rights of our common stockholders. Any debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. If we raise funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Critical Accounting Policies, Significant Judgments and Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of expenses incurred during the reporting periods. Our estimates and assumptions are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A description of our significant accounting policies is included in our Annual Report. Please read the unaudited condensed financial statements in conjunction with our audited financial statements and accompanying notes in our Annual Report. Our critical accounting policies that require significant judgments and estimates are more fully described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies, Significant Judgments and Use of Estimates” in our Annual Report and in Note 2 to our audited financial statements contained in our Annual Report. There have been no significant changes to our critical accounting policies that require significant judgments and estimates from those disclosed in our Annual Report. Recent Accounting Pronouncements Information regarding recent accounting pronouncements applicable to us, adopted and not yet adopted as of the date of this report, is included in Note 2 to our unaudited condensed financial statements located in “Part I – Financial Information, Item 1. Financial Statements” in this Quarterly Report on Form 10-Q. Emerging Growth Company and Smaller Reporting Company Status In April 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies. In addition, as an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include: • an exception from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended; 25 Table of Contents • reduced disclosure about our executive compensation arrangements in our periodic reports, proxy statements and registration statements; • exemptions from the requirements of holding non-binding advisory votes on executive compensation or golden parachute arrangements; and • an exemption from compliance with the requirements of the Public Company Accounting Oversight Board regarding the communication of critical audit matters in the auditor’s report on financial statements. We may take advantage of these provisions until we no longer qualify as an emerging growth company. We will cease to qualify as an emerging growth company on the date that is the earliest of: (i) December 31, 2025, (ii) the last day of the fiscal year in which we have more than $1.235 billion in total annual gross revenues, (iii) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, or (iv) the date on which we have issued more than $1.0 billion of non-convertible debt over the prior three-year period. We may choose to take advantage of some but not all of these reduced reporting burdens. We have taken advantage of certain reduced reporting requirements in this Quarterly Report on Form 10-Q and our other filings with the SEC. Accordingly, the information contained herein may be different than you might obtain from other public companies in which you hold equity interests. We are also a “smaller reporting company,” meaning that the market value of our shares held by non-affiliates is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either: (i) the market value of our shares held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our shares held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this item.