Cogent Biosciences, 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 condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those set forth under the caption “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2020. Overview We are a biotechnology company focused on developing precision therapies for genetically defined diseases. Our approach is to design rational precision therapies that treat the underlying cause of disease and improve the lives of patients. Our most advanced program is CGT9486, a selective tyrosine kinase inhibitor designed to potently inhibit the KIT D816V mutation as well as other mutations in KIT exon 17. In the vast majority of cases, KIT D816V is responsible for driving Systemic Mastocytosis (“SM”), a serious disease caused by unchecked proliferation of mast cells. Exon 17 mutations are also found in patients with advanced gastrointestinal stromal tumors (“GIST”), a type of cancer with strong dependence on oncogenic KIT signaling. CGT9486 is a highly selective and potent KIT inhibitor with the potential to provide a new treatment option for these patient populations. CGT9486 has been administered to more than 50 advanced solid tumor and GIST patients in a Phase 1/2 clinical trial, with the vast majority of those patients living with advanced GIST. GIST is a disease frequently driven by KIT mutations, and resistance to currently available therapeutics is frequently associated with the emergence of other KIT mutations. Anti-tumor activity for CGT9486 was observed in both single agent and combination settings, including in combination with sunitinib, an approved treatment option for GIST patients. Clinical data from this trial have been presented at several scientific conferences, including most recently by Cogent at the 2020 annual CTOS meeting, and previously by Plexxikon, Inc. (“Plexxikon”), a member of the Daiichi Sankyo Group, at the 2018 annual American Society of Clinical Oncology (“ASCO”) meeting and the 2017 annual Connective Tissue Oncology Society (“CTOS”) meeting. Within the group of 15 heavily pre-treated GIST patients who received the combination of CGT9486 and sunitinib, and who had not received prior treatment with CGT9486, the confirmed objective response rate (“ORR”) was twenty percent, including two partial responses and one complete response, while the estimated median progression free survival (“mPFS”) for this group was twelve months. Four subjects continued to receive CGT9486 via individual patient INDs beyond the conclusion of the trial. Based on these results, we are planning an FDA interaction to explore further clinical development of CGT9486 in combination with sunitinib in GIST patients, and plan to initiate an additional clinical study in GIST in the second half of 2021. In addition to continuing the development of CGT9486 in GIST patients, we are pursuing development of the compound in patients living with Advanced Systemic Mastocytosis (“AdvSM”) and Non-Advanced Systemic Mastocytosis (“Non-AdvSM”). The vast majority of AdvSM and Non-AdvSM patients have a KIT D816V mutation. Patients with AdvSM have a significantly diminished lifespan with a median survival of less than 3.5 years. For patients with Non-AdvSM, there are no available approved therapies, and while their lifespan is not impacted by the disease, these patients suffer from a poor quality of life and new treatment options are badly needed. Emerging clinical data for other kinase inhibitors with activity against KIT D816V have shown that the disease is highly sensitive to inhibition of the target. CGT9486 was specifically designed to selectively inhibit KIT mutations on exon 17, including KIT D816V, and we aim to expand the clinical development of this program to treat systemic mastocytosis patients. The FDA has cleared our Investigational New Drug (“IND”) submission for a Phase 2 study in patients with AdvSM, which remains on track for initiation in the first half of 2021. Subject to feedback from regulatory authorities, we expect to initiate a clinical trial in Non-AdvSM patients in the second half of 2021. We expect to rapidly assess CGT9486 activity in mastocytosis patients by monitoring levels of serum tryptase, a relevant biomarker of disease activity which is elevated in these patients. Worldwide rights to develop and commercialize CGT9486, as well as an additional selective KIT inhibitor, CGT0206, are exclusively licensed from Plexxikon. Under the terms of the license agreement, Plexxikon received an upfront payment and is eligible for additional development milestones and mid- to high- single-digit royalty payments. Patents protecting CGT9486 include composition of matter claims which have issued in the US and other key territories and provide exclusivity through 2033 and potentially beyond through patent term extensions. In addition to our small molecule efforts, we have developed proprietary technologies which enable cell therapy programs targeting cancers utilizing a patient's engineered T cells. Our ACTR (“Antibody-Coupled T cell Receptor”) product candidates incorporate a novel chimeric receptor that are designed to enable a co-administered, tumor-specific antibody to direct T cell targeting toward tumor cells. All ACTR clinical trials are closed to further enrollment. We have completed all closeout activities for 3 of 4 ACTR clinical trials as of March 31, 2021 and we anticipate closing out the last ACTR clinical trial in the first half of 2021. Since our inception in 2014, we have focused significant efforts and financial resources on establishing and protecting our intellectual property portfolio, conducting research and development of our product candidates, manufacturing drug product material for use in preclinical studies and clinical trials, staffing our company, and raising capital. We do not have any products approved for 15 sale and have not generated any revenue from product sales. To date, we have funded our operations primarily with proceeds from the sales of preferred stock, our public offerings of our common stock, private placements and payments received under our Collaboration Agreement with Seagen Inc., formerly Seattle Genetics . On March 19, 2020, we entered into the LPC Purchase Agreement with LPC, pursuant to which we may elect to sell to LPC up to $25.0 million in shares of our common stock, subject to certain limitations and conditions set forth in the LPC Purchase Agreement. Pursuant to the LPC Purchase Agreement, we issued 181,595 shares of common stock to LPC as a commitment fee. In 2020, 2,412,870 registered common shares were sold to LPC under the LPC Purchase Agreement for proceeds of $25.0 million. No additional shares may be or have been sold to LPC under the LPC Purchase Agreement. On July 6, 2020, we issued a contingent value right (CVR), which was distributed to stockholders of record as of the close of business on July 6, 2020, and prior to the issuance of any shares to acquire Kiq or sold to the PIPE investors. In November 2020, in partial settlement of the CVR obligation, we issued 707,938 shares of common stock. In February 2021, we issued an additional 212,428 shares of common stock and paid $0.1 million in partial settlement of the CVR obligation. On July 9, 2020, we completed a PIPE with existing and new investors to raise gross proceeds of $104.4 million, or net proceeds of $98.9 million after deducting commissions and offering costs, in which the investors were issued shares of Series A Preferred Stock at a price of $880 per share or, $3.52 per share on an as-converted-to-common basis. On December 4, 2020, we completed an underwritten public offering of 11,794,872 shares of our common stock at a public offering price of $9.75 per share. This included the exercise in full by the underwriters of their 30-day option to purchase up to 1,538,461 additional shares of common stock. The net proceeds from the offering, after deducting the underwriting discounts and commissions and estimated offering expenses, were approximately $107.7 million. Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates. Our net loss was $11.7 million for the three months ended March 31, 2021 compared to a net loss of $6.1 million for the three months ended March 31, 2020. As of March 31, 2021, we had an accumulated deficit of $210.4 million. We expect to continue to incur significant expenses and operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we: • continue additional clinical trials for our product candidates; • continue to discover and develop additional product candidates; • acquire or in-license other product candidates and technologies; • maintain, expand, and protect our intellectual property portfolio; • hire additional clinical, scientific, and commercial personnel; • establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval; • seek regulatory approvals for any product candidates that successfully complete clinical trials; • establish a sales, marketing, and distribution infrastructure to commercialize any products for which we may obtain regulatory approval; and • add operational, financial, and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts, as well as to support our transition to a public reporting company. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing, and distribution. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of one or more of our product candidates. 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 or when, or if, we will be able to achieve or maintain profitability. Even 16 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 red uce or terminate our operations. As of March 31, 2021, we had cash and cash equivalents of $230.7 million. We expect that our current cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements into 2024. The COVID-19 Pandemic In March 2020, the World Health Organization declared the outbreak of a novel strain of coronavirus, or COVID-19, as a pandemic, which has spread throughout the United States and worldwide. We could be materially and adversely affected by the risks, or the public perception of the risks, related to an epidemic, pandemic, outbreak, or other public health crisis, such as the recent outbreak of COVID-19. We continue to monitor the global outbreak and spread of COVID-19 and have taken steps to identify and mitigate the adverse impacts on, and risks to, our business posed by its spread and actions taken by governmental and health authorities to address the COVID-19 pandemic. The spread of COVID-19 has caused us to modify our business practices, including implementing a work-from-home policy for all employees who are able to perform their duties remotely and restricting all nonessential travel, and we expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees, the patients we serve and other business partners in light of COVID-19. Given the fluidity of the COVID-19 pandemic however, we do not yet know the full extent of the potential impact of COVID-19 on our business operations. The ultimate extent of the impact of any epidemic, pandemic, outbreak, or other public health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic, outbreak, or other public health crisis and actions taken to contain or prevent the further spread, among others. Accordingly, we cannot predict with certainty the extent to which our business, financial condition and results of operations will be affected. We will continue to work diligently with our partners and stakeholders to continue advancing our product candidate under regulatory review as well as in our clinical studies to the extent safe to do so for patients, caregivers and healthcare practitioners, and ensuring the continuity of our manufacturing and supply chain. Components of Our Results of Operations Revenue To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval or additional license or collaboration agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from additional collaboration or license agreements that we may enter into with third parties. We expect that our revenue for the next several years will be derived primarily from any collaborations that we may enter into in the future. In June 2015, we entered into the Collaboration Agreement with Seagen. Pursuant to the terms of the Collaboration Agreement, we and Seagen agreed to jointly develop two product candidates incorporating our ACTR platform and Seagen’s antibodies. On January 16, 2020 (the “Termination Date”), we and Seagen announced an agreement to terminate the ATTCK-17-01 Phase 1 clinical trial and other research activities under the collaboration (the “Termination Agreement”). Pursuant to terms of the Termination Agreement, among other things, (i) Seagen paid us $5.75 million, (ii) Seagen surrendered, assigned and transferred to us all of its right, title and interest in the 207,961 shares of our common stock owned by Seagen, (iii) we will continue to be responsible for and pay all expenses for the wind-down of the ACTR-BCMA trial and (iv) Seagen paid all research and development costs incurred through the Termination Effective Date. In addition, the exclusivity provisions in the Collaboration Agreement terminate and each party will be free to research, develop and commercialize their individual intellectual property (either by themselves or with third parties, subject to the intellectual property rights of the other party. All performance obligations were completed and all remaining revenue was recognized under the Collaboration Agreement and Termination Agreement in 2020. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred for our research activities, including our drug discovery efforts, and the development of our product candidates, which include: • expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants, contractors and contract research organizations (“CROs”); • the cost of manufacturing drug products for use in our preclinical studies and clinical trials, including under agreements with third parties, such as consultants, contractors and contract manufacturing organizations (“CMOs”); 17 • employee-related expenses, inclu ding salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions; • laboratory supplies and animal care; • facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance; and • payments made under third-party licensing agreements. Our research and development costs include costs for the development of product candidates that were developed with Seagen, and for which we have received reimbursement as specified in our Collaboration Agreement. We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. Our direct research and development expenses are tracked on a program-by-program basis and consist of costs, such as fees paid to consultants, contractors, CMOs, and CROs in connection with our preclinical and clinical development activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation 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. 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 increase substantially in connection with our planned clinical and preclinical development activities in the near term and in the future. At this time, we cannot reasonably estimate or know the nature, timing, and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following: • the timing and progress of preclinical and clinical development activities; • the number and scope of preclinical and clinical programs we decide to pursue; • the progress of the development efforts of parties with whom we have entered, or may enter, into collaboration arrangements; • our ability to maintain our current research and development programs and to establish new ones; • our ability to establish new licensing or collaboration arrangements; • the successful completion of clinical trials with safety, tolerability, and efficacy profiles that are satisfactory to the U.S. Food and Drug Administration (“FDA”) or any comparable foreign regulatory authority; • the receipt of regulatory approvals from applicable regulatory authorities; • the success in establishing and operating a 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 protect our rights in our intellectual property portfolio; • the commercialization of our product candidates, if and when approved; • the acceptance of our product candidates, if approved, by patients, the medical community, and third-party payors; • competition with other products; and • a continued acceptable safety profile of our therapies following approval. A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates. 18 General and Administrative Expenses General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting, and audit services. We anticipate that our general and administrative expenses will increase in the future as of a result of the costs associated with the expansion of operations to support our on-going clinical and preclinical activities. Other Income (Expense) Interest Income Interest income consists of interest earned on our cash equivalents balances. Our interest income has not been significant due to low interest earned on invested balances. Other Income Other income consists of miscellaneous income and expense unrelated to our core operations, primarily income from subleasing a portion of our headquarters facilities. Change in fair value of the CVR liability This consists of changes in the fair value of the CVR liability. Income Taxes Since our inception, we have not recorded any current or deferred tax benefit for the net losses we have incurred in each year or for our research and development tax credits generated, as we believe, based upon the weight of available evidence, that it is more likely than not that our net operating loss carryforwards and tax credits will not be realized. Accordingly, a full valuation allowance has been established against the deferred tax assets as of December 31, 2020. We reevaluate the utilization of net operating loss carryforwards and tax credits at each reporting period. As of December 31, 2020, we had U.S. federal and state net operating loss carryforwards of $63.1 million and $5.7 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2035. Of the federal net operating loss carryforwards at December 31, 2020, $59.9 million is available to be carried forward indefinitely but can only offset 80% of taxable income per year. As of December 31, 2020, we also had U.S. federal and state research and development tax credit carryforwards of $0.6 million and $0.3 million, respectively, which may be available to offset future income tax liabilities and begin to expire in 2040 and 2035, respectively. As a result of the shares issued in July 2020 related to the acquisition of Kiq and the sale of Series A convertible preferred stock, the Company has experienced a change in ownership, as defined by Section 382. As a result of the ownership change, utilization of the federal and state net operating loss carryforwards and research and development tax credit carryforwards is subject to annual limitation under Section 382. Under Section 382, the annual limitation is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term tax-exempt rate, and then could be subject to additional adjustments, as required. This limitation resulted in the expiration of federal and state net operating loss carryforwards before utilization of $26.9 million and $79.5 million, respectively, and federal and state research and development tax credit carryforwards before utilization of $6.6 million and $2.0 million, respectively. We have written off these gross deferred tax attributes, which were previously fully reserved for, in 2020. As of December 31, 2020, approximately $59.4 million and $3.9 million of federal and state net operating losses, respectively, as well as $14.2 million of future amortization for federal purposes are subject to the July 2020 limitation of $0.3 million per year. A second ownership change occurred in December 2020 as a result of the underwritten public offering of common stock which resulted in a limitation of tax attributes generated from July 7, 2020 to December 1, 2020. The December 1, 2020 ownership change is not expected to have a material impact to the Company’s net operating loss carryforwards or research and development tax credit carryforwards as these net operating losses and tax credit carryforwards may be utilized, subject to annual limitation, assuming sufficient taxable income is generated before expiration. We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date. 19 Results of Operations Comparison of the three months ended March 31, 2021 and 2020 The following table summarizes our results of operations for the three months ended March 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 Change (in thousands) Collaboration revenue $ — $ 7,031 $ (7,031 ) Operating expenses: Research and development 8,213 9,498 (1,285 ) General and administrative 4,587 3,674 913 Total operating expenses 12,800 13,172 (372 ) Loss from operations (12,800 ) (6,141 ) (6,659 ) Other income (expense): Interest income 125 47 78 Other income 604 — 604 Change in fair value of CVR liability 343 — 343 Total other income (expense), net 1,072 47 1,025 Net loss $ (11,728 ) $ (6,094 ) $ (5,634 ) Collaboration Revenue No collaboration revenue was recognized during the three months ended March 31, 2021. Collaboration revenue recognized during the three months ended March 31, 2020 was $7.0 million. We recognized revenue from the upfront payment we received as well as ongoing reimbursements of research and development costs from Seagen by applying the costs-to-cost method over the performance period. On January 16, 2020, Cogent and Seagen announced an agreement to terminate the ATTCK-17-01 Phase 1 clinical trial and other research activities under the collaboration. All performance obligations were completed and all remaining revenue was recognized under the Collaboration Agreement and Termination Agreement in 2020. Research and Development Expenses Research and development expenses were $8.2 million for the three months ended March 31, 2021, compared to $9.5 million for the three months ended March 31, 2020. The decrease in research and development expense during the three months ended March 31, 2021 compared to the three months ended March 31, 2020 is driven by the conclusion of our legacy cell therapy clinical efforts and the reduction in force in March 2020. These decreases are partially offset by increased costs associated with the development of CGT9486. General and Administrative Expenses General and administrative expenses for the three months ended March 31, 2021 were $4.6 million, compared to $3.7 million for the three months ended March 31, 2020. The increase in general and administrative expenses was primarily due to an increase of $0.5 million in stock-based compensation expense and facility costs which was partially offset by a decrease in salary expense due to the reduction in force in March 2020. Interest Income Interest income for the three months ended March 31, 2021 was $0.1 million, compared to $0.1 million for the three months ended March 31, 2020. The impact of higher average invested balances in the current year was offset by lower interest rates in the current year compared to the prior period. 20 Other I ncome Other income, net was $0.6 million in the three months ended March 31, 2021. Other income represents sublease income recognized resulting from the sublease of a portion of our leased office space. No sublease income was recorded for the three months ended March 31, 2020. Change in Fair Value of CVR Liability The change in fair value of CVR liability for the three months ended March 31, 2021, represents the remeasurement of the CVR liability as a result of changes in our stock price prior to issuance of the common stock issued in partial settlement of the CVR. Liquidity and Capital Resources We have incurred certain costs related to the COVID-19 outbreak as a result of taking necessary precautions for essential personnel to operate safely both in person as well as remotely. Costs incurred include items like incremental payroll costs, consulting support, IT infrastructure and facilities related costs. The estimated impact of COVID-19 is currently unknown. The final impact may vary based on the duration of the current social and economic conditions. To the extent the COVID-19 pandemic continues, it may materially impact our financial condition, liquidity or results of operations in the future. We do not currently believe the accumulated costs will present a material impact to our financial liquidity or position. Since our inception, we have incurred significant operating losses. We have generated limited revenue to date from funding arrangements with our former collaboration partner. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. We have historically funded our operations primarily through the public offering and private placement of our securities and consideration received from our collaborative agreements. In 2020, 2,412,870 shares were sold under the LPC Purchase Agreement for proceeds of $25.0 million. No additional shares may be or have been sold to LPC under the terms of the LPC Purchase Agreement. On July 9, 2020, we completed a PIPE and issued 118,638 Series A Preferred Stock to new and existing investors in exchange gross proceeds of $104.4 million, or net proceeds of $98.9 million, after deducting commissions and offering costs. On December 4, 2020, we completed an underwritten public offering of 11,794,872 shares of our common stock at a public offering price of $9.75 per share (including the exercise in full by the underwriters of their 30-day option to purchase up to 1,538,461 additional shares of common stock), or net proceeds from the offering of $107.7 million, after deducting the underwriting discounts and commissions and offering expenses. As of March 31, 2021, we had cash and cash equivalents of $230.7 million, which we expect will be sufficient to fund our operating expenses and capital expenditure requirements into 2024. Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: Three Months Ended March 31, 2021 2020 (in thousands) Cash used in operating activities $ (11,366 ) $ (7,893 ) Cash provided by (used in) financing activities (85 ) 73 Net decrease in cash, cash equivalents and restricted cash $ (11,451 ) $ (7,820 ) Operating Activities During the three months ended March 31, 2021, operating activities used $11.4 million of cash, primarily resulting from our net loss of $11.7 million and from net cash used by changes in our operating assets and liabilities of $1.1 million, partially offset by net non-cash charges of $1.4 million. Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2021 consisted primarily of a $2.4 million decrease in accounts payable and accrued expenses and other current liabilities, and a $0.5 million decrease in operating lease liabilities, partially offset by a $1.4 million decrease in prepaid expenses and other current assets and a $0.5 million decrease in the right-of-use asset. During the three months ended March 31, 2020, operating activities used $7.9 million of cash, primarily resulting from our net loss of $6.1 million and from net cash used by changes in our operating assets and liabilities of $2.1 million, partially offset by net 21 non-cash charges of $0.3 million. Net cash used by changes in our operating assets and liabilities for the three months ended March 31, 2020 consisted primarily of a $3.6 million decrease in accounts payable and accrued expenses and other current liabilities and a $0.5 million decrease in deferred revenue, partially offset by $2.0 million decrease in accounts receivable. Investing Activities There were no investing activities for the three months ended March 31, 2021 and 2020, respectively. Financing Activities During the three months ended March 31, 2021, net cash used by financing activities was $0.1 million which consisted of the partial settlement of the CVR obligation. During the three months ended March 31, 2020, net cash provided by financing activities was $0.1 million which consisted of the proceeds from the issuance of common stock upon stock option exercises and from the issuance of common stock under the Employee Stock Purchase Plan. Funding Requirements We expect our expenses to increase in connection with our ongoing activities, particularly as we advance clinical development of our product candidates and preclinical activities. The timing and amount of our operating expenditures will depend largely on: • the initiation, progress, timing, and completion of preclinical studies and clinical trials for our current and future potential product candidates, including the impact of COVID-19 on our ongoing and planned research and development efforts; • any delay in our regulatory filings for our product candidates and any adverse development or perceived adverse development with respect to the applicable regulatory authority’s review of such filings, including without limitation the FDA’s issuance of a “refusal to file” letter or a request for additional information; • adverse results or delays in clinical trials; • our decision to initiate a clinical trial, not to initiate a clinical trial, or to terminate an existing clinical trial; • adverse regulatory decisions, including failure to receive regulatory approval of our product candidates; • changes in laws or regulations applicable to our products, including but not limited to clinical trial requirements for approvals; • adverse developments concerning our manufacturers; • our inability to obtain adequate product supply for any approved product or inability to do so at acceptable prices; • our inability to establish collaborations if needed; • our failure to commercialize our product candidates; • additions or departures of key scientific or management personnel; • unanticipated serious safety concerns related to the use of our product candidates; and • the impact of COVID-19 on the operations of key governmental agencies, such as the FDA, which may delay the development of our current product candidates or any future product candidates. We believe that our existing cash and cash equivalents of $230.7 million as of March 31, 2021 will enable us to fund our operating expenses and capital expenditure requirements into 2024. 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. The Company will require additional funding to complete the critical activities planned to support ongoing research and development programs. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures, or declaring dividends. If we raise additional funds through collaborations, strategic alliances, or marketing, distribution, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug 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 other arrangements when needed, we may be required to delay, limit, reduce, or terminate 22 our research, product development, or future commercialization efforts, or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves. Critical Accounting Policies and Significant Judgments and Estimates Our condensed consolidated financial statements are 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, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that of our critical accounting policies described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K, the following involve the most judgment and complexity: • accrued research and development expenses; and • stock-based compensation. Accordingly, we believe the policies set forth above are critical to fully understanding and evaluating our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. 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. Emerging Growth Company Status The Jumpstart Our Business Startups Act of 2012 (“JOBS Act”) permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies. 23 Item 3. Quantitative and Qualitati ve Disclosures about Market Risk. We are a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, for this reporting period and are not required to provide the information required under this item.