Werewolf Therapeutics, 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 conditions and results of operations should be read together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and our final prospectus for our initial public offering, or IPO, dated April 29, 2021 and filed with the United States Securities and Exchange Commission, or SEC, pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act. Some of the information with respect to our plans and strategy for our business includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those set forth in the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Overview We are an innovative biopharmaceutical company pioneering the development of therapeutics engineered to stimulate the body’s immune system for the treatment of cancer. We are leveraging our proprietary PREDATOR platform to design conditionally activated molecules that stimulate both adaptive and innate immunity with the goal of addressing the limitations of conventional proinflammatory immune therapies. Our molecules, which we refer to as INDUKINE molecules, are intended to activate selectively in the tumor microenvironment. Our most advanced product candidates, WTX-124 and WTX-330, are systemically delivered, conditionally activated Interleukin-2 and Interleukin-12, respectively, INDUKINE molecules for the treatment of multiple tumor types. We plan to submit an investigational new drug application, or IND, to the U.S. Food and Drug Administration for each of WTX-124 and WTX-330 in the first half of 2022, and thereafter initiate first in-human clinical trials for each candidate. We were incorporated and commenced operations in 2017. Since inception, we have devoted substantially all of our time and efforts to performing research and development activities, raising capital and recruiting management and technical staff to support these operations. To date, we have financed our operations primarily with proceeds from the sales of our convertible promissory notes and equity securities. From December 2017 to August 2018, we issued convertible promissory notes for aggregate gross cash proceeds of $11.0 million. From August 2019 to June 2020, we issued an aggregate of 80,246,565 shares of Series A preferred stock for aggregate gross cash proceeds of $44.2 million, together with conversion of all of our previously issued convertible promissory notes. In December 2020, we issued 78,222,173 shares of Series B preferred stock at a price of $0.92 per share, resulting in gross cash proceeds of $72.1 million. On May 4, 2021, we completed our IPO, pursuant to which we issued and sold 7,500,000 shares of our common stock at a public offering price of $16.00 per share. We received net proceeds of approximately $109.2 million, after deducting underwriting discounts and commissions and other offering expenses payable by us. In addition, in May 2020, we entered into a loan and security agreement, or the Loan Agreement, under which we have the ability to borrow up to $14.0 million until November 29, 2021. As of September 30, 2021, we had no outstanding borrowings under the Loan Agreement. Due to our significant research and development expenditures, we have accumulated substantial net losses since our inception. As of September 30, 2021, we had an accumulated deficit of $235.0 million. We expect to continue to incur substantial and increasing expenses and net losses for the foreseeable future, as we continue to advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company. 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 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. 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. Because of the numerous risks and uncertainties associated with 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 profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to raise capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations. Clinical Trial Collaboration and Supply Agreement In August 2021, we entered into a Clinical Trial Collaboration and Supply Agreement, or Clinical Supply Agreement, with Merck, Sharp & Dohme, or Merck, to evaluate WTX-124 in combination with KEYTRUDA®, or pembrolizumab, Merck’s anti-PD-1 therapy. The planned clinical trial will be conducted by Werewolf and is designed to evaluate the safety and preliminary efficacy of WTX-124 as a monotherapy and in combination with pembrolizumab in patients with solid tumors. Under the terms of the Clinical Supply Agreement, Werewolf will sponsor the study and Merck will supply Werewolf with pembrolizumab in exchange for jointly owning any inventions or discoveries relative to the combined use of WTX-124 and pembrolizumab. Each party is responsible for its own internal costs and expenses to support the trial. Impact of COVID-19 on Our Business The worldwide COVID-19 pandemic continues to rapidly evolve, and we will continue to monitor the COVID-19 pandemic closely. To date, we have not experienced a material financial statement impact or business disruptions, including with our vendors, or impairments of any of our assets as a result of the pandemic. However, we cannot, at this time, predict the specific extent, duration or full impact that the COVID-19 pandemic will have on our financial statements and operations, including our ongoing and planned preclinical activities and future clinical 15 Table of Contents trials. The extent of the impact of the COVID-19 pandemic on our business, operations and clinical development timelines and plans remains uncertain and will depend on certain developments, including the duration and spread of the pandemic and its impact on our contract research organizations, or CROs, third-party manufacturers, and other third parties with which we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. To the extent possible, we are conducting business as usual, with necessary or advisable modifications to employee travel. We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with which we do business. Furthermore, the COVID-19 pandemic could affect our employees or the employees of research sites and service providers on which we rely, including CROs, as well as those of companies with which we do business, including our suppliers and contract manufacturing organizations, thereby disrupting our business operations. Quarantines and travel restrictions imposed by governments in the jurisdictions in which we and the companies with which we do business operate could materially impact the ability of employees to access preclinical and clinical sites, laboratories, manufacturing site and office. These and other events resulting from the COVID-19 pandemic could disrupt, delay, or otherwise adversely impact our business. Further information relating to the risks and uncertainties related to the ongoing COVID-19 pandemic is contained in the section titled “Risk Factors” in Part II, Item 1A of this Quarterly Report. Financial Operations Overview Revenue To date, we have not generated any revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products in the foreseeable future. Operating Expenses 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: • salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions; • expenses incurred under agreements with third parties that conduct research and preclinical activities on our behalf; • costs of outside consultants, including their fees, stock-based compensation and related travel expenses; • the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and future clinical trial materials; and • facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of performance of the individual arrangements, which may differ from the pattern of billings incurred, and are reflected in our condensed consolidated financial statements as prepaid or accrued research and development expenses. We typically use our employee and infrastructure resources across our development programs. We track external development costs by product candidate or development program, but we do not allocate personnel costs, license payments made under our licensing arrangements or other internal costs to specific development programs or product candidates. Our external development costs for the three and nine months ended September 30, 2021 and 2020 were as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 WTX-124 $ 2,850 $ 1,358 $ 5,474 $ 2,974 WTX-330 2,146 1,253 4,515 2,491 WTX-613 859 270 2,497 564 Pre-development candidates 410 98 781 156 Total external development costs $ 6,265 $ 2,979 $ 13,267 $ 6,185 Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we initiate clinical trials of WTX-124 and WTX-330, continue preclinical studies of WTX-613 and continue to discover and develop additional product candidates. 16 Table of Contents The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming. We cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete development of our current or future product candidates. The actual probability of success for our product candidates will depend on a variety of factors, including: • the scope, rate of progress and expenses of our ongoing research activities as well as any preclinical studies and clinical trials and other research and development activities; • establishing an appropriate safety profile; • successful enrollment in and completion of clinical trials; • whether our product candidates show safety and efficacy in our clinical trials; • receipt of marketing approvals from applicable regulatory authorities; • establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers; • obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates; • commercializing product candidates, if and when approved, whether alone or in collaboration with others; and • continued acceptable safety profile of the products following any regulatory approval. A change in the outcome of any of these variables with respect to the development of our current and future product candidates would significantly change the costs and timing associated with the development of those product candidates and we may never succeed in achieving regulatory approval for any of our product candidates. As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development activities. General and Administrative Expenses General and administrative expenses consist primarily of salaries, benefits and other related costs, including stock-based compensation, for personnel in our executive, finance, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; 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 general and administrative expenses will increase in the future as we increase our personnel headcount to support our continued research and development activities, manufacturing activities and expansion of our operations in connection with our anticipated commencement of clinical trials. We also anticipate increased expenses associated with being a public company, including costs for audit, legal, regulatory and tax-related services related to compliance with the rules and regulations of the SEC and listing standards applicable to companies listed on a national securities exchange, director and officer insurance premiums and investor relations costs. Other Income (Expense) Change in fair value of preferred stock tranche liability Change in fair value of our preferred stock tranche liability consists primarily of remeasurement gains or losses attributable to changes in the fair value of the tranche rights associated with our Series A preferred stock. The tranche liability was settled in June 2020 upon the closing of the second tranche of our Series A preferred stock financing. All obligations have been met by December 31, 2020 and therefore there will be no further remeasurement. Results of Operations Comparison of the Three Months Ended September 30, 2021 and 2020 The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020: Three Months Ended September 30, $ Change (in thousands) 2021 2020 Operating expenses: Research and development $ 9,787 $ 4,812 $ 4,975 General and administrative 4,008 1,241 2,767 Total operating expenses 13,795 6,053 7,742 Operating loss (13,795) (6,053) (7,742) Other income (expense): Interest income (expense), net 37 (15) 52 Total other income (expense) 37 (15) 52 Net loss $ (13,758) $ (6,068) $ (7,690) 17 Table of Contents Research and Development Expenses The following table summarizes our research and development expenses for the three months ended September 30, 2021 and 2020: Three Months Ended September 30, $ Change (in thousands) 2021 2020 Personnel $ 2,678 $ 1,106 $ 1,572 Manufacturing 3,789 2,079 1,710 Contract research organization 2,476 900 1,576 Lab consumables 623 567 56 Facilities 210 138 72 Other 11 22 (11) Total research and development expenses $ 9,787 $ 4,812 $ 4,975 Research and development expenses for the three months ended September 30, 2021 were $9.8 million, compared to $4.8 million for the three months ended September 30, 2020. The increase of approximately $5.0 million was primarily due to: • $1.6 million of increased personnel costs due to increased headcount associated with expanded research and development activities; • $1.7 million of increased manufacturing expense related to costs incurred with contract manufacturing organizations to support the production of preclinical and future clinical trial materials associated with our product candidates WTX-124, WTX-330 and WTX-613; and • $1.6 million of increased contract research organization expense, primarily driven by preclinical studies to support upcoming IND submissions for WTX-124 and WTX-330. General and Administrative Expenses The following table summarizes our general and administrative expenses for the three months ended September 30, 2021 and 2020: Three Months Ended September 30, $ Change (in thousands) 2021 2020 Personnel $ 1,775 $ 479 $ 1,296 Professional services 912 496 416 Facilities 403 223 180 Other 918 43 875 Total general and administrative expenses $ 4,008 $ 1,241 $ 2,767 General and administrative expenses were $4.0 million for the three months ended September 30, 2021, compared to $1.2 million for the three months ended September 30, 2020. The increase of approximately $2.8 million was primarily due to: • $1.3 million of increased personnel costs due to the requirements of operating as a public company; • $0.4 million of increased professional service costs to support our operations as a public company; and • $0.9 million of increased other costs, primarily driven by $0.7 million of increased insurance costs associated with public company management liability insurance. 18 Table of Contents Results of Operations Comparison of the Nine Months Ended September 30, 2021 and 2020 The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020: Nine Months Ended September 30, $ Change (in thousands) 2021 2020 Operating expenses: Research and development $ 21,869 $ 11,355 $ 10,514 General and administrative 10,334 3,657 6,677 Total operating expenses 32,203 15,012 17,191 Operating loss (32,203) (15,012) (17,191) Other income: Change in fair value of preferred stock tranche liability — 7,301 (7,301) Interest income, net 89 73 16 Total other income 89 7,374 (7,285) Net loss $ (32,114) $ (7,638) $ (24,476) Research and Development Expenses The following table summarizes our research and development expenses for the nine months ended September 30, 2021 and 2020: Nine Months Ended September 30, $ Change (in thousands) 2021 2020 Personnel $ 5,956 $ 2,884 $ 3,072 Manufacturing 8,814 3,795 5,019 Contract research organization 4,453 2,390 2,063 Lab consumables 1,980 1,851 129 Facilities 626 403 223 Other 40 32 8 Total research and development expenses $ 21,869 $ 11,355 $ 10,514 Research and development expenses for the nine months ended September 30, 2021 were $21.9 million, compared to $11.4 million for the nine months ended September 30, 2020. The increase of approximately $10.5 million was primarily due to: • $3.1 million of increased personnel costs due to increased headcount associated with expanded discovery efforts as well as the hiring of a clinical development team; • $5.0 million of increased manufacturing expense related to costs incurred with contract manufacturing organizations to support the production of preclinical and future clinical trial materials associated with our product candidates WTX-124, WTX-330 and WTX-613; and • $2.1 million of increased contract research organization expense, primarily driven by preclinical studies to support upcoming IND submissions for WTX-124 and WTX-330. General and Administrative Expenses The following table summarizes our general and administrative expenses for the nine months ended September 30, 2021 and 2020: Nine Months Ended September 30, $ Change (in thousands) 2021 2020 Personnel $ 4,416 $ 1,592 $ 2,824 Professional services 3,147 1,214 1,933 Facilities 1,010 673 337 Other 1,761 178 1,583 Total general and administrative expenses $ 10,334 $ 3,657 $ 6,677 General and administrative expenses were $10.3 million for the nine months ended September 30, 2021, compared to $3.7 million for the nine months ended September 30, 2020. The increase of approximately $6.7 million was primarily due to: • $2.8 million of increased personnel costs due to the requirements of operating as a public company; 19 Table of Contents • $1.9 million of increased professional costs to support our operations as a public company; and • $1.6 million of increased other costs, primarily driven by $1.2 million of increased insurance costs associated with public company management liability insurance. Other Income (Expense) Changes in the fair value of the preferred stock tranche liability resulted in a gain of $7.3 million for the nine months ended September 30, 2020. The tranche liability was settled in June 2020 upon the closing of the second tranche of our Series A preferred stock financing. Liquidity and Capital Resources Sources of Liquidity We have funded our operations through September 30, 2021 primarily through the issuance of convertible promissory notes for aggregate cash proceeds of $11.0 million, the issuance and sale of shares of our Series A and Series B preferred stock for aggregate cash proceeds of $116.3 million and the issuance and sale of shares of our common stock in our IPO in May 2021 for net proceeds of approximately $109.2 million, after deducting underwriting discounts and commissions and other offering expenses payable by us. In addition, in May 2020, we entered into the Loan Agreement, under which we have the ability to borrow up to $14.0 million until November 29, 2021. As of September 30, 2021, we had no outstanding borrowings under the Loan Agreement. Plan of Operation and Future Funding Requirements We use our capital resources primarily to fund operating expenses, primarily research and development expenditures. We plan to increase our research and development expenses for the foreseeable future as we continue the preclinical development and move into clinical development of our product candidates. At this time, due to the inherently unpredictable nature of preclinical and clinical development and given the early stage of our product candidates, we cannot reasonably estimate the costs we will incur and the timelines that will be required to complete development, obtain marketing approval and commercialize our current product candidates or any future product candidates, if at all. For the same reasons, we are also unable to predict when, if ever, we will generate revenue from product sales or whether, or when, if ever, we may achieve profitability. Clinical and preclinical development timelines, the probability of success, and development costs can differ materially from expectations. In addition, we cannot forecast which product candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. Due to our significant research and development expenditures, we have accumulated substantial net losses in each period since inception. We have incurred an accumulated deficit of $235.0 million through September 30, 2021. We expect to continue to incur substantial and increasing expenses and net losses for the foreseeable future, as we continue to advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company. Based on our current research and development plans, we expect that our existing cash and cash equivalents of $170.4 million, will be sufficient to fund our operations through at least the second quarter of 2023. We have based this estimate on assumptions that may prove to be wrong, however, and we could use our capital resources sooner than we expect. The timing and amount of our operating expenditures will depend largely on: • the scope, progress, timing, costs and results of researching and developing our current product candidates or any future product candidates, including with respect to our planned clinical trials of WTX-124 and WTX-330; the costs associated with attracting, hiring and retaining skilled personnel and consultants as our preclinical and clinical activities increase; • the cost of manufacturing our product candidates WTX-124, WTX-330, WTX-613 and any future product candidates for clinical trials and, if we are able to obtain marketing approval, for commercial sale; • the costs of any third-party products used in our planned combination clinical trials that are not covered by such third parties or other sources; • the potential additional expenses attributable to adjusting our development plans (including any supply related matters) as a result of the COVID-19 pandemic; • the timing of, and the cost involved in, obtaining marketing approval for WTX-124, WTX-330, WTX-613 or any future product candidates, and our ability to obtain marketing approval and generate revenue from any potential commercial sales of such product candidates; • the cost of building a sales force in anticipation of product commercialization and the cost of commercialization activities for WTX-124, WTX-330, WTX-613 or any future product candidates if we receive marketing approval, including marketing, sales and distribution costs; • the potential emergence of competing therapies and other adverse market developments; • the amount and timing of any payments we may be required to make pursuant to our license agreement with Harpoon Therapeutics, Inc., or Harpoon, or other future license agreements or collaboration agreements; • our ability to establish future collaborations, licensing or other arrangements and the financial terms of any such agreements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement; 20 Table of Contents • the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; • any product liability or other lawsuits related to our product candidates; • the extent to which we in-license or acquire other products and technologies; and • the costs of operating as a public company. Our existing cash and cash equivalents will not be sufficient to complete development of WTX-124, WTX-330, WTX-613 or any other product candidate. Accordingly, we will be required to obtain further funding to achieve our business objectives. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to fund our operations and capital funding needs through equity and/or debt financing. We may also consider entering into collaboration arrangements or selectively partnering for clinical development and commercialization. The sale of additional equity may result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations or our ability to incur additional indebtedness or pay dividends, among other items. If we raise additional funds through governmental funding, collaborations, strategic partnerships and 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 product candidates or grant licenses on terms that may not be favorable to us. If we are not able to secure adequate additional funding, we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could materially and adversely affect our business, financial condition, results of operations and prospects. Cash Flows The following table provides information regarding our cash flows for the nine months ended September 30, 2021 and 2020: Nine Months Ended September 30, (in thousands) 2021 2020 Net cash (used in) provided by: Operating activities $ (30,203) $ (12,615) Investing activities (226) (551) Financing activities 109,389 21,977 Net increase in cash, cash equivalents and restricted cash $ 78,960 $ 8,811 Operating Activities Net cash used in operating activities for the nine months ended September 30, 2021 was $30.2 million, compared to $12.6 million for the nine months ended September 30, 2020. This increase of approximately $17.6 million was primarily attributable to an increase in net loss of $24.5 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Investing Activities Net cash used in investing activities for the nine months ended September 30, 2021 was $0.2 million, compared to $0.6 million for the nine months ended September 30, 2020. This decrease of approximately $0.3 million was primarily attributable to a decrease in purchases of property and equipment for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Financing Activities Net cash provided by financing activities for the nine months ended September 30, 2021 was $109.4 million, compared to $22.0 million for the nine months ended September 30, 2020. This increase of $87.4 million was primarily attributable to the proceeds from the issuance of common stock at the closing of the IPO during the nine months ended September 30, 2021, partially offset by the proceeds from the issuance of Series A redeemable convertible preferred stock during the nine months ended September 30, 2020. Term Loan Agreement In May 2020, we entered into the Loan Agreement with Pacific Western Bank, or PWB, under which we have the ability to borrow up to $14.0 million in the form of a term loan on or prior to November 29, 2021. Borrowings under the Loan Agreement would be collateralized by substantially all of our assets, excluding intellectual property. As of September 30, 2021, we had no outstanding borrowings under the Loan Agreement. Interest on any loan balances accrue at a variable annual rate equal to the greater of (i) PWB’s prime rate plus 1.75% and (ii) 5.00%. Interest-only payments on any loan balances are required to be paid on a monthly basis through November 29, 2021. Subsequent to the interest-only period, any loan balances are required to be repaid in equal monthly payments of principal plus interest until the loan matures in May 2024. We have the option to prepay any amount borrowed under the Loan Agreement in full without a fee. In the event of a specified liquidation event, which included our IPO, we are required to pay the bank a success fee of 5.00% of the total amount borrowed under the term loan, if any. Since we had no outstanding borrowings under the Loan Agreement, we were not obligated to pay a success fee in connection with our IPO. The Loan Agreement contains customary representations, warranties and covenants and also includes 21 Table of Contents customary events of default, including payment defaults, breaches of covenants, change of control and occurrence of a material adverse effect. We are required to maintain unrestricted cash balances of at least 2.5 times our monthly cash burn, and we have covenanted not to make any capital expenditures in excess of $2.0 million in the aggregate in 2021 and $0.5 million in the aggregate in any fiscal year thereafter without the prior written consent of PWB. Lease Agreements In March 2021, we entered into an office lease agreement for approximately 7,500 square feet of laboratory and office space in Watertown, Massachusetts pursuant to a lease that expires in May 2022. Total estimated base rent payments over the remaining term of the lease are approximately $0.4 million. In June 2021, we entered into an office lease agreement for approximately 25,778 square feet of laboratory and office space in Watertown, Massachusetts, which will serve as the Company’s headquarters. The lease term is targeted to commence in March 2022 and has an approximate eight- year term. Total estimated base rent payments over the term of the lease are approximately $18.6 million. Off-Balance Sheet Arrangements As of September 30, 2021, we did not have any off-balance sheet arrangements, as defined under applicable SEC rules. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our 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 these 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 financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates which include, but are not limited to, accrued expenses, stock-based compensation expense and income taxes. We base our estimates on historical experience, known trends and events and various other factors that we believe to be 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. Our actual results may differ from those estimates under different assumptions or conditions. We define our critical accounting policies as those accounting principles generally accepted in the United States of America that are most critical to the judgments and estimates used in the preparation of our condensed consolidated financial statements. While our significant accounting policies are described in more detail in Note 2 “Summary of Significant Accounting Policies” to our condensed consolidated financial statements, we believe that our most critical accounting policies are those relating to research and development costs, accrued research and development costs and related prepaid expenses, stock-based compensation and fair value measurements. There were no material changes to our critical accounting policies as reported in our final prospectus for our IPO dated April 29, 2021 and filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act. JOBS Act Accounting Election and Smaller Reporting Company Implications We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended, or Sarbanes-Oxley Act. Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period, and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to continue to take advantage of reduced disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act if we are a smaller reporting company with less than $100 million in annual revenue. Item 3. Quantitative and Qualitative Disclosures about Market Risk. We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, or the Exchange Act, and are not required to provide the information under this item. 22