Immunome Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion and analysis of our financial condition and results of operations together with “Selected Financial Data” and our financial statements and the related notes included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Annual Report, our actual results could differ materially from the results described in or implied by these forward-looking statements. You should carefully read the “Risk Factors” section of this Annual Reports to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.” Overview Since our inception in 2006, we have devoted substantially all of our resources to research and development, raising capital, building our management team and building our intellectual property portfolio. To date, we have financed our operations primarily through the sale of our common stock, Series A convertible preferred stock and warrants and convertible promissory notes. Through September 30, 2020, we raised an aggregate of $50.4 million from the sale of our Series A convertible preferred stock and warrants and convertible promissory notes and in April 2020, we received $0.5 million in cash pursuant to the Paycheck Protection Program, or the PPP, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act implemented by the U.S. Small Business Administration. On October 6, 2020, the Company closed its IPO, in which the Company issued and sold 3,250,000 shares of its common stock at a public offering price of $12.00 per share. On October 13, 2020, the underwriters exercised their option to purchase an additional 487,500 shares of the Company’s common stock at a purchase price of $12.00 per share. The Company received net proceeds of $41.7 million after deducting underwriting discounts and commissions of $3.1 million but before deducting other offering expenses. We are a development stage company, and all of our programs are in a preclinical stage of development. To date, we have not generated any revenue from product sales and do not expect to generate revenue from the sale of products for the foreseeable future. Since inception we have incurred significant operating losses. Our net losses for the years ended December 31, 2020 and 2019 were $17.8 million and $10.4 million, respectively. As of December 31, 2020, we had a cash balance of $39.8 million. We expect to continue to incur losses for the foreseeable future. We expect to continue to incur significant expenses and increasing operating losses in connection with ongoing development activities related to our portfolio of programs as we continue our preclinical development of product candidates; advance these product candidates toward clinical development; further develop our product candidates; perform research activities as we seek to discover and develop additional product candidates; carry out maintenance, expansion enforcement, defense, and protection of our intellectual property portfolio; and hire research and development, clinical and commercial personnel. If we cannot obtain the necessary funding, we will need to delay, scale back or eliminate some or all of our research and development programs or enter into collaborations with third parties to commercialize potential products or technologies that we might otherwise seek to develop or commercialize independently; consider other various strategic alternatives, including a merger or sale of the Company; or cease operations. If we engage in collaborations, we may receive lower consideration upon commercialization of such products than if we had not entered into such arrangements or if we entered into such arrangements at later stages in the product development process. We currently have no sources of revenue, and our ability to continue as a going concern is dependent on our ability to raise capital to fund our future business plans. Additionally, volatility in the capital markets and general economic conditions in the United States may be a significant obstacle to raising the required funds. We expect to continue to incur significant expenses and increasing operating losses in connection with ongoing development activities, particularly if and as we: ● commence preclinical studies and clinical trials for our future product candidates; 92 Table of Contents ● advance the development of our future pipeline; ● continue research activities; ● obtain, maintain, expand and protect our intellectual property portfolio; ● hire additional research and development, clinical and commercial personnel; ● pursue regulatory approvals for our product candidates; ● scale up our clinical and regulatory capabilities; and ● add operational, financial and management information systems and personnel, including personnel to support our research and development programs, and any future commercialization efforts. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. As a result of these anticipated expenditures, we will need substantial additional financing 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 licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of any purchaser will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Debt financing and 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 our research, 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. We may be unable to raise additional funds or enter into such other agreements when needed on favorable terms or at all. The inability to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We expect that our cash as of December 31, 2020 will be sufficient to fund our operations through the second fiscal quarter of 2022. We have based these estimates on assumptions that may prove to be imprecise, and we may exhaust our available capital resources sooner that we currently expect. See “— Liquidity and capital resources.” Due to the numerous risks and uncertainties associated with the development of our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. COVID-19 Pandemic In December 2019, a novel strain of coronavirus, SARS-CoV-2, which causes coronavirus disease, or COVID-19, emerged in Wuhan, Hubei Province, China. As of December 2020, COVID-19 has spread to Europe, the United States and many other countries, and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified and the United States, including in Pennsylvania where our headquarters are located, Europe and Asia have implemented severe travel restrictions, social distancing requirements and stay-at-home orders, among other restrictions, which, in some cases, have had the effect of delaying the commencement or continuation of various non-COVID-19-related clinical trials throughout the world. As a result, the COVID-19 pandemic 93 Table of Contents has caused significant disruptions to the U.S., regional and global economies and has contributed to significant volatility and negative pressure in financial markets. We have been carefully monitoring the COVID-19 pandemic and its potential impact on our business and have taken important steps to help ensure the safety of our employees and their families and to reduce the spread of COVID-19. We have established a work-from-home policy for all employees, other than those performing or supporting business-critical operations, such as certain members of our laboratory and facilities staff. For those employees, we have implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic. We have taken these precautionary steps while maintaining business continuity so that we can continue to progress our programs. The effect of the COVID-19 pandemic on our development timelines and its effect on our preclinical research and development is uncertain. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, an evolving pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock. The future impact of the COVID-19 pandemic on our industry, the healthcare system and our current and future operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. See “Risk Factors” for a discussion of the potential adverse impact of COVID-19 on our business, results of operations and financial condition. Components of our results of operations Operating expenses Research and development expenses Research and development expenses consist of costs incurred in performing research and development activities, which include: ● personnel-related expenses, including salaries, bonuses, benefits and share-based compensation for employees engaged in research and development functions; ● expenses incurred in connection with the discovery and preclinical development of our discovery programs, including under agreements with third parties, such as consultants, contractors and contract research organizations; ● the cost of developing and validating our manufacturing process for use in our preclinical studies and potential future clinical trials; ● laboratory supplies and research materials; and ● facilities, depreciation and amortization and other expenses which include direct and allocated expenses. 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 benefits are consumed. 94 Table of Contents Research and development activities are central to our business model. We expect that our research and development expenses will increase substantially in connection with our planned preclinical and future clinical development activities. In July 2020, we entered into an Other Transaction Authority for Prototype Agreement (the DoD Agreement) with the DoD to fund our efforts in developing Biosynthetic Convalescent Plasma (BCP) to treat COVID-19. In connection with the DoD Agreement, we record expense reimbursements received from the DoD as contra-research and development expenses in the same period the underlying expenses are incurred. General and administrative expenses General and administrative expenses consist primarily of salaries and other related costs, including share-based compensation for personnel in our executive, intellectual property, 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, direct and allocated facility related expenses and other operating costs. We anticipate that our general and administrative expenses will increase in the future to support increased research and development activities. We also expect to incur increased costs associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance costs and investor and public relations costs. Change in fair value of warrant liability Prior to the IPO, our outstanding warrants that were issued in 2020 to purchase shares of our convertible preferred stock were classified as liabilities, recorded at fair value and were subject to remeasurement at each balance sheet date until they were exercised, expired or were otherwise settled. The change in fair value of our preferred stock warrant liability reflects a non-cash charge primarily driven by changes in the fair value of our underlying Series A preferred stock. All outstanding warrants to purchase shares of our preferred stock were converted into warrants to purchase shares of our common stock upon consummation of our IPO and the warrant liability was reclassified to additional paid-in capital. Interest expense, net Interest expense, net consists of interest expense related to our capital lease obligations and equipment loans payable, offset by interest income earned on our cash. Results of operations As described above in “— COVID 19 Pandemic,” the ultimate extent of the impact of any epidemic, pandemic, outbreak or other public health crisis on our results of operations will depend on future developments, which are highly uncertain, including new information that may emerge concerning the severity of the COVID-19 pandemic or other public health crisis and actions taken to contain or prevent the further spread, among others. Accordingly, we cannot fully predict the extent to which our business and results of operations will be affected. Many clinical trial sites have been impacted by the pandemic, forcing them to delay enrollment in research trials and it is unclear for how long this will last. This may impact our ability to commence clinical trials in the future. Additionally, the pandemic has limited our ability to perform basic science R&D in our facilities due to government shelter-in-place orders, ultimately slowing, but not stopping, progress of our research activities. 95 Table of Contents Comparison of the years ended December 31, 2020 and 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ ​ ​ ​ DECEMBER 31, ​ ​ ​ ​ 2020 2019 Change ​ ​ (in thousands) Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ $ 7,486 ​ $ 8,823 ​ $ (1,337) General and administrative ​ 4,775 ​ 1,525 ​ 3,250 Total operating expenses ​ 12,261 ​ 10,348 ​ 1,913 Loss from operations ​ (12,261) ​ (10,348) ​ (1,913) Other expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Change in fair value of warrant liability ​ ​ (5,538) ​ ​ — ​ ​ (5,538) Interest expense, net ​ (38) ​ (96) ​ 58 Total other expenses ​ ​ (5,576) ​ ​ (96) ​ ​ (5,480) Net loss ​ $ (17,837) ​ $ (10,444) ​ $ (7,393) Research and development expenses Research and development expenses were $7.5 million and $8.8 million for the years ended December 31, 2020 and 2019, respectively. Research and development expenses reflect the recognition of contra-research and development expenses related to the DoD Agreement in the amount of $1.7 million for the year ended December 31, 2020. Excluding the effect of the DoD Agreement, the increase in research and development expenses for the year ended December 31, 2020 was primarily the result of an increase of $0.5 million in personnel-related costs due to an increase in headcount and share-based compensation and an increase of $0.5 million in facility related costs, including depreciation and amortization, related to our leased facility and equipment, offset by a decrease of $0.6 million in outsourced services and other general expenses as the Company’s research and development activities were limited as a result of a decrease in available cash prior to the IPO and the COVID-19 pandemic. Research and development expenses will continue to increase as we continue our current research programs, initiate new research programs, continue our preclinical development of product candidates and conduct future clinical trials for any of our product candidates. General and administrative expenses General and administrative expenses increased by $3.3 million from $1.5 million for the year ended December 31, 2019 to $4.8 million for the year ended December 31, 2020. The increase was primarily a result of a $1.1 million increase in personnel related costs due to an increase in general and administrative headcount including $0.4 million of share-based compensation, and a $2.2 million increase in professional fees and consulting services to supplement our internal workforce as well as increases in insurance. Change in fair value of warrant liability For the year ended December 31, 2020, we recognized a non-cash charge of $5.5 million due to the change in the fair value of the convertible preferred stock warrant liability which increased as a result of an increase in the fair value of the related Series A preferred stock. The warrants were not outstanding prior to 2020. Interest expense, net Interest expense, net consists of interest expense related to our long-term debt, capital lease obligations and equipment loan payables offset by interest income related to our cash. 96 Table of Contents Liquidity and capital resources Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and, if successful, the clinical development of our programs. To date, we have funded our operations primarily with proceeds from the sales of common stock, preferred stock and warrants and convertible promissory notes. Through December 31, 2020, we raised an aggregate of $95.3 million in gross proceeds from sales of our common stock, Series A convertible preferred stock and warrants and issuance of convertible promissory notes and in April 2020, we received $0.5 million in cash from the PPP. As of December 31, 2020, we had $39.8 million in cash. We will need to raise additional capital before we exhaust our current cash in order to continue to fund our research and development, including our plans for clinical and preclinical trials and new product development, as well as to fund operations generally. As and if necessary, we will seek to raise additional funds through various potential sources, such as equity and debt financings or through corporate collaboration and license agreements. We can give no assurances that we will be able to secure such additional sources of funds to support our operations, or, if such funds are available to us, that such additional financing will be sufficient to meet our needs. Cash flows The following table summarizes our sources and uses of cash for the years ended December 31, 2020 and 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEARS ENDED ​ ​ DECEMBER 31, ​ 2020 2019 ​ ​ (in thousands) Cash used in operating activities ​ $ (12,134) ​ $ (9,600) Cash used in investing activities ​ (586) ​ (233) Cash provided by financing activities ​ 49,943 ​ 10,774 Net increase in cash and restricted cash ​ $ 37,223 ​ $ 941 Operating activities Net cash used in operating activities for the year ended December 31, 2020 was $12.1 million, consisting primarily of our net loss of $17.8 million, offset by noncash charges of $6.9 for depreciation and amortization expense, share-based compensation expense and change in fair value of warrant liability and an increase in accounts payable and accrued expenses and other liabilities of $1.2 million due to our growth in expenditures. Prepaid expenses and other assets also increased by $2.4 million. Net cash used in operating activities for the year ended December 31, 2019 was $9.6 million, consisting primarily of our net loss of $10.4 million, offset by noncash charges of depreciation and amortization expense $0.6 million, and increases in accounts payable and accrued expenses and other liabilities of $0.2 million due to our growth in expenditures. Investing activities During the years ended December 31, 2020 and 2019, we used $0.6 million and $0.2 million, respectively, for the purchase of property and equipment. Financing activities During the year ended December 31, 2020, cash provided by financing activities was $49.9 million, consisting primarily of $38.9 million of net proceeds received from our IPO, $11.0 million of net proceeds received from the issuance of our Series A convertible preferred stock and $0.5 million received from the PPP loan, offset by $0.5 million for payments related to our capital lease obligations and equipment loan payables. 97 Table of Contents During the year ended December 31, 2019, financing activities provided $11.4 million from the sale of our convertible promissory notes and Series A convertible preferred stock, offset by $0.6 million for payments related to our capital lease obligations and equipment loan payables and $0.1 million for the payment of issuance costs related to the sale of Series A convertible preferred stock. Funding requirements Our operating expenses are expected to increase substantially as we continue to advance our portfolio of programs. Specifically, our expenses will increase if and as we: ● further develop our discovery engine; ● continue our current research programs and our preclinical development of product candidates from our current research programs; ● seek to identify additional research programs and additional product candidates; ● initiate preclinical testing and clinical trials for any product candidates we identify and develop; ● maintain, expand, enforce, defend, and protect our intellectual property portfolio and provide reimbursement of third-party expenses related to our patent portfolio; ● seek marketing approvals for any of our product candidates that successfully complete clinical trials; ● ultimately establish a sales, marketing, and distribution infrastructure to commercialize any medicines for which we may obtain marketing approval; ● hire additional personnel including research and development, clinical and commercial personnel; ● add operational, financial, and management information systems and personnel, including personnel to support our product development; ● acquire or in-license products, intellectual property, and technologies; and ● operate as a public company. We expect that our existing cash will enable us to fund our current and planned operating expenses and capital expenditures through the second fiscal quarter of 2022. Beyond that date, the Company will need additional financing to support its continuing operations and pursue its growth strategy. We have based these estimates on assumptions that may prove to be imprecise, and we may exhaust our available capital resources sooner that we currently expect. Because of the numerous risks and uncertainties associated with the development our programs, we are unable to estimate the amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future funding requirements will depend on many factors including: ● the costs of continuing to develop our discovery engine; ● the costs of acquiring licenses for the expansion of product development; ● the scope, progress, results, and costs of discovery, preclinical development, laboratory testing, manufacturing and clinical trials for the product candidates we may develop; 98 Table of Contents ● the reimbursement of research and development expenses in connection with the DoD Agreement; ● the costs of preparing, filing, and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights, and defending intellectual property-related claims; ● the costs, timing, and outcome of regulatory review of the product candidates we may develop; ● the costs of future activities, including product sales, medical affairs, marketing, manufacturing, distribution, coverage and reimbursement for any product candidates for which we receive regulatory approval; ● the success of our license agreements and our collaborations; ● our ability to establish and maintain additional collaborations on favorable terms, if at all; ● the achievement of milestones or occurrence of other developments that trigger payments under any additional collaboration agreements we obtain; ● the extent to which we acquire or in-license products, intellectual property, and technologies; and ● the costs of operating as a public company. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of any purchaser will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and 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 our research, 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. 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 and significant judgements Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. 99 Table of Contents While our significant accounting policies are described in more detail in Note 2 to our audited financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements. Share-based compensation We recognize the grant-date fair value of share-based awards issued as compensation expense on a straight-line basis over the requisite service period, which is generally the vesting period of the award. The fair value of stock options is estimated at the time of grant using the Black-Scholes option pricing model, which requires the use of inputs and assumptions such as the estimated fair value of the underlying common stock, exercise price of the option, expected term, risk-free interest rate, expected volatility and dividend yield, the most critical of which is the estimated fair value of our common stock. The inputs and assumptions used to estimate the fair value of share-based payment awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different inputs and assumptions, our share-based compensation expense could be materially different for future awards. These subjective assumptions are estimated as follows: ● Expected volatility. The expected volatility was based on the historical stock volatility of several of our comparable publicly traded companies over a period of time equal to the expected term of the options, as we do not have sufficient trading history to use the volatility of our own common stock. ● Fair value of common stock. On October 2, 2020, we closed our IPO. Following the closing, the fair value of common stock was the closing price of our common stock on the Nasdaq Global Market as reported on the date of the grant. Prior to that, our common stock had not historically been publicly traded and we had to periodically estimate the fair value of common stock. Estimating the fair value of common stock Prior to May 2020, in valuing our common and preferred stock, we determined the equity value of our business by using a net asset approach. The net asset approach is predicated on the assumption that a prudent buyer would pay no more than it would cost to purchase the assets (tangible and intangible) of a company at current market prices. This approach requires estimating the individual market values of our assets and liabilities to derive an adjusted enterprise value. The enterprise values determined by the net asset approach were then allocated to our common stock using the Option Pricing Method, or OPM. The OPM treats common stock and preferred stock as call options on a company’s enterprise value, with exercise prices based on the liquidation preferences of the preferred stock. Therefore, the common stock has value only if the funds available for distribution to the stockholders exceed the value of the liquidation preference at the time of an assumed liquidity event such as a merger, sale or initial public offering. The common stock is modeled as a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the preferred stock is liquidated. The OPM uses the Black-Scholes option-pricing model to determine the price of the call option. The OPM is appropriate to use when the range of possible future outcomes is so difficult to predict that forecasts would be highly speculative. Beginning in May 2020, we used the probability-weighted expected return method to determine the value of our common stock. Under the probability-weighted expected return method, the value of an enterprise’s common stock is estimated based upon an analysis of future values assuming various possible future liquidity events, such as an initial public offering, a strategic sale or merger and remaining a private enterprise without a liquidity event. The fair market value of the stock is based upon the probability-weighted present value of expected future net cash flows as a result of distributions to stockholders considering each of the possible future events, as well as the rights and preferences of each class of stock. 100 Table of Contents Given the absence of a public trading market for our capital stock at the time, our board of directors exercised reasonable judgment and considered a number of subjective factors to determine the best estimate of the fair value of our common stock, including: ● our business, financial condition and results of operations, including related industry trends affecting our operations; ● the likelihood of achieving a liquidity event, such as an initial public offering or the sale of the Company, given prevailing market conditions; ● the lack of marketability of our preferred and common stock; ● the market performance of comparable publicly traded companies; and ● United States and global economic and capital market conditions and outlook. Warrant liability The Company issued warrants to purchase shares of Series A convertible preferred stock in connection with the June 2020 Series A convertible preferred stock sale. The warrants were classified as a liability as the underlying Series A convertible preferred stock was contingently redeemable and outside of the Company’s control (see Note 12, Common stock and convertible preferred stock). The fair value of the warrants on the date of issuance was recorded as a reduction of the carrying value of the Series A convertible preferred stock and as a long-term liability in the balance sheet. The warrants were subsequently remeasured to fair value at each balance sheet date with the changes in the fair values of the warrants recognized as other income or expense in the statements of operations. The change in fair value of the warrants during the year ended December 31, 2020 was $5.5 million. Upon completion of the IPO on October 6, 2020, the warrants became exercisable for shares of the Company’s common stock and were reclassified to additional paid-in capital in October 2020 upon the consummation of the IPO. As a result, the warrants will no longer be remeasured to fair value. The Company used the Black Scholes option pricing model, which incorporated assumptions and estimates, to value the Series A convertible preferred stock warrants. Estimates and assumptions impacting the fair value measurement of the warrants included the fair value per share of the underlying Series A convertible preferred stock, the remaining contractual term of the warrants, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying Series A convertible preferred stock. The Company determined the fair value per share of the underlying Series A convertible preferred stock by taking into consideration the most recent sales of its Series A convertible preferred stock, results obtained from third party valuations and additional factors that were deemed relevant. The Company historically had been a private company and lacked company specific historical and implied volatility information of its stock. Therefore, it estimated the expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrants at the time. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrants. Expected dividend yield was determined based on the fact that the Company had never paid cash dividends and did not expect to pay any cash dividends in the foreseeable future. ​ 101 Table of Contents Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not required. Item 8. Financial Statements and Supplementary Data The information required by this Item is set forth on pages 105 through 128 hereto. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.