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 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 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. In addition, in July 2020, the Company entered into an Other Transaction Authority for Prototype Agreement (OTA Agreement), with the Department of Defense (DoD) to fund the Company’s efforts in developing an antibody cocktail therapeutic to treat COVID-19. The amount of funding available to the Company under this expense reimbursement contract was $13.3 million. In May 2021, the Company and the DoD amended the OTA Agreement, pursuant to which the DoD award was increased from $13.3 million to $17.6 million. 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 were $24.7 million and $17.8 million, net of DoD reimbursement of $15.2 million and $1.7 million for the years ended December 31, 2021 and 2020, respectively. The remaining available expense reimbursement under the OTA Agreement is $0.2 million as of December 31, 2021. As of December 31, 2021, we had a cash balance of $49.2 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 research and 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; continue to 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 administrative personnel. If we cannot obtain the necessary funding on favorable terms, if at all, we will need to delay, scale back or eliminate some or all of our research and development programs. We would 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 present and future business plans. Additionally, volatility in the capital markets, the competitive landscape 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: ● continue research activities and preclinical studies; ● pursue regulatory approvals and implement other regulatory strategies for our current and future product candidates; 75 Table of Contents ● commence clinical trials for product candidates; ● take additional steps to advance our discovery engine and our existing and future pipeline; ● obtain, maintain, expand and protect our intellectual property portfolio; ● hire additional research and development, clinical and administrative personnel; ● scale up our clinical and regulatory capabilities; and ● add operational, financial and management information systems and infrastructure 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 and potential unanticipated, we will need substantial additional financing to support our continuing operations and pursue our growth strategy. Until such time as we 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 stockholder 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 stockholders. 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 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. Through December 31, 2021, we raised an aggregate of $124.9 million in gross proceeds from sales of our common stock, Series A convertible preferred stock and warrants, warrant exercises, the issuance of convertible promissory notes, and the PPP loan. On October 1, 2021, we entered into a new Open Market Sale Agreement (“ATM Agreement”) with Jefferies Group LLC, which provides that, upon the terms and subject to the conditions and limitations in the ATM Agreement, the Company may elect, from time to time, to offer and sell common shares having an aggregate offering price of up to $75.0 million through Jefferies Group LLC acting as sales agent. The Company has not yet sold any shares under the ATM Agreement. On October 6, 2020, we closed the IPO, in which we issued and sold 3,250,000 shares of our 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 our common stock at a purchase price of $12.00 per share. We received net proceeds of $41.7 million after deducting underwriting discounts and commissions of $3.1 million but before deducting other offering expenses. On April 28, 2021, we sold 1,000,000 units, each comprising one share of our common stock and one warrant for one-half a share of common stock in a private placement and at a price of $27.00 per share for net proceeds of $26.4 million. In April 2020, we received a $0.5 million loan, or the PPP Loan, pursuant to the Paycheck Protection Program, or the PPP, under the Coronavirus Aid, Relief, and Economic Security Act implemented by the U.S. Small Business Administration, which loan was forgiven on May 21, 2021. 76 Table of Contents We expect that our cash as of December 31, 2021 will be sufficient to fund our operations at least 12 months from the filing date of this Annual Report on Form 10-K, including our planned Phase 1b studies for IMM-BCP-01 and IMM-ONC-01. We have based these estimates on assumptions that may prove to be imprecise, and we may exhaust our available capital resources sooner than we currently expect. See “— Liquidity and capital resources.” Due to the numerous risks and uncertainties associated with the research and 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. Our Lead Discovery Programs SARS-CoV-2 (“IMM-BCP-01”) We are actively developing an antibody cocktail, comprising a combination of three effective anti-viral antibodies derived from the B cells of COVID-19 “super-responders.” The immune system employs multiple viral clearance mechanisms to fight SARS-CoV-2 infection. IMM-BCP-01 targets non-overlapping regions of the Spike protein of SARS-CoV-2 which include highly conserved, subdominant epitopes. The cocktail promotes both ACE2 and non-ACE2 dependent neutralization and induces natural viral clearance mechanisms such as antibody dependent cellular cytotoxicity, complement activation and phagocytosis. If successful, we expect that our antibody cocktail product candidate could be used both as a treatment for individuals who have contracted SARS-CoV-2 and as a prophylactic to offer protection against the virus for individuals who are at risk of contracting SARS-CoV-2. We are conducting this program in collaboration with the DoD, which has asserted that this platform may be of strategic importance, due to its potential use in the current COVID-19 pandemic as well as in future viral outbreaks. The IMM-BCP-01 program is broadly focused on the emerging variants of SARS-CoV-2 . We submitted an IND application for the IMM-BCP-01 program to the FDA in November 2021. In March 2022, the FDA communicated that the clinical study can be initiated for our antibody cocktail for the treatment of SARS-CoV-2 following a brief clinical hold. Oncology (“IMM-ONC-01”) Our lead oncology program is focused on IL-38, which we believe is a novel, tumor-derived immune checkpoint capable of promoting evasion of the immune system. IL-38 was identified as the target of an antibody isolated from a hybridoma library generated from the memory B cells of a patient with squamous head and neck cancer. Query of public and proprietary databases of cancer patient data suggest overexpression of IL-38, based on mRNA expression in multiple solid tumors. Further, a correlation with low levels of tumor-infiltrating T cells, a hallmark of immune suppression in some of these patients’ tumors, was also observed suggesting a role for IL-38 as an immune checkpoint. Data obtained from preclinical testing indicate that blocking IL-38 function using inhibitory antibodies increase the immune response to the tumor and result in anti-tumor activity in select animal models, suggesting that anti-IL-38 antibodies could have therapeutic utility as single agents or in combination with other therapeutic modalities. Our recent analysis further confirms elevated IL-38 expression in samples of specific patient tumor subtypes, such as head and neck and gastroesophogeal, show high frequency of occurrence based on mRNA expression. We believe that this information will help guide the selection of patient cohorts for clinical testing, thereby improving the probability of clinical success. We plan to submit our IND application for the IMM-ONC-01 program with the FDA in the second half of 2022. COVID-19 Pandemic In response to the COVID-19 pandemic, we have taken, and continue to take, proactive measures to prioritize health and safety, including of our employees and other personnel. These measures included establishing a work-from-home policy for our employees, other than those performing or supporting business-critical operations and implementing stringent safety measures designed to comply with applicable federal, state and local guidelines. We have begun to implement a back-to-work policy; our approach to transitioning back to the office is tailored to the role of each team member and evolves as the specific conditions associated with the COVID-19 pandemic continue to evolve. We will continue to monitor guidance and regulations from the Centers for Disease Control and local health authorities and will adjust our onsite rules and policies in accordance with this guidance and regulations. 77 Table of Contents We have also taken, and continue to take, proactive measures to maintain business continuity in the face of the COVID-19 pandemic. Communication throughout our organization has remained active during the pandemic. In addition, as part of our vendor management processes, we have ongoing dialogues with third-party service providers, which are intended to ensure that they continue to meet our criteria for business continuity. The effect of the ongoing COVID-19 pandemic on our projected research and development timelines and activities is uncertain. Notwithstanding the measures taken, the future impact of COVID-19, including its variants, 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” in our Annual Report on Form 10-K and elsewhere in our filings with the SEC 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 advancement of our programs, including under agreements with consultants, contractors, contract research organizations and other third-party vendors and suppliers; ● 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 other infrastructure-related expenses; 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. 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 OTA Agreement) with the DoD to fund our efforts in developing Biosynthetic Convalescent Plasma (BCP) to treat COVID-19. The OTA Agreement was modified in May 2021 to increase such funding. In connection with the OTA Agreement, we record expense reimbursements received from the DoD as contra-research and development expenses in the same period the underlying expenses are incurred. 78 Table of Contents 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, 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, director and officer insurance costs and investor and public relations costs, as well as other expenses associated with maintaining compliance with Nasdaq and SEC requirements and other public company requirements. Change in fair value of warrant liability Prior to our initial public offering, our outstanding warrants 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. Interest expense, net Interest expense, net consists of interest expense related to our equipment loans payable, offset by interest income earned on our cash. Other income In April 2020, the Company received a $0.5 million loan, or the PPP Loan, pursuant to the Paycheck Protection Program, or the PPP, under the Coronavirus Aid, Relief, and Economic Security Act implemented by the U.S. Small Business Administration. The loan was forgiven on May 21, 2021 and recorded as other income on the income statement. Results of operations 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 COVID-19 and its variants 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 by the pandemic. For example, many clinical trial sites have been impacted by the pandemic, forcing them to delay enrollment in trials and it is unclear for how long this will last. This may therefore impact our ability to commence clinical trials in the future. ​ 79 Table of Contents Comparison of the years ended December 31, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ YEAR ENDED ​ ​ ​ ​ ​ DECEMBER 31, ​ ​ ​ ​ 2021 2020 Change ​ ​ (in thousands) Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Research and development ​ $ 14,110 ​ $ 7,486 ​ $ 6,624 General and administrative ​ 11,094 ​ 4,775 ​ 6,319 Total operating expenses ​ 25,204 ​ 12,261 ​ 12,943 Loss from operations ​ (25,204) ​ (12,261) ​ (12,943) Other income (expenses): ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income ​ ​ 503 ​ ​ — ​ ​ 503 Change in fair value of warrant liability ​ ​ — ​ ​ (5,538) ​ ​ 5,538 Interest expense, net ​ (10) ​ (38) ​ 28 Total other income (expenses) ​ ​ 493 ​ ​ (5,576) ​ ​ 6,069 Net loss ​ $ (24,711) ​ $ (17,837) ​ $ (6,874) ​ Research and development expenses Research and development expenses were $14.1 million and $7.5 million, net of DoD reimbursement of $15.2 million and $1.7 million for the years ended December 31, 2021 and 2020, respectively. Research and development expensed increased by $6.6 million for the year ended December 31, 2021. This increase is primarily as a result of $17.0 million increase in supplies and outsourced services and an increase of $3.0 million in personnel related costs due to an increase in headcount and stock-based compensation. Of this $6.6 million increase in research and development expenses, $13.5 million was offset due to an increase in contra-research and development expense for the year ended December 31, 2021. Contra-research and development expenses offset the expenses recognized in the period for the OTA Agreement. Research and development expenses are expected 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 $6.3 million from $4.8 million for the year ended December 31, 2020 to $11.1 million for the year ended December 31, 2021. This increase is primarily as a result of a $3.2 million increase in personnel-related costs due to an increase in headcount and stock-based compensation and $3.0 million increase in professional fees, consulting services, insurance and legal expenses to support our operations as a public company. 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. The warrants became exercisable for shares of common stock upon the completion of the IPO in October 2020 and reclassified to equity. As such, there was no change in fair value of warrant liability in 2021. ​ 80 Table of Contents Other Income Other income, of $0.5 million, primarily consists of the forgiveness of the PPP Loan. There was no such income for the year ended December 31, 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. 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, the convertible promissory notes and the PPP Loan. Through December 31, 2021, we raised an aggregate of $124.9 million in gross proceeds from sales of our common stock, Series A convertible preferred stock and warrants, warrant exercises, the issuance of convertible promissory notes, and the PPP loan. As of December 31, 2021, we had $49.2 million in cash. The Company filed a shelf registration statement on Form S-3, which was declared effective by the SEC on October 14, 2021, pursuant to which the Company may issue from time-to-time securities with an aggregate value of up to $200.0 million. In October 2021 the Company entered into an Open Market Sale Agreement (“ATM Agreement”) with Jefferies Group LLC, which provides that, upon the terms and subject to the conditions and limitations in the ATM Agreement, the Company may elect, from time to time, to offer and sell common shares under the registration statement having an aggregate offering price of up to $75.0 million through Jefferies Group LLC acting as sales agent. The Company has not yet sold any shares under the ATM Agreement. We will need to raise additional capital before we exhaust our current cash 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, 2021 and 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ YEARS ENDED ​ ​ DECEMBER 31, ​ 2021 2020 ​ ​ (in thousands) Cash used in operating activities ​ $ (18,226) ​ $ (12,134) Cash used in investing activities ​ (79) ​ (586) Cash provided by financing activities ​ 27,768 ​ 49,943 Net increase in cash and cash equivalents and restricted cash ​ $ 9,463 ​ $ 37,223 ​ Operating activities Net cash used in operating activities for the year ended December 31, 2021 was $18.2 million, consisting primarily of our net loss of $24.7 million and increases of prepaid expenses and other assets of $4.2 million, offet by net noncash charges of $3.7 million for depreciation and amortization expense, share-based compensation expense, and forgiveness 81 Table of Contents of PPP loan, and an increase in accounts payable and accrued expenses and other liabilities of $7.0 million due to our growth in expenditures. 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 and increases of prepaid expenses and other assets of $2.4 million, offset by noncash charges of $6.9 million 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. Investing activities During the years ended December 31, 2021 and 2020, we used $0.1 million and $0.6 million, respectively, for the purchase of property and equipment. Financing activities During the year ended December 31, 2021, cash provided by financing activities was $27.8 million, consisting primarily of $26.7 million of net proceeds received from the private investment in public equity (PIPE) funding, $1.4 million of proceeds from the exercise of common stock warrants and stock options, offset by $0.2 million of offering costs in connection with the Company’s shelf registration statement and $0.1 million for payments related to our equipment loan payable. 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 payable. 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 research and development programs for our current and any future product candidates from our current programs; ● seek to identify additional research programs and additional product candidates; ● initiate non-clinical testing and clinical trials for our product candidates; ● 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 administrative personnel; 82 Table of Contents ● 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 ● continue to operate as a public company. We expect that our existing cash at December 31, 2021 will enable us to fund our current and planned operating expenses and capital expenditures at least 12 months from the filing date of this Annual Report on Form 10-K. The Company will need additional financing to support its continuing operations and pursue its development 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 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. Our future funding requirements will depend on many factors including: ● the costs of continuing to develop our discovery engine; ● the costs of acquiring licenses, should we choose to do so, 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; ● the reimbursement of research and development expenses in connection with the OTA 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 and the success of our intellectual property portfolio; ● 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 83 Table of Contents 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. 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 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. 84 Table of Contents 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. 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. Accrued research and development expenses As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders and communicating with personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us on a pre-determined schedule or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments, if necessary. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status 85 Table of Contents and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses. Recently issued accounting standards In February 2016, the FASB issued ASC Topic 842, Leases, (Topic 842). This standard requires all entities that lease assets with terms of more than 12 months to capitalize the assets and related liabilities on the balance sheet. As the Company has elected to use the extended transition period for complying with new or revised accounting standards as available under the JOBS Act, the standard is effective for the Company beginning January 1, 2022, with early adoption permitted. The Company expects to adopt ASC 842 effective January 1, 2022 using the modified retrospective approach. The Company expects to elect the package of practical expedients available for existing contracts, which will allow us to carry forward our historical assessments of lease identification, lease classification, and initial direct costs. The Company also expects to elect a policy to not apply the recognition requirements of ASC 842 for short-term leases. The Company expects to recognize a right-of-use asset and lease liability of $0.2 million, respectively, on January 1, 2022, which is related to our facility operating lease (Note 8). In November 2021, the FASB issued ASU Topic 832, Disclosures by Business Entities about Government Assistance (“Topic 832”). This standard requires disclosures about transactions with a government that have been accounted for by analogizing to a grant or contribution accounting model to increase transparency about the types of transactions, the accounting for the transactions, and the effect of the transactions on an entity’s financial statements. The effective date of Topic 832 is for financial statements issued for annual periods beginning after December 15, 2021. The Company is currently evaluating the effect Topic 832 will have on its financial statements and related disclosures. JOBS Act We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies, including reduced disclosure about our executive compensation arrangements, exemption from the requirements to hold non-binding advisory votes on executive compensation and golden parachute payments and exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. We may take advantage of these exemptions until the last day of the fiscal year following the fifth anniversary of this offering or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company earlier if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1.0 billion of non-convertible debt securities over a three-year period. For so long as we remain an emerging growth company, we are permitted, and intend, to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. We may choose to take advantage of some, but not all, of the available exemptions. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. Therefore, the reported results of operations contained in our financial statements may not be directly comparable to those of other public companies. ​ 86 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 90 through 110 hereto. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.