Item 2. Management’s Discussion and Analysis
Item 2. 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 condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, including the audited consolidated financial statements and notes thereto. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business 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 Quarterly Report on Form 10-Q, 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.
Overview
We aim to improve patient outcomes by advancing a pipeline of product candidates designed to benefit large populations of patients with cancer and other diseases, developed using our translational bioinformatics platform. We have more than a decade of experience applying translational bioinformatics to generate insights into drug mechanism of action and patient treatment response. Building on this experience, our disease-agnostic discovery platform enables us to create product candidates based on 1) biological insights that are both counterintuitive and deeply rooted in data, and 2) novel chemistry. Our lead product candidate IMM-1-104 aims to achieve pan-KRAS/NRAS activity that selectively impacts cancer cells to a greater extent than healthy cells. IMM 1-104 is designed to be a highly selective dual-MEK inhibitor that further disrupts KSR to modulate the signaling dynamics of the MAPK pathway by driving deep cyclic inhibition that deprives tumor cells of the sustained proliferative signaling required for rapid growth, while providing a cadenced, moderate level of signaling sufficient to spare healthy cells. IMM-1-104 is being developed to treat advanced solid tumors in patients harboring RAS mutations, and is translationally guided by our proprietary, human-aligned 3D tumor modeling platform combined with patient-aligned bioinformatics. In addition to IMM-1-104, we are evaluating our MEK-io product candidate, IMM-6-415, in IND enabling studies, and we have five other oncology programs in the discovery stage that are designed to target components of the MAPK or mTOR pathway, as well as two discovery stage neuroscience programs.
We plan to submit an IND, for IMM-1-104 to the U.S. Food and Drug Administration, or the FDA, in the third quarter of 2022. In addition, we plan to submit an IND for IMM-6-415 to the FDA in 2023. We anticipate filing at least one additional IND for our other oncology programs in 2024.
For the period from inception through 2017, we devoted substantially all of our efforts to business planning, service revenue generation, developing tools to aid in drug discovery, and recruiting management and technical staff. Since 2018, we have also focused significant effort on our own internal research and development programs. We have financed our operations through service revenues, the issuance of convertible debt and the sale of convertible preferred stock and common stock.
On December 22, 2021, we completed the acquisition of all outstanding shares of capital stock of BioArkive, Inc., a California corporation (“BioArkive”) for a market value of $8.75 million.
BioArkive is a San Diego based contract research organization that has previously provided preclinical research services and biosample storage to us and other biotechnology companies. BioArkive was fully integrated into our operations and exclusively supports our internal preclinical research activities for our oncology pipeline. In connection with the acquisition, we have assumed the obligations under BioArkive’s three lease agreements.
The purchase price was paid by us through the issuance of an aggregate of 379,635 shares of our Class A common stock. The number of shares of Class A common stock issued was calculated using a value based on the average of the daily volume weighted average prices of our Class A common stock on the Nasdaq Stock Exchange for the 30-trading day period ending on and including the trading day immediately prior to the closing date. The sellers of BioArkive were restricted from selling these shares for a six month period from the date of the acquisition. As such, we estimated that there was an approximate 10% discount for the lack of marketability of the shares. The fair value of the purchase price in the acquisition was $7.88 million.
25
Table of Contents
Our operations have been financed primarily by service revenues and aggregate net proceeds of approximately $81.4 million from the issuance of convertible notes payable, convertible preferred stock (Series A and B) including gross proceeds of approximately $24.8 million from the issuance of shares in the second tranche of Series B Preferred in April and May 2021, common stock, exercise of stock options. On August 3, 2021, we completed our IPO pursuant to which we issued and sold 8,625,000 shares of Class A common stock, inclusive of 1,125,000 shares sold by us pursuant to the full exercise of the underwriters’ option to purchase additional shares. We received aggregate net proceeds of approximately $120.3 million from the IPO, after deducting underwriting discounts and commissions, but before deducting offering costs payable by us, which were $2.1 million.
Since inception, we have had significant annual operating losses. Our net loss was approximately $24.4 million, for the six months ended June 30, 2022 and $33.5 million for the year ended December 31, 2021. As of June 30, 2022, we had an accumulated deficit of approximately $83.7 million and approximately $128.1 million in cash and cash equivalents and marketable securities.
Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our accounts payable and accrued expenses. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. In particular, we expect our expenses to increase as we continue our development of, and seek regulatory approvals for, our internally developed product candidates as well as add operational, financial and management informational systems and personnel to support our product development. In addition, if and when we seek and obtain regulatory approval to commercialize any product candidate, we will also incur increased expenses in connection with commercialization and marketing of any such product. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.
Based upon our current business plans, we believe that our existing cash and cash equivalents and marketable securities will be sufficient to fund our development activities and other operations into the third quarter of 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. To finance our operations beyond that point we will need to raise additional capital, which cannot be assured.
We have not had any internally developed products approved for sale. We do not expect to generate any product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our internally developed product candidates. If we obtain regulatory approval for any of our internally developed product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. As a result, until such time, if ever, that we can generate substantial product revenue, we expect to finance our cash needs through service revenue, equity offerings, debt financings or other capital sources, including collaborations, licenses or similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed or on favorable terms, if at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies, including our research and development activities. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs.
In March 2020, the World Health Organization declared the coronavirus (“COVID-19”) outbreak a pandemic and we continue to monitor the ongoing impacts of the COVID-19 pandemic. We cannot presently predict the scope and severity of any future potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage, including personnel at third-party manufacturing facilities and other third parties with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timeline presently planned could be materially and adversely impacted. While to date we have been able to continue to execute our overall business plan, it is unknown how long these conditions will last and what the complete effect will be on us. Overall, we recognize the challenges the pandemic may pose to our business, will continue to closely monitor events as they develop and plan for alternative and mitigating measures that we can implement if needed.
26
Table of Contents
Components of Our Results of Operations
Revenue
Our revenue is generated by providing computational biology professional services to pharmaceutical and biotechnology companies. We charge an agreed upon rate per hour based on the aggregate level of personnel assigned to work on the project or a fixed fee for a defined scope of work. Our contracts specify the period of time over which these professional services will be provided. We recognize revenue over time by measuring the progress toward complete satisfaction of the performance obligation using a single method of measuring progress, which depicts the performance in transferring control of the associated services to the customer. We use input methods to measure the progress toward the complete satisfaction of performance obligations and evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenue and net loss in the period of adjustment.
We expect revenue to continue to decrease as we have deprioritized new services work in order to focus on developing our wholly owned pipeline. We expect that, by the end of 2022, revenue associated with this computational biology professional services business will be eliminated.
We are in the process of discontinuing biosample storage, which was acquired through the BioArkive transaction, to external parties and expect it to complete in the second half of 2022. The revenue earned associated with this is immaterial to the financial statements and is expected to continue to decrease until these external services are discontinued.
Cost of Revenue
Our cost of revenue expenses consists primarily of costs related to providing professional services to our customers. These costs include salaries, bonuses, benefits, and stock-based compensation expense, depreciation, facilities, and other outside services.
Operating Expenses
Our operating expenses consist of (i) research and development expenses and (ii) general and administrative expenses.
Research and Development
Research and development expenses account for a significant portion of our operating expenses. Our research and development expenses consist primarily of direct and indirect costs incurred in connection with the development of our research platform, product candidates, discovery efforts and preclinical studies related to our program pipeline.
Our direct costs include:
● expenses incurred under agreements with contract research organizations, or CROs, and other vendors that conduct our preclinical activities on our behalf; including laboratory expenses related to the execution of preclinical studies on our behalf;
● expenses associated with the manufacturing of our product candidates and preclinical material, including fees paid to contract manufacturers; and
● consulting fees and expenses related to preparation of initiation of clinical trials
Our indirect costs include:
● personnel-related expenses, consisting of employee salaries, bonuses, benefits and stock-based compensation expense and recruiting costs for personnel engaged in research and development activities; and
● facility and equipment related expenses, consisting of indirect and allocated expenses for rent, depreciation, maintenance of facilities, insurance, and other supplies.
27
Table of Contents
We expense research and development costs as incurred. Our direct research and development expenses are not currently tracked on a program-by-program basis, but we anticipate tracking costs on a program-by-program basis at the time IMM-1-104 enters clinical trials, which we expect to occur in the fourth quarter of 2022, assuming our IND application is accepted. We use our personnel and infrastructure resources across multiple research and development programs directed toward identifying and developing product candidates.
Due to the inherently unpredictable nature and numerous risks and uncertainties associated with product development and the current stage of development of our product candidates and programs, we cannot reasonably estimate or know the nature, timing and estimated costs necessary to complete the remainder of the development of our product candidates or programs. We are also unable to predict if, when, or to what extent we will obtain approval and generate revenues from the commercialization and sale of any of our product candidates.
The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, such as:
● successful completion of preclinical studies and initiation of clinical trials for future product candidates;
● successful enrollment and completion of clinical trials for our current product candidates;
● data from our clinical programs that support an acceptable risk-benefit profile of our product candidates in the intended patient populations;
● acceptance by the FDA or other applicable regulatory agencies of IND applications, clinical trial applications and/or other regulatory filings for our product candidates;
● expansion and maintenance of a workforce of experienced scientists and others to continue to develop our product candidates;
● successful application for and receipt of marketing approvals from applicable regulatory authorities;
● obtainment and maintenance of intellectual property protection and regulatory exclusivity for our product candidates;
● making of arrangements with contract manufacturing organizations for, or establishment of, commercial manufacturing capabilities;
● establishment of sales, marketing and distribution capabilities and successful launch of commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;
● acceptance of our product candidates, if and when approved, by patients, the medical community and third-party payors;
● effective competition with other therapies;
● obtainment and maintenance of coverage, adequate pricing and adequate reimbursement from third-party payors, including government payors;
● maintenance, enforcement, defense and protection of our rights in our intellectual property portfolio;
● avoidance of infringement, misappropriation or other violations with respect to others ’ intellectual property or proprietary rights; and
● maintenance of a continued acceptable safety profile of our products following receipt of any marketing approvals.
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate.
The process of conducting the necessary preclinical and clinical research to obtain regulatory approval is costly and time-consuming. The actual probability of success for our product candidates may be affected by a variety of factors.
We may never succeed in achieving regulatory approval for any of our product candidates. Further, a number of factors, including those outside of our control, could adversely impact the timing and duration of our product candidates’ development, which could increase our research and development expense. We may obtain unexpected results from our preclinical studies and clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For
28
Table of Contents
example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development.
We expect that our research and development expenses will substantially increase for the foreseeable future as we continue to implement our business strategy, which includes advancing our product candidates through clinical development, expanding our research and development efforts, including hiring additional personnel to support our research and development efforts, and seeking regulatory approvals for our product candidates that successfully complete clinical trials. In addition, product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect our research and development expenses to increase as our product candidates advance into later stages of clinical development. As of the date of this Quarterly Report on Form 10-Q, we cannot reasonably determine or accurately project total program-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.
General and Administrative
Our general and administrative expenses consist primarily of personnel-related expenses, including employee salaries, bonuses, benefits, stock-based compensation, and recruiting costs for personnel in executive, finance, and other administrative functions. Other significant general and administrative expenses include legal fees relating to intellectual property and corporate matters, professional fees for accounting, tax and consulting services, insurance costs, travel expenses and facility related expenses not otherwise included in research and development expenses.
We expect our general and administrative expenses will substantially increase for the foreseeable future as we continue to increase our general and administrative headcount to support our continued research and development activities and, if any product candidates receive marketing approval, commercialization activities, as well as to support our operations generally. As we expand our operations, we also expect to incur increased expenses associated with operating as a public company, including costs related to accounting, audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and rules and regulations of the SEC, Sarbanes-Oxley Act, director and officer insurance costs, and investor and public relations costs.
Amortization of intangible asset
Amortization of intangible asset relates to the technology acquired in the BioArkive acquisition.
Other Income (Expense)
Interest income
Interest income consists of interest earned on our cash and cash equivalents balances and our marketable securities. The primary objective of our investment policy is capital preservation.
Other expense
Other expense consists of the amortization of premiums or accretion of discounts related to our marketable securities.
29
Table of Contents
Results of Operations
Comparison of the Three Months Ended June 30, 2022 and 2021
The following table summarizes our results of operations for the periods indicated:
Three Months Ended June 30,
Change
2022
2021
$
%
(in thousands, except percentages)
Revenue
$
94
$
660
$
(566)
(85.8)
%
Cost of revenue
48
319
(271)
(85.0)
%
Gross profit
46
341
(295)
(86.5)
%
Operating expenses
Research and development
7,981
6,992
989
14.1
%
General and administrative
3,704
1,340
2,364
176.4
%
Amortization of intangible asset
8
—
8
N/M
%
Total operating expenses
11,693
8,332
3,361
40.3
%
Loss from operations
(11,647)
(7,991)
(3,656)
45.8
%
Other income (expense)
Interest income
143
3
140
4,666.7
%
Other expense
(24)
—
(24)
N/M
%
Net loss
$
(11,528)
$
(7,988)
(3,540)
44.3
%
N/M – Not meaningful
Revenue
The following table summarizes the revenue recognized for the periods indicated:
Three Months Ended June 30,
Change
2022
2021
$
%
(in thousands, except percentages)
Revenue
$
94
$
660
$
(566)
(85.8)
%
Revenue decreased by approximately $0.6 million, or 85.8%, to approximately $0.1 million for the three months ended June 30, 2022 compared to approximately $0.7 million for the three months ended June 30, 2021. The decrease in revenue was due to approximately $0.6 million decrease in existing customers in the three months ended June 30, 2022 compared to June 30, 2021.
30
Table of Contents
Cost of Revenue
Cost of revenue decreased by approximately $0.3 million, or 85.0%, to approximately $50 thousand for the three months ended June 30, 2022 compared to approximately $0.3 million for the three months June 30, 2021. The decrease was primarily due to decreased employee-related costs of approximately $0.3 million related to services contracts.
Research and Development
The following table summarizes the components of our research and development expenses for the periods indicated:
Three Months Ended June 30,
Change
2022
2021
$
%
(in thousands, except percentages)
Employee related costs
$
3,239
$
2,053
$
1,186
57.8
%
Equity-based compensation expense
505
160
345
215.6
%
Outside contract research services
3,102
4,658
(1,556)
(33.4)
%
Facilities and other allocated expenses
1,096
112
984
878.6
%
Depreciation
39
9
30
333.3
%
Total research and development
$
7,981
$
6,992
$
989
14.1
%
Research and development expenses increased by approximately $1.0 million, or 14.1%, to approximately $8.0 million for the three months ended June 30, 2022 compared to approximately $7.0 million for the three months ended June 30, 2021. The increase of approximately $1.0 million was primarily due to approximately $1.2 million of additional employee-related costs, approximately $0.3 million increase for equity-based compensation expense, an increase of $1.0 million for facilities, depreciation and other allocated expenses offset by approximately $1.5 million decrease in outside contract research services for preclinical candidates due to savings in outside consultant costs that were related to BioArkive which are now incorporated in the employee and facility related costs.
General and Administrative
The following table summarizes the components of our general and administrative expenses for the periods indicated:
Three Months Ended June 30,
Change
2022
2021
$
%
(in thousands, except percentages)
Employee related costs
$
2,057
$
565
$
1,492
264.1
%
Equity-based compensation expense
543
169
374
221.3
%
Professional fees
561
474
87
18.4
%
Outside consultants
—
8
(8)
(100.0)
%
Facilities and other allocated expenses
345
11
334
3,036.4
%
Other
198
113
85
75.2
%
Total general and administrative
$
3,704
$
1,340
$
2,364
176.4
%
General and administrative expenses increased by approximately $2.4 million, or 176.3%, to approximately $3.7 million for the three months ended June 30, 2022 compared to approximately $1.3 million for the three months ended June 30, 2021. The increase of approximately $2.4 million was primarily due to an increase in employee-related costs and equity-based compensation expense of approximately $1.9 million, increased facilities and allocated expenses of approximately $0.3 million, increased professional fees for accounting, auditing and legal of $0.1 million and approximately $0.1 million in other expenses as a result of the Company becoming a public company in the third quarter of 2021.
31
Table of Contents
Amortization of Intangible Asset
Amortization of intangible asset of $7,317 in the three months ended June 30, 2022 is related to the technology acquired for the BioArkive acquisition completed in December 2021.
Other Income (expense)
Interest income increased by approximately $0.1 million due to the interest earned on our cash and cash equivalents and marketable securities balances due to the higher balances as a result of the IPO proceeds.
Other expense increased by $127,000 as a result of the increase in the amortization of premiums related to our marketable securities.
Comparison of the Six Months June 30, 2022 and 2021
The following table summarizes our results of operations for the periods indicated:
Six Months Ended June 30,
Change
2022
2021
$
%
(in thousands, except percentages)
Revenue
$
278
$
1,408
$
(1,130)
(80.3)
%
Cost of revenue
139
728
(589)
(80.9)
%
Gross profit
139
680
(541)
(79.6)
%
Operating expenses
Research and development
17,032
12,383
4,649
37.5
%
General and administrative
7,664
2,524
5,140
203.6
%
Amortization of intangible asset
15
—
15
N/M
%
Total operating expenses
24,711
14,907
9,804
65.8
%
Loss from operations
(24,572)
(14,227)
(10,345)
72.7
%
Other income (expense)
Interest income
275
10
265
2,650.0
%
Other income (expense)
(127)
—
(127)
N/M
%
Net loss
$
(24,424)
$
(14,217)
(10,207)
71.8
%
Revenue
The following table summarizes the revenue recognized for the periods indicated:
Six Months Ended June 30,
Change
2022
2021
$
%
(in thousands, except percentages)
Revenue
$
278
$
1,408
$
(1,130)
(80.3)
%
Revenue decreased by approximately $1.1 million, or 80.3%, to approximately $0.3 million for the six months ended June 30, 2022 compared to approximately $1.4 million for the six months ended June 30, 2021. The decrease in revenue was due to the decrease and wind down of the numbers and scope of customer agreements in 2022 compared to 2021.
32
Table of Contents
Costs of Revenue
Cost of revenue decreased by approximately $0.6 million, or 80.9%, to approximately $0.1 million for the six months ended June 30, 2022 compared to approximately $0.7 million for the six months ended June 30, 2021. The decrease was primarily due to decreased employee related costs as a result of the wind down of the customer agreements in 2022 compared to 2021.
Research and Development
The following table summarizes the components of research and development expenses for the periods indicated:
Six Months Ended June 30,
Change
2022
2021
$
%
(in thousands, except percentages)
Employee related costs
$
6,724
$
3,817
$
2,907
76.2
%
Equity-based compensation expense
938
266
672
252.6
%
Outside contract research services
6,622
8,071
(1,449)
(18.0)
%
Facilities and other allocated expenses
2,688
213
2,475
1,162.0
%
Depreciation
60
16
44
275.0
%
Total research and development
$
17,032
$
12,383
$
4,649
37.5
%
Research and development expenses increased by approximately $4.6 million, or 37.5%, to approximately $17.0 million for the six months ended June 30, 2022 as compared to approximately $12.4 million for the year ended June 30, 2021. The increase of approximately $4.6 million was primarily due to an increase of approximately $3.6 million related to additional employee related costs, primarily due to higher headcount and increased equity-based compensation, facilities and other allocated expense of approximately $2.5 million. Increases in research and development are partially offset by a decrease of $1.5 million in outside contract research services for preclinical candidates which is due to savings in outside consultant costs that were related to BioArkive which are now incorporated in the employee and facility related costs.
General and Administrative
The following table summarizes the components of general and administrative expenses for the periods indicated:
Six Months Ended June 30,
Change
2022
2021
$
%
(in thousands, except percentages)
Employee related costs
$
4,227
$
1,142
$
3,085
270.1
%
Equity-based compensation expense
1,004
223
781
350.2
%
Professional fees
1,254
916
338
36.9
%
Outside consultants
68
11
57
518.2
%
Facilities and other allocated expenses
701
20
681
3,405.0
%
Other
410
212
198
93.4
%
Total general and administrative
$
7,664
$
2,524
$
5,140
203.6
%
General and administrative expenses increased by approximately $5.1 million, or 203.6%, to approximately $7.6 million for the six months ended June 30, 2022 compared to approximately $2.5 million for the six months ended June 30, 2021 as a result of the Company becoming a public company in third quarter of 2021. The increase of approximately $5.1 million was primarily due to increased employee related costs and equity-based compensation expense of approximately
33
Table of Contents
$3.9 million, increased professional fees incurred for accounting, auditing, legal, and tax services of approximately $0.3 million, increase of $0.7 million for facilities and other allocated expense, increase of $0.2 million in other expenses.
Amortization of Intangible Asset
Amortization of intangible asset of $15,420 in the six months ended June 30, 2022 is related to the technology acquired for the BioArkive acquisition completed in December 2021.
Other Income (Expense), Net
Interest income increased by approximately $0.3 million due to the interest earned on our cash and cash equivalents and marketable securities balances due to the higher balances as a result of the IPO proceeds.
Other expense increased by $0.1 million as a result of the increase in the amortization of premiums related to our marketable securities.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have financed our operations through service revenues, the issuance of convertible notes payable, convertible preferred stock, common stock, and the exercise of stock options. As of June 30, 2022, we had an accumulated deficit of $83.7 million and $128.1 million in cash and cash equivalents and marketable securities. Cash and cash equivalents are comprised of deposits at major financial banking institutions and highly liquid investments with an original maturity of three months or less at the date of purchase. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, reflected in the change in our outstanding accounts payable and accrued expenses.
Since our inception, we have incurred significant operating losses. We have not yet commercialized any of our product candidates, and we do not expect to generate revenue from sales of any product candidates for the next several years, if at all. To date, our operations have been financed primarily by service revenues and aggregate net proceeds of approximately $81.4 million from the issuance of convertible notes payable, convertible preferred stock including gross proceeds of approximately $24.8 million from the issuance of shares in the second tranche of Series B Preferred in April and May 2021, common stock, and the exercise of stock options. In August 2021, we completed our IPO pursuant to which we issued and sold 8,625,000 shares of Class A common stock, inclusive of 1,125,000 shares sold by us pursuant to the full exercise of the underwriters’ option to purchase additional shares. We received aggregate net proceeds of approximately $120.3 million from the IPO, after deducting underwriting discounts and commissions, but before deducting offering costs payable by us, which were $2.1 million.
As of June 30, 2022, we have contractual obligations related to various leases of $0.3 million for 2022, $0.8 million for 2023, $0.7 million for 2024, $0.7 million for 2025, $0.8 million for 2026 and $4.5 million for the periods thereafter.
We have no off-balance sheet arrangements that have a material current effect or that are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
34
Table of Contents
Cash Flows
The following table summarizes our sources and uses of cash for the periods indicated:
Six Months Ended June 30,
2022
2021
(in thousands)
Net cash (used in) provided by:
Operating activities
$
(21,730)
$
(12,577)
Investing activities
34,558
(36)
Financing activities
221
25,769
Net increase in cash and cash equivalents
$
13,049
$
13,156
Net Cash Used in Operating Activities
During the six months ended June 30, 2022, operating activities used approximately $21.7 million of cash, primarily resulting from our net loss of approximately $24.4 million, partially offset by right-of-use asset amortization of $0.3 million and equity-based compensation expense of approximately $2.0 million.
During the six months ended June 30, 2021, operating activities used approximately $12.6 million of cash, primarily resulting from our net loss of approximately $14.2 million partially offset by cash provided by changes in our operating assets and liabilities of approximately $1.0 million, and equity-based compensation expense of approximately $0.5 million.
Net Cash Provided by (Used in) Investing Activities
During the six months ended June 30, 2022, investing activities provided approximately $34.6 million of cash, primarily resulting from the maturities of marketable securities of approximately $52.8 million, partially offset by purchases of marketable securities for $18.0 million and purchases of property and equipment of $0.3 million.
During the six months ended June 30, 2021, cash used in investing was $36,388, resulting from purchases of property and equipment.
Net Cash Provided by Financing Activities
During the six months ended June 30, 2022, net cash provided by financing activities was approximately $0.2 million, consisting of approximately $0.2 million from the exercise of stock options.
During the six months ended June 30, 2021, net cash provided by financing activities was approximately $25.8 million, consisting primarily of approximately $24.8 million in net proceeds received from the issuance of Series B preferred stock and approximately $1.0 million in net proceeds from the exercise of warrants and approximately $52,627 from the exercise of stock options.
Future Funding Requirements
We expect that our expenses will increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials for our product candidates in development. The timing and amount of our operating and capital expenditures will depend largely on:
● the impacts of the pandemic related to COVID-19 and its variants and potential future pandemics;
● the costs and results of our potential future clinical trials for our other product candidates;
● the scope, progress, results and costs of discovery research, preclinical development, laboratory testing and clinical trials for our other product candidates;
● the costs, timing and outcome of regulatory review of our product candidates;
35
Table of Contents
● our ability to enter into contract manufacturing arrangements for supply of active pharmaceutical ingredient, or API, and manufacture of our product candidates and the terms of such arrangements;
● the payment or receipt of milestones and receipt of other collaboration-based revenues, if any;
● the costs and timing of any future commercialization activities, including product manufacturing, sales, marketing and distribution, for any of our product candidates for which we may receive marketing approval;
● the amount and timing of revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;
● the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property related claims;
● the extent to which we acquire or in-license other products, product candidates, technologies or data referencing rights;
● our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements;
● our ability to access the private and public capital markets or to obtain financing at commercially reasonable rate;
● the ability to receive additional non-dilutive funding, including grants from organizations and foundations; and
● the costs of operating as a public company.
We believe that our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements into the third quarter of 2024. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.
Critical Accounting Policies and Use of Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Use of Estimates” in our Annual Report on 10-K for the fiscal year ending December 31, 2021. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. There have been no significant changes to our critical accounting policies from those described in the 10-K.
A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Emerging Growth Company Status
As an emerging growth company, or EGC, under the Jumpstart Our Business Startups Act of 2012, or JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited consolidated financial statements in a registration statement for an IPO, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board, and less extensive disclosure about our executive compensation arrangements.
In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an EGC to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies
36
Table of Contents
until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We may remain classified as an EGC until the end of the fiscal year following the fifth anniversary of our IPO, although if the market value of our common stock that is held by non-affiliates exceeds $700 million as of September 30 of any year before that time, or if we have annual gross revenues of $1.07 billion or more in any fiscal year, we would cease to be an EGC as of December 31 of the applicable year. We also would cease to be an EGC if we issue more than $1.0 billion of non-convertible debt over a three-year period.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, we are not required to provide this information.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.