Kodiak Sciences Inc. 10-Q

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 unaudited condensed consolidated financial statements and the related notes included elsewhere in this report and with our audited financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2019, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 16, 2020. This discussion and analysis and other parts of this report contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives, expectations, forecasts and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the section of this report titled “Part II, Item 1A — Risk Factors” and elsewhere in this report. Overview Our goal is to prevent and treat the major causes of blindness by developing and commercializing next-generation therapeutics for chronic, high-prevalence retinal diseases. Throughout 2019 and 2020, we have generated clinical data with our most advanced product candidate, KSI-301, a biologic therapy built with our antibody biopolymer conjugate platform, or ABC Platform, which is designed to maintain potent and effective drug levels in ocular tissues for longer periods than the currently-marketed biologic medicines used to treat retinal diseases. To date, KSI-301 has been administered more than 1,500 times to more than 400 patients representing more than 250 patient-years of clinical experience. We believe that KSI-301, if approved, has the potential to be an important therapy to treat patients with wet age-related macular degeneration, or wet AMD, diabetic retinopathy, or DR, including diabetic macular edema, or DME, and macular edema due to retinal vein occlusion, or RVO. In our ongoing Phase 1b clinical study, in which enrollment is complete, we have administered multiple doses of KSI-301 to treatment-naïve patients with wet AMD, DME or RVO, and we continue to observe promising safety, efficacy, and clinical durability data in each of the retinal diseases under study. We believe the data support an acceleration of efforts to bring KSI-301 to the market in these retinal diseases and that the data lend confidence to the design of our currently-ongoing and planned pivotal (registrational) studies of KSI-301. We believe these registrational clinical studies, if successful, may demonstrate a meaningfully differentiated clinical profile of KSI-301 as compared to current therapies, and we also believe that this profile would allow KSI-301 to compete effectively in the evolving commercial and product landscape. The potential clinical (and thus commercial/competitive) advantages of a long-acting retinal therapeutic such as KSI-301 go well beyond fewer and less frequent injections over time and also include the potential for patients to retain their vision over the long term due to fewer missed treatments and/or fewer drug holidays, as a result of more manageable treatment schedules. Moreover, a longer-acting medicine allows patients with vision-threatening diseases to remain on effective treatment even in context of treatment disruptions that occur in ordinary circumstances (such as missed visits due to travel or concurrent illnesses), as well as extraordinary disruptions of regular treatment such as that exemplified by the COVID-19 pandemic, where more frequent clinic visits may not be desirable, possible or allowed in certain regions or countries. Based on the encouraging data that continue to be observed in our Phase 1b study, we have expanded the KSI-301 clinical pivotal program in the third quarter of 2020, and we have entered into the manufacturing-related commitments necessary for KSI-301’s commercial scale-up and BLA submission. We believe the intersection of these clinical and manufacturing activities remain on track per our “2022 Vision” to submit a single BLA for wet AMD, DME and RVO in calendar year 2022. We successfully recruited patients into both of our paired pivotal studies in DME (GLEAM and GLIMMER) and into our pivotal study in RVO (BEACON) in the third quarter of 2020. The pivotal study for wet AMD (DAZZLE) began recruiting in the third quarter of 2019 and completed U.S. patient enrollment in the third quarter of 2020. DAZZLE patient recruitment in the EU is expected to complete in the fourth quarter of 2020. In 2019, we completed an End of Phase 2 meeting with the FDA where we agreed on the order and number of clinical studies required to support the licensure of KSI-301 in wet AMD, DME, RVO and non-proliferative DR (NPDR without DME). We confirmed that two studies conducted in a single indication are expected by FDA in order to demonstrate the initial safety and efficacy of KSI-301 and that one study each in the additional disease indications, if successful, can be used to support approval in the additional indications. Following our communications with FDA at the time of our End of Phase 2 meetings as well as subsequent communications, we upgraded our pivotal study program to assess KSI-301 in two Phase 3 studies (our ongoing GLEAM and GLIMMER studies) in DME to provide the mutually-confirmatory studies required by FDA for initial demonstration of safety and efficacy, one Phase 2b/3 study (our ongoing DAZZLE study) in wet AMD, one Phase 3 study (our ongoing BEACON study) in RVO, and one Phase 3 study (GLOW) in NPDR without DME. By conducting paired studies in DME, we are able to generate additional data on the safety, efficacy and durability of KSI-301 in this area of high unmet need and commercial opportunity, while also narrowing the number of sites and countries required for successful enrollment of the entire pivotal program. We expect a majority of research sites to be located in the U.S. with most of the remaining sites in the EU. Given the strong new patient enrollment and low missed visit rates seen to date in our DAZZLE wet AMD pivotal study in the U.S. despite the ongoing COVID-19 pandemic, we 13 believe focusing the KSI-301 program in this way helps minimize uncertainty with respect to clinical trial conduct during and through the COVID-19 pandemic and towards our “2022 Vision.” Additional specific reasons for running paired DME pivotals (and one RVO pivotal) include: fewer countries and sites needed for two DME studies versus two RVO studies (avoiding the cost and logistical burdens of opening and supporting clinical trial sites that would only participate in RVO studies); better oversight of operational execution (essentially all sites can concurrently enroll treatment naïve patients in wet AMD, DME and RVO); higher unmet need in DME versus RVO; marginal, if any, increase in overall trial execution costs; and the potential for an accelerated timeline for two DME versus two RVO pivotals. On top of these operational considerations, we remain pleased with the DME clinical data we are seeing in the Phase 1b study and want to align greater clinical data generation in DME given the larger number of diabetic patients and higher unmet need and market opportunity as compared to RVO. The ABC Platform and KSI-301 were developed at Kodiak, and we own rights to these assets in key geographies including the US, EU, China and other major countries. We have applied our ABC Platform to develop additional product candidates beyond KSI-301, including KSI-501, our bispecific anti-IL-6/VEGF bioconjugate, and we are expanding our early research pipeline to include ABC Platform-based triplet inhibitors for multifactorial retinal diseases such as dry AMD and the neurodegenerative aspects of glaucoma. In October 2020, we announced that we entered a supplemental research agreement with AbCellera to generate additional therapeutic antibody candidates for novel disease targets in ophthalmology in support of our evolving research pipeline. We intend to progress these and other product candidates to address high-prevalence ophthalmic diseases. Our overall objective is to develop our product candidates, seek FDA and worldwide health authority marketing authorization approvals, and ultimately commercialize our product candidates. Recent Developments We have implemented various enhancements into our ongoing study execution to help ensure the safety of patients, physicians, study site staff and Kodiak operations team members during the ongoing COVID-19 pandemic, including the use of remote study monitoring. To date, we have observed minimal disruption resulting from the evolving effects of the COVID-19 pandemic in our ongoing clinical trials. In DAZZLE, patient missed visit rates remain low (less than 5%), and clinical trial sites enrolled patients rapidly in the third quarter. This is a testament to the serious diseases we are attempting to treat and is a vote of confidence from the patients, physicians and study sites partnering with us to advance KSI-301. With $380.5 million in cash, cash equivalents and marketable securities as of September 30, 2020, and thoughtful management of our spending, we remain on a strong financial footing. KSI-301 Pivotal Program We initiated two Phase 3 studies in DME (GLEAM and GLIMMER) and one Phase 3 study in RVO (BEACON) in the third quarter of 2020. The randomization of treatment-naïve patients into these three pivotal studies in the third quarter is a critical step to build the clinical evidence for KSI-301 as a safe, effective and highly durable therapy for patients with retinal diseases. We have also completed U.S. patient enrollment in our ongoing Phase 2b/3 study in wet AMD (DAZZLE) and continue to recruit patients in the EU. We expect to complete DAZZLE enrollment by year end 2020. We believe that the initiation of the additional Phase 3 studies and the robust patient recruitment into DAZZLE represent strong operational progress towards our 2022 Vision of a single BLA filed for KSI-301 in wet AMD, DME and RVO in calendar year 2022. Importantly, to date the data emerging in our Phase 1b study remain consistent and provide support for and confidence in our pivotal study designs. COVID-19 In March 2020, the World Health Organization declared a pandemic related to the global COVID-19 outbreak. Governments have taken preventative and protective actions, including but not limited to, restrictions on non-essential travel, business operations, and gatherings of individuals. The State of California, where our headquarters is located in the San Francisco Bay Area, declared a state of emergency and shelter-in-place order in March 2020. Although certain restrictions have eased, and phased re-openings are underway, it is not certain when such restrictions will be fully lifted, and recent resurgences in number and rates of infections, reactions to increased testing and/or further spreading of the virus may result in the return or implementation of more restrictive measures. Global financial markets have also experienced extreme volatility and as a result, economic uncertainties have arisen which could impact the Company’s operations and its financial position. The extent of the impact of the ongoing COVID-19 pandemic will depend on certain evolving developments, including the duration and spread of the outbreak, regulatory and private sector responses, and the impact on our employees, vendors including supply chain and clinical partners, all of which are uncertain and cannot be predicted. We continue to monitor government responses and may elect to temporarily close our office and/or laboratory space to protect our employees. We continue to assess the potential for supply chain disruptions as the pandemic may impact personnel at third party manufacturing facilities in China, Switzerland and other countries, as well as its impact on the availability and/or cost of materials. We continue to monitor financial markets and the impact on our operations and capital resources. 14 We and our key clinical and manufacturing partners have been able to continue to advance our operations. Because the diseases under study in the KSI-301 development program are serious, vision-threatening conditions for which patients are still seeking and receiving treatment from retina specialists during the pandemic, we have been able to continue advancing the clinical programs for KSI-301 during the pandemic towards achieving our “2022 Vision . ” During this pandemic, we continue to work closely with our clinical sites towards maximal patient safety and the lowest number of missed visits and study discontinuations. We have taken and continue to take proactive measures to maintain the integrity of our ongoing clinical studies. To date, we are seeing low levels of patient missed visits (<5%). In response to the COVID-19 global pandemic with regards to business operations, clinical trials, and manufacturing activities: • We have taken steps in line with guidance from the U.S. Centers for Disease Control and Prevention, or CDC, and the State of California to protect the health and safety of our employees and the community. In particular, the Company has implemented remote work arrangements for non-essential employees since March 17, 2020. • We are working closely with our clinical trial sites to monitor and attempt to minimize the potential impacts of the evolving COVID-19 pandemic on patient enrollment, continued participation of patients already enrolled in our clinical studies, protocol compliance, data quality, and overall study integrity. Some specific actions we have taken in the United States include the use of remote study monitoring, temporarily increasing study site budget overhead rates, providing additional transportation service options for patients to attend study site visits and focusing on new patient enrollment only at study sites with appropriate backup resource plans in place and where the local COVID-19 situation allows. Since the month of March 2020, the rate of missed study visits has remained <5%. As of now, we have not experienced significant delays to our ongoing or planned clinical trials; however, this could change rapidly depending on the dynamics of the pandemic. • In June 2020, we restarted patient recruitment activities at certain sites in EU countries. DAZZLE study sites in the EU were activated in the first quarter of 2020, but we deferred study patient enrollment until June due to the pandemic. • To minimize the potential for disruption of our pivotal studies of KSI-301, we have refined our study designs, including sample size and country selection. We began enrollment of our pivotal DME (GLEAM and GLIMMER) and RVO (BEACON) studies in the third quarter of 2020 in the United States and aim to initiate the pivotal study in non-proliferative DR (GLOW) in the first quarter of 2021, dependent on the continued evolution of the COVID-19 pandemic. Ex-U.S. clinical trial application submissions are underway for GLEAM, GLIMMER and BEACON. We believe we are still on track to achieve our “2022 Vision” objective of filing a single BLA in 2022 for KSI-301 in wet AMD, DME and RVO. • Our supply chain and manufacturing activities remain intact, and we do not currently anticipate disruptions to our supply of KSI-301 due to COVID-19. We will continue to monitor the COVID-19 situation closely. The ultimate impact of the ongoing COVID-19 pandemic on our business operations remains highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems or the global economy as a whole. See also the section titled “Risk Factors” for additional information on risks and uncertainties related to the evolving COVID-19 pandemic. Our bispecific conjugate KSI-501 inhibits both interleukin 6, or IL-6, and Vascular Endothelial Growth Factor, or VEGF. Tissue based IL-6 mediated inflammatory response syndromes have been associated with severe COVID-19 disease. As such, IL-6 blockade is being explored as a novel therapeutic strategy in patients with COVID-19 disease. Similarly, tissue specific edema such as pulmonary edema is implicated in severe and critical COVID-19 disease. VEGF in the alveolar space is a potent inducer of vascular permeability and resultant pulmonary edema which plays a pathological role in lung dysfunction. Emerging data show VEGF levels are elevated in COVID-19 patients. OG2072, the bispecific fusion protein used to build our ophthalmology product candidate KSI-501, binds with high affinity to both of its targets simultaneously (IL-6 and VEGF). Intriguingly, we have seen synergistic inhibition in vitro and we are interested in the possible unique benefit this synergistic inhibition may have in lung and other organs that can be severely damaged by SARS-CoV2 and the associated immunologic and tissue responses. Further, unlike currently marketed anti-VEGF and anti-IL-6R antibodies, OG2072’s Fc region is immunologically inert and does not activate immune effector functions. OG2072 may thus be beneficial in preventing further immune-mediated tissue damage in the lung, kidney, heart and other organs affected in critical illness due to COVID-19. To this end, we are advancing by six or more months the GMP manufacturing for OG2072, which could both enable a potential assessment of systemically administered OG2072 in patients with worsening COVID-19 disease (for example, as part of ongoing basket studies of potential COVID-19 therapeutics). Ancillary benefits of this acceleration include the use of GMP material for KSI-501 toxicology program and a more predictable IND submission and First in Human timeline for KSI-501 in patients with retinal vascular diseases featuring an inflammatory component. 15 Business Highlights Recent highlights of our activities included: • Upgraded Pivotal Study Program : We finalized the design of our KSI-301 pivotal study programs in RVO and DME and have launched all three studies. We are currently conducting two Phase 3 studies in DME (GLEAM and GLIMMER) to provide the mutually-confirmatory studies required by FDA for initial demonstration of safety and efficacy, one study in wet AMD (our ongoing DAZZLE study), and one study in RVO (BEACON). Each study protocol design has been optimized based on Phase 1b data and experience and will include the same treatment-naïve patient populations as in the Phase 1b, as well as tighter dosing interval ranging, tighter disease control, and decreased subjectivity for retreatments, and each has high statistical power for non-inferiority (>90%). We also intend to initiate in early 2021 a Phase 3 study of KSI-301 in non-proliferative diabetic retinopathy (GLOW). • DAZZLE Study Progress : We saw robust patient enrollment through the third quarter of 2020 and have completed U.S. patient recruitment into our DAZZLE pivotal study in wet AMD – a potential reflection of the enthusiasm for KSI-301 on the part of clinical investigators and patients. EU patient enrollment commenced in June 2020 and we continue to see robust recruitment. We expect to complete overall DAZZLE study enrollment by year end 2020. With a one-year primary endpoint, we remain on track for a DAZZLE study top-line data readout in early 2022. As of November 4, 2020, over 545 of the planned 550 patients have been enrolled in DAZZLE. • GLEAM / GLIMMER and BEACON Study Initiations : We initiated two Phase 3 studies in DME (GLEAM and GLIMMER) and one Phase 3 study in RVO (BEACON) in the third quarter of 2020. The randomization of treatment-naïve patients into these three studies is a critical step to build the clinical evidence for KSI-301 as a safe, effective and highly durable therapy for patients with retinal diseases. The initiation of the additional Phase 3 studies and the robust patient recruitment into DAZZLE represent strong operational progress towards our 2022 Vision of a single BLA filed for KSI-301 in wet AMD, DME, and RVO in 2022. • Continued maturation of Phase 1b Data : Updated safety and efficacy results from our ongoing Phase 1b trial of KSI-301 in patients with treatment naïve wet AMD, DME, or RVO were presented at the American Society of Retina Specialists 2020 Virtual Annual Meeting in July 2020. We believe the data continue to support the “anti-VEGF Generation 2.0” profile of KSI-301. We intend to continue presenting data updates from the Phase 1b as the study progresses over its full three-year duration. • Commercial Manufacturing Progress : We successfully negotiated a long-term agreement with Lonza for the manufacture of KSI-301. This agreement will provide Kodiak with a custom-built bioconjugation facility with a capacity to supply millions of doses per year. With construction targeted for completion in 2021, the Lonza-Kodiak Ibex facility will provide Kodiak with the facility needed for commercial-scale manufacturing of KSI-301. The timing of this expanded partnership is designed to support Kodiak’s BLA submission timeline in 2022, and the scale is designed to support KSI-301’s potential to achieve significant market share as a new first-line agent designed to improve outcomes for patients with common and serious retinal vascular diseases. • Completed Lease Agreement for Kodiak’s New U.S. Headquarters : We have leased approximately 82,662 square feet located at 1200 Page Mill Road, Palo Alto, California and approximately 72,812 square feet located at 1250 Page Mill Road, Palo Alto, California. These newly leased buildings will serve as Kodiak’s U.S. headquarters for office and laboratory space. We also leased approximately 10,750 square feet in Visp, Switzerland, for manufacturing support and supervision. Our current cash, cash equivalents and marketable securities provide the resources for us to advance the KSI-301 program towards achieving our “2022 Vision” and also to advance our pipeline of drug candidates including KSI-501 and our triplet inhibitor drug candidates and for working capital and general corporate purposes. Where Kodiak is Today Growing KSI-301 Clinical Experience : KSI-301 has been assessed in more than 1,500 injections in more than 400 patients with more than 250 patient-years of exposure. With a majority of patients in the Phase 1b clinical study achieving six months or longer between doses in wet AMD and DME and four months or longer between doses in RVO, KSI-301’s clinical durability continues to be supported with maturing data. We remain very pleased with the current clinical profile of KSI-301. Notably, KSI-301 continues to demonstrate a safety profile that is tracking with standard of care anti-VEGF agents. When and if we submit our planned single BLA in wet AMD, DME and RVO, we expect to have safety, efficacy and durability data on KSI-301 treatment in over 1,000 patients in concurrent pivotal studies. 16 Thoughtfully Designed Pivotal Clinical Trials : T he exploratory Phase 1b study was designed to push KSI-301 in terms of dosing intervals and provide us with a broad view of our product’s clinical profile . The data we are seeing in the Phase 1b study are supportive of our ability to demonstrate a strong clinical profile in registrational studies . W e have applied the learnings from the exploratory Phase 1b study to further optimize each of our pivotal study protocols. Investing with Conviction Commensurate with the Opportunity : There remains a great unmet need among patients receiving anti-VEGF therapies today. Despite the promise of today’s medicines as demonstrated in their registrational clinical trials, visual gains are not maintained. In the real world, patients cannot be treated frequently enough and are over-extended between doses. Under-treatment leads to disease progression and permanent retinal damage, and high-intensity treatment regimens lead to patient and caregiver treatment fatigue and/or abandoning of treatment. A new, better, longer-lasting medicine is required to shift the curve, to reset what has been appropriately called an “epidemic of preventable blindness.” We believe KSI-301 stands the best chance among treatments currently in development to directly address this great need. We have made significant progress with enrollment in our pivotal study in wet AMD (DAZZLE), and we have reached our desired enrollment in the U.S. in the third quarter of 2020. We also initiated pivotal studies in DME (GLEAM and GLIMMER) and RVO (BEACON) in the third quarter of 2020. We are moving forward with the preparations for a study in non-proliferative diabetic retinopathy (GLOW) and are currently assessing the timing of study initiation in light of the impact of COVID-19 on this less acute yet high unmet need indication. Kodiak remains focused on thoughtful execution of our KSI-301 pivotal program, the requisite manufacturing efforts, the regulatory strategy and the pre-commercial readiness. We continue to build our team, and we are thankful for the positive interest in KSI-301 and our ABC Platform by the retina community. As to manufacturing, in line with our “2022 Vision” which sees us submitting our initial BLA in 2022 and potentially commercializing KSI-301 in 2023, it is our intent to be able to supply millions of doses in Year 1 from our Lonza-Kodiak Ibex Dedicate facility designed from inception with Flex Up capabilities and capacity for double digit millions of doses per year to supply a growing market demand. Poised Commercial Opportunity : We are optimistic for the future care of patients with retinal vascular diseases. The competitive landscape of intravitreally-injected anti-VEGF biologic therapies and therapeutic candidates is clearing, due to the incremental durability of competing molecules, and/or safety challenges that, even if only recently appreciated, have been observed from early in the development of these potential competitors. Adjacent surgical and gene therapy solutions may also face challenges with long-term safety, limited accessibility and the complex economics of surgical implantation. KSI-301, with its powerful combination of design attributes, has the potential to be a Generation 2.0 anti-VEGF – a first-line anti-VEGF “product for everyone” that may achieve a significant market share. As a company, we remain independent. This independence provides us with the flexibility to adapt both R&D and commercial decision-making within the ever-changing domestic and global landscapes. We remain well capitalized and supported by a high-quality group of long-term investors who understand what is needed to build, invest and execute commensurate with the opportunity. Kodiak’s 2022 Vision and KSI-301 Accelerated Development Strategy We believe we remain on track to achieve our “2022 Vision” of a single BLA submission and initial FDA approval for KSI-301 in wet AMD, DME and RVO in 2022 with a total of four pivotal trials— two in DME (GLEAM and GLIMMER), one in wet AMD (DAZZLE) and one in RVO (BEACON). We initiated three additional pivotal trials in the third quarter of 2020 – two matched studies in DME to provide the mutually-confirmatory studies required by FDA for initial demonstration of safety and efficacy and one in patients with RVO. We intend to initiate a pivotal study in DR in the first quarter of 2021. These studies, together with our ongoing pivotal study in wet AMD, will be the basis of our intended BLA and supplemental BLA submissions. We currently expect to submit the wet AMD, DME, and RVO indications in a single initial BLA for KSI-301 and the DR indication in a supplemental BLA in the United States. 17 We continue to invest in our science and our pipeline, including our bispecific ABC product candidate KSI-501 for retinal vascular diseases with a strong inflammatory component and our new triplet ABC product candidate KSI-601 for the high prevalence multifactorial retinal disease dry AMD. Our “2022 Vision” includes the following potential catalysts and milestones in 2020, 2021, 2022 and 2023, along with the important milestones achieved in 2019 and 2020 that support the concurrent development program: 18 Our “2022 Vision” is built on the following concurrent development strategy. This table incorporates our most recent view of the KSI-301 clinical program and its execution, as described above, and we believe the successful prosecution of this program is achievable based on our currently available information and the evolving effects of the COVID-19 pandemic: Ongoing Phase 1b Data Continue to Support KSI-301’s Differentiated Profile We have continued to make progress with our studies of KSI-301, and the maturing durability data we continue to observe in the Phase 1b study continue to surpass our expectations. We now have 140+ patient-years of clinical experience with KSI-301 in the Phase 1b study. The overall study duration was originally nine and then 18 months, and we have now extended the treatment and follow-up period to 36 months total, to continue generating long-term outcomes data in advance of the pivotal studies. Outcomes include vision, measured as change in best corrected visual acuity or BCVA using the standard ETDRS testing protocol, and retinal anatomy, which is measured as change in retinal central subfield thickness, or CST, using optical coherence tomography imaging, or OCT. We also obtain other images such as fluorescein angiography, color fundus photos, and OCT angiography. 19 The f igures below present the most recent data on durability and efficacy outcomes from the ongoing Phase 1b study presented at the ASRS 2020 Virtual Annual Meeting, held in July 2020 . Across all three diseases under study, improvements in vision and retinal anatomy were observed through 44 weeks of patient follow-up, with stability in OCT and BCVA over time in the monthly follow-up intervals following the three mandatory loading doses. Vision is measured as change in BCVA, on a standardized eye chart, and retinal anatomy is measured as change in retinal CST using OCT imaging. 20 21 Wet AMD The data below are from the 31 wet AMD patients who reached the week 44 visit prior to the ASRS meeting data cutoff date of June 9, 2020. Improvements in BCVA and OCT from the initial treatments are noted, as expected for an anti-VEGF. From baseline to week 12, patients gained an average of 6.7 letters off their good starting base of approximately 65 letters and an improvement in OCT CST of 93 microns. In the period between week 12 and week 44, the treatment effect is maintained both in terms of BCVA and OCT with just an average of 1.32 injections per patient, and notably 44% of those treatments were the mandatory every 6-month doses. 58% of the 31 patients received their first retreatment at week 32, six months after the last loading dose. Supporting the extended durability, we see only a very slow fluctuation in the OCT over time, which compares favorably to the OCT fluctuations observed with existing anti-VEGFs given on shorter dosing intervals. The stability in BCVA over this interval is also consistent with the prolonged duration of KSI-301. In the Phase 1b study, the average retinal thickness or OCT CST data as reported by our clinical investigators includes the height of pigment epithelial detachments or PEDs. PEDs are an anatomic feature in some patients with wet AMD; treatment success in subjects with PEDs does not necessarily imply complete flattening of the PED, but rather eliminating the intraretinal and subretinal fluid, particularly when the PED is very high prior to anti-VEGF treatment. Additionally, comparison across studies of OCT mean CST values is difficult because it is often not clear or not disclosed in presentations and publications whether the data include or exclude the height of the PED, and whether or how the data are corrected for different OCT machine, among other reasons. 22 When comparing subjects with and without very high PED at baseline, which we defined as 500 microns or more total CST, t he BCVA and OCT CST curves are similar in shape to those of the full cohort . E xcluding the high PED patients, the OCT CST values are lower at baseline and over time, and the standard error of the mean (SEM) error bars are narrower. T hose four patients with high PEDs thus pull the overall average CST value up. Excluding those four patients, the average retinal center subfield thickness is around 300 micron s after initiation of treatment with KSI-301 . 23 Overall, 92% of our wet AMD patients have achieved a time to first retreatment of three months or longer. Of these patients, 82% went four months or longer , and most patients have not received their first retreatment until five to six months after the last loading dose. 49% reached the six - month cap without retreatment after the initial loading doses. Remarkably, 72 %, of these wet AMD patients have achieved a six -month treatment interval at least once during follow-up. As this is an anti-VEGF treatment naïve population, there is no pre-selection for “anti- VEGF responders ” or patients who might require less frequent dosing. 24 It is reassuring to see that as the Phase 1b data mature, the vision, OCT and durability outcomes have remained consistent. For example, when comparing the outcomes presented at the Angiogenesis meeting earlier in 2020 versus the data presented in July 2020 at the ASRS virtual meeting, the durability proportions remain stable, as do the visual acuity and OCT outcomes. 25 Diabetic M acular E dema (DME) We measure KSI-301 efficacy data in treatment naïve DME as change from baseline in BCVA and OCT CST. Below are data from the 18 DME patients who reached the week 44 visit prior to the data cutoff date. These patients had good starting vision, approximately 70 letters. They experienced a visual acuity increase after 3 loading doses and maintained a gain of 6.6 letters with a mean of just 0.61 retreatments. Notably, two thirds of patients never required retreatment during this nine-month follow-up period. Consistent with the extended durability effect of KSI-301, we see again only slight fluctuations in the OCT over time, which compares favorably to the OCT fluctuations observed with existing anti-VEGF agents that are given on shorter dosing intervals. 26 The swim lane plot for DME durability is shown below . So far, 97% of DME patients have gone three months or longer before their first retreatment ; o nly one patient of 33 required their first retreatment at two months after the loading doses. Of these patients, 76% have gone four months or longer, and 70% five months or longer before their first treatment. Further, 67% have gone six-months or longer – as there is no cap to the treatment interval in the DME cohort. Almost half of the patients, or 45%, have not required retreatment to date, denoted by the purple bars. 79% of patients have achieved a 6-month or longer treatment-free interval at least once during follow-up. Some of these patients have gone for a year without needing any additional treatment. The data set has also remained consistent over time, comparing the follow-up data available at the Angiogen e sis meeting earlier in 2020 to the data presented at ASRS. 27 28 Retinal Vein Occlusion (RVO) KSI-301 efficacy in treatment naïve RVO is also measured as change from baseline in BCVA and OCT CST. The 33 RVO patients that completed their week 44 visit began with a lower visual acuity baseline of approximately 55 letters, typical of this disease. After three loading doses, their visual acuity substantially improved, with a 22.4 letter improvement at week 44, which is over four lines of vision gained on the standardized eye chart. The vision gain was maintained with an average of just 1.33 injections, with only a third of patients requiring more than one retreatment in this period. A sustained OCT response with a decrease of 370 microns was also noted. 29 In this swim lane plot of the durability of individual patients with RVO, the disease with arguably the highest VEGF load, the bars in pink and orange now denote retreatment intervals of four months or longer and two months or shorter, respectively. 94% of RVO patients, 31 of the 33 patients, have gone two months or longer before their first retreatment. Only 6% of patients had their first retreatment at one month after the loading doses. 66% had their first retreatment three months or later since the loading doses, and 56% achieved a first interval of four months or longer. Remarkably, given that many RVO patients require monthly therapy for the best results with existing medicines, 8 1% of patients have achieved a four month or longer interval at least once during follow-up . 30 Looking at the recent efficacy and durability data compared to where they stood earlier this year, we see the consistency in the maturing Phase 1b data, both with longer follow-up and more patients. In particular , the OCT and VA outcomes were stable from week 24, presented at Angiogenesis, to week 44, presented at the recent ASRS meeting . 31 Safety of KSI-301 Injections We believe the safety profile of KSI-301 continues to be very encouraging. Now with 622 injections given in the Phase 1a/1b program (as of September 15, 2020), and with patients followed for as long as 22 months, we are continuing to track with the expectations set by the safety profile of the current standard of care intravitreal medicines. None of the serious adverse events, or SAEs, observed have been reported as or deemed drug-related, and they are typical of the systemic SAEs expected in these patient populations. The ocular SAE of worsening cataract was in a diabetic patient with pre-existing cataract, was not drug-related, and resolved with routine cataract surgery. There are only two events (previously described) of intraocular inflammation. The events were mild in nature, both trace to 1+ grade cells in the vitreous, on a standardized scale where 0 is none and 4+ is severe. They resolved completely, and there was no vasculitis or retinitis in either patient. Both patients have done very well with substantial improvements in vision from baseline; each of them had gained 30 letters or 6 lines of vision as of their last visits. 32 KSI-301 Pivotal Study Design s Our pivotal study designs for wet AMD (our ongoing DAZZLE study), DME (our ongoing GLEAM and GLIMMER studies), and RVO (our ongoing BEACON study) have been optimized based on Phase 1b data and experience. 33 Wet AMD DAZZLE Study DAZZLE (NCT04049266) assesses patients with treatment naïve wet AMD and are randomized 1:1 to receive KSI-301 every 12 to 20 weeks or Eylea every 8 weeks, each after 3 monthly loading doses. The determination of treatment interval for the patients assigned to KSI-301 is based on disease activity assessments where both OCT and BCVA are measured and compared against prior data, similar to other recent and ongoing Phase 3 studies in the field. By default, patients are on an every 20 week regimen. If disease activity criteria are met before 20 weeks, that is, 12 or 16 weeks after the last dose, then the treatment interval is correspondingly shortened. The primary endpoint is at one year and is a non-inferiority comparison to Eylea, with a four-letter non-inferiority margin. The one year endpoint is measured as the average of the BCVA change from baseline to weeks 48 and 52. All of the KSI-301 patients are analyzed together as a single group with respect to the primary comparison to Eylea. In the second year of the study, patients whose disease is stable can have their KSI-301 treatment interval extended, and patients originally randomized to Eylea, will be re-randomized 1:1 to either continued Eylea or switched to every eight week KSI-301. 34 Disease assessment criteria are used to determine whether the treatment interval is 12, 16 or 20 weeks. These criteria are tightened, and subjectivity has been reduced, compared to the retreatment criteria used in the Phase 1b study . The DAZZLE criteria, and the overall approach to dosing regimen determination in DAZZLE, are very similar to other recent Phase 3 programs in wet AMD. The aim is to customize the dose interval per patient, in a way that is feasible in a large, multicenter, double-masked trial. 35 Diabetic Macular Edema Paired Studies, GLEAM and GLIMMER In DME, we are conducting two Phase 3 studies in parallel with identical design. In each of the two studies, called GLEAM (NCT04611152) and GLIMMER (NCT04603937), we will randomize 450 treatment-naïve DME patients to either KSI-301 every 8 to 24 weeks after 3 loading doses, or Eylea every 8 weeks after 5 loading doses. The primary endpoint is the change from baseline in BCVA at one year, again the average of the week 48 and 52 visits. The studies are non-inferiority studies with a margin of 4.5 letters. At each monthly study visit, patients who have been randomized to KSI-301 will undergo a disease activity assessment, using data from both BCVA and OCT measurements. Depending on their disease activity status, the dosing interval can be shortened, lengthened, or maintained at the same interval. This is different from the DAZZLE wet AMD study design where the interval can only be maintained or shortened in the first year. In DME, patients may experience disease modification (improvement in the severity of the underlying retinopathy) that curtails the need for therapy over time, an event that has been seen in many DME patients treated with KSI-301 allowing for the treatment interval to be potentially further prolonged after the first retreatment. The minimum KSI-301 treatment interval in GLEAM and GLIMMER is every eight weeks, and the maximum interval is every 24 weeks or six months. 36 I n the second year of both studies, the same approach is maintained . Eylea will stay on its q8 week regimen, and patients on KSI-301 will continue to be on an 8 to 24 week regimen based on disease activity . The GLEAM and GLIMMER study design was also optimized using learnings from the Phase 1b study results to maintain Phase 1b study population (treatment-naïve DME patients), tighten dosing intervals and disease activity criteria, decrease subjectivity and incorporate high statistical power for non-inferiority (>90%). 37 To determine the treatment interval for KSI-301 patients, we are employing disease activity assessments and protocol-specified criteria. All patients randomized to KSI-301 are on the longest interval by default. If patients meet any of these disease activity criteria at earlier timepoints, the retreatment interval is shortened. The criteria for shortening the treatment interval are tighter than they are in Phase 1b, and the subjectivity is reduced. Additional anatomic criteria have also been included. 38 Retinal Vein Occlusion BEACON Study Design The Phase 3 BEACON study (NCT04592419) in patients with RVO is a year-long study in which we will randomize 550 patients with treatment-naïve RVO, either branch or central vein type, to either every 8 week KSI-301 after two loading doses, or to monthly Eylea, for the first six months. The primary endpoint is at six months, with a non-inferiority margin of 4.5 letters. In the second six months, patients in both groups will receive treatment on an individualized regimen, again using typical disease activity assessments. This phase of the study will provide a direct, head-to-head comparison of Eylea and KSI-301 on the same criteria-driven regimen. The minimum interval is monthly and there is no upper limit to the retreatment interval in this six-month period. 39 The BEACON study design was optimized using learnings from the Phase 1b study results to maintain Phase 1b study population (treatment-naïve RVO patients), tighten dosing intervals and disease activity criteria, decrease subjectivity and incorporate high statistical power for non-inferiority (>90%). 40 Because the first six months of the study are fixed-interval dosing, the disease activity assessment criteria are only used to determine dosing in the second six months of the RVO study. The criteria are similar to our DME studies, and tighter than they are in Phase 1b, with the OCT and BCVA measured against the best previous measurements; subjectivity is also reduced. Conclusions Overall, we believe that the continued maturation of the safety, efficacy, and durability data of KSI-301, as shown in the Phase 1b study, support our efforts to bring KSI-301 to the market as a ‘Generation 2.0’ anti-VEGF in these retinal diseases and that the data lend confidence to the design of our current and planned pivotal studies of KSI-301. We believe these clinical studies, if successful, may demonstrate a meaningfully differentiated clinical profile of KSI-301 as compared to current therapies,, and we also believe that this profile would allow KSI-301 to compete effectively in the evolving commercial and product landscape. 41 Since inception in June 2009, we have devoted substantially all of our resources to discovering and developing product candidates and manufacturing processes, building our ABC Platform and assembling our core capabilities in drug development for high prevalence retinal disease s . We plan to continue to use third-party clinical research organizations, or CROs, to carry out our preclinical and clinical development. We rely on third-party contract manufacturing organizations, or CMOs, to manufacture and supply our preclinical and clinical materials to be used during the development of our product candidates. We are investing in commercial manufacturing capacity. We do not have any products approved for sale and have not generated any product revenue since inception. We have funded our operations primarily through equity securities. In October 2018, we completed our initial public offering, or IPO. In December 2019, we completed a follow-on offering. In addition, we entered into a royalty funding agreement and received an initial payment of $100.0 million in February 2020. We have incurred significant operating losses to date and expect that our operating losses will increase significantly as we advance our product candidates, particularly KSI-301, through preclinical and clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization; broaden and improve our platform; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. Our net loss was $86.5 million for the nine months ended September 30, 2020. As of September 30, 2020, we had an accumulated deficit of $244.6 million. Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of KSI-301 for wet AMD, RVO, DME or DR without DME or delay our efforts to advance and expand our product pipeline. As of September 30, 2020, we had cash, cash equivalents and marketable securities of $380.5 million. Components of Operating Results Operating Expenses Research and Development Expenses Substantially all of our research and development expenses consist of expenses incurred in connection with the development of our ABC Platform and product candidates. These expenses include certain payroll and personnel expenses, including stock-based compensation, for our research and product development employees; laboratory supplies and facility costs; consulting costs; contract manufacturing and fees paid to CROs to conduct certain research and development activities on our behalf; and allocated overhead, including rent, equipment, depreciation and utilities. We expense both internal and external research and development expenses as they are incurred. Costs of certain activities, such as manufacturing and preclinical and clinical studies, are generally recognized based on an evaluation of the progress to completion of specific tasks. Nonrefundable payments made prior to the receipt of goods or services that will be used or rendered for future research and development activities are deferred and capitalized. The capitalized amounts are recognized as expense as the goods are delivered or the related services are performed. We are focusing substantially all of our resources and development efforts on the development of our product candidates, in particular KSI-301. We expect our research and development expenses to increase substantially during the next few years as we conduct our Phase 3 studies, complete our clinical program, pursue regulatory approval of our drug candidates and prepare for a possible commercial launch. Predicting the timing or the final cost to complete our clinical program or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our drug candidates will receive regulatory approval with any certainty. 42 General and Administrative Expenses General and administrative expenses consist principally of payroll and personnel expenses, including stock-based compensation; professional fees for legal, consulting, accounting and tax services; allocated overhead, including rent, equipment, depreciation and utilities; and other general operating expenses not otherwise classified as research and development expenses. We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, including stock-based compensation, expanded infrastructure and higher consulting, legal and accounting services associated with maintaining compliance with requirements of the stock exchange listing and the Securities and Exchange Commission, or SEC, investor relations costs and director and officer insurance premiums. Interest Income Interest income consists primarily of interest income earned on our cash, cash equivalents and marketable securities. Other Income (Expense), Net Other income (expense), net consists primarily of accretion income and amortization expense on marketable debt securities net of amortized issuance costs from the liability related to the future sale of royalties to BBA in 2019. Results of Operations The following table summarizes the results of our operations for the periods indicated, in thousands: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 Change 2020 2019 Change Operating expenses Research and development $ 29,306 $ 10,115 $ 19,191 $ 70,033 $ 24,676 $ 45,357 General and administrative 7,357 2,617 4,740 19,132 8,330 10,802 Loss from operations (36,663 ) (12,732 ) (23,931 ) (89,165 ) (33,006 ) (56,159 ) Interest income 645 277 368 2,551 1,070 1,481 Interest expense (6 ) (2 ) (4 ) (19 ) (8 ) (11 ) Other income (expense), net (98 ) 77 (175 ) 120 195 (75 ) Net loss $ (36,122 ) $ (12,380 ) $ (23,742 ) $ (86,513 ) $ (31,749 ) $ (54,764 ) Research and Development Expenses The following table summarizes our research and development expenses for the periods indicated, in thousands: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 Change 2020 2019 Change KSI-301 program external expenses (1) $ 15,415 $ 5,808 $ 9,607 $ 37,587 $ 11,691 $ 25,896 ABC Platform external expenses (2) 2,174 440 1,734 5,345 1,911 3,434 KSI-501 program external expenses (3) 453 300 153 922 1,120 (198 ) Other research and development expenses (4) 3,160 669 2,491 5,329 1,807 3,522 Payroll and personnel expenses (5) 8,104 2,898 5,206 20,850 8,147 12,703 Total research and development expenses $ 29,306 $ 10,115 $ 19,191 $ 70,033 $ 24,676 $ 45,357 ( 1 ) KSI-301 program external expenses relates to development of KSI-301, including manufacturing and clinical trial costs. These expenses are primarily for services provided by CMOs and CROs. ( 2 ) ABC Platform external expenses primarily relates to manufacturing of biopolymer intermediate drug substance which can be used with multiple product candidates. These expenses are primarily for services provided by CMOs. (3) KSI-501 program external expenses relates to research and development of KSI-501. ( 4 ) Other research and development expenses includes direct costs related to research and development activities other than those listed above. ( 5 ) Payroll and personnel expenses includes salaries, benefits and stock-based compensation for our personnel involved in research and development activities. These expenses are separately classified and not allocated to specific programs because these expenses relate to multiple programs. 43 KSI-301 program external expenses increased $ 9.6 million and $ 25.9 million during the three and nine months ended September 30, 2020, respectively, as compared to 2019. The increase was primarily due to clinical trial costs to support ongoing trials and planned trials , as well as manufacturing progress for KSI-301. Our pivotal Phase 2b/3 clinical study in wAMD ( DAZZLE ) dosed the first patient in October 2019 , and patient recruitment is expected to complete in the fourth quarter of 2020. We initiated two pivotal Phase 3 clinical studies in DME (GLEAM and GLIMMER) and one pivotal Phase 3 clinical study in RVO (BEACON) in the third quarter of 2020. ABC Platform external expenses increased $1.7 million and $3.4 million during the three and nine months ended September 30, 2020, respectively, as compared to 2019. The increase was primarily driven by manufacturing runs to support our product candidate pipeline. KSI-501 program external expenses remained relatively constant during the three and nine months ended September 30, 2020, as compared to 2019. Other research and development expenses increased $2.5 million and $3.5 million during the three and nine months ended September 30, 2020, respectively, as compared to 2019, primarily due to the allocation of lease costs for Palo Alto and Switzerland. Payroll and personnel expenses increased $5.2 million and $12.7 million during the three and nine months ended September 30, 2020, respectively, as compared to 2019, due to increased headcount and stock-based compensation expense. General and Administrative Expenses General and administrative expenses increased $4.7 million and $10.8 million during the three and nine months ended September 30, 2020, respectively, as compared to 2019. The increase was primarily driven by increased headcount and stock-based compensation expense as well as professional services related to consulting, legal and accounting, and due to the allocation of lease costs for Palo Alto and Switzerland. Liquidity and Capital Resources; Plan of Operations Sources of Liquidity We have funded our operations primarily through the sale of equity securities. In addition, we entered into a royalty funding agreement and received an initial payment of $100.0 million in February 2020. As of September 30, 2020, we had cash, cash equivalents and marketable securities of $380.5 million. Future Funding Requirements We have incurred net losses since our inception. For the nine months ended September 30, 2020, we had net loss of $ 86.5 million , and we expect to continue to incur additional losses in future periods. As of September 30, 2020, we had an accumulated deficit of $ 244.6 million. We have based these estimates on assumptions that may prove to be wrong, and we could deplete our available capital resources sooner than we expect. Because of the risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors. To date, we have not generated any product revenue. We do not expect to generate any product revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates or enter into collaborative agreements with third parties, and we do not know when, or if, either will occur. We expect to continue to incur significant losses for the foreseeable future, and we expect our losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We have based these estimates on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. The timing and amount of our operating expenditures and capital requirements will depend on many factors, including: • the scope, timing, rate of progress and costs of our drug discovery, preclinical development activities, laboratory testing and clinical trials for our product candidates; • the number and scope of clinical programs we decide to pursue; • the scope and costs of manufacturing development and commercial manufacturing activities; • the extent to which we acquire or in-license other product candidates and technologies; 44 • the cost, timing and outcome of regulatory review of our product candidates; • the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; • our ability to establish and maintain collaborations on favorable terms, if at all; • our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates; • the costs associated with being a public company; and • the cost and timing associated with commercializing our product candidates, if they receive marketing approval. A change in the outcome of any of these or other 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. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials. We may also be required to sell or license rights to our product candidates in certain territories or indications to others that we would prefer to develop and commercialize ourselves. The significant uncertainties caused by the evolving effects of the ongoing COVID-19 pandemic may also negatively impact our operations and capital resources. We and our key clinical and manufacturing partners have been able to continue to advance our operations, and we continue to monitor the impact of COVID-19 on our ability to continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. This pandemic may ultimately have a material adverse effect on our liquidity and operating plans, although we are unable to make any prediction with certainty given the spread and rapidly changing nature of the pandemic and the evolving global actions taken to contain and treat the novel coronavirus. Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. See the section of this report titled “Part II, Item 1A — Risk Factors” for additional risks associated with our substantial capital requirements. Summary Statement of Cash Flows The following table sets forth the primary sources and uses of cash for each of the periods presented below, in thousands: Nine Months Ended September 30, 2020 2019 (in thousands) Net cash (used in) provided by: Operating activities $ (56,409 ) $ (27,853 ) Investing activities 45,976 (23,715 ) Financing activities 101,096 347 Net increase (decrease) in cash, cash equivalents and restricted cash $ 90,663 $ (51,221 ) Cash Flows from Operating Activities The $28.6 million increase in cash used in operating activities for the nine months ended September 30, 2020 as compared to 2019 was primarily driven by the increase in net loss during this period due to increased payroll and personnel expenses and manufacturing and clinical trial costs to support overall growth. Cash used in operating activities was also driven by changes in operating assets and liabilities. Cash Flows from Investing Activities The $69.7 million increase in cash provided by investing activities for the nine months ended September 30, 2020 as compared to 2019 was driven by the investment of funds from maturities of marketable securities into money market funds during 2020. 45 Cash Flows from Financing Activities The $100.7 million increase in cash provided by financing activities for the nine months ended September 30, 2020 as compared to 2019 was due to the proceeds from sale of future royalties to BBA and proceeds from stock option exercises. Contractual Obligations and Commitments The disclosure of our contractual obligations and commitments is set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations” in our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no material changes in our contractual obligations and commitments since December 31, 2019, except as otherwise described in Note 6 to our unaudited condensed consolidated financial statements included in this report . Critical Accounting Policies, Significant Judgments and Use of Estimates Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. During the nine months ended September 30, 2020, there were no material changes to our critical accounting policies as reported in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 16, 2020, except as otherwise described in Note 2 to our unaudited condensed consolidated financial statements included in this report . Off-Balance Sheet Arrangements Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. JOBS Act Accounting Election The Jumpstart Our Business Startups Act of 2012, or JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until such pronouncements are made applicable to private companies, unless we otherwise irrevocably elect not to avail ourselves of this exemption. However, we have chosen to irrevocably “opt out” of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to not take advantage of the extended transition period for complying with new or revised accounting standards is irrevocable. Recent Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is discussed under Note 2 to our unaudited condensed consolidated financial statements included in this report . 46 Item 3. Quantitative and Qualitative Disclosures About Market Risk. During the nine months ended September 30, 2020, there were no material changes to our market risk disclosures as reported in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the SEC on March 16, 2020.