Kymera Therapeutics, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q, the Quarterly Report . This discussion and analysis and other parts of this Quarterly Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as express or implied statements regarding our plans, objectives, expectations, intentions 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 Part II, Item 1A, “Risk Factors” and elsewhere in this Quarterly Report. You should carefully read the “Risk Factors” section of this Quarterly Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”. Overview We are a biopharmaceutical company focused on discovering and developing novel small molecule therapeutics that selectively degrade disease-causing proteins by harnessing the body’s own natural protein degradation system. Our proprietary targeted protein degradation platform, which we refer to as Pegasus™, allows us to discover highly selective small molecule protein degraders with activity against disease-causing proteins throughout the body. We believe that our small molecule protein degraders have unique advantages over existing therapies and allow us to address a large portion of the human genome that was previously intractable with traditional modalities. We focus on biological pathways that have been clinically validated but where key biological nodes/proteins have not been drugged or inadequately drugged. To date, we have utilized our Pegasus™ platform to design novel protein degraders focused in the areas of immunology-inflammation and oncology, and continue to apply our platform’s capabilities to additional therapeutic areas. Our initial programs include IRAK4, IRAKIMiD, and STAT3. With respect to our IRAK4 program, we are collaborating with Sanofi on the development of drug candidates targeting IRAK4 outside the oncology and immuno-oncology fields. We expect to submit an Investigational New Drug Application, or IND, to the U.S. Food and Drug Administration, or FDA, for KT-474 in the first half of 2021, and if cleared, to initiate a Phase 1 trial in adult healthy volunteers and hidradenitis suppurativa, or HS, and atopic dermatitis, or AD, patients shortly thereafter. We also expect to submit INDs for degraders from our IRAKIMiD and STAT3 programs in the second half of 2021, and if cleared, to initiate Phase 1 trials in patients for each program shortly thereafter. Since our inception in 2015, we have devoted substantially all of our efforts to organizing and staffing our company, research and development activities, business planning, raising capital, building our intellectual property portfolio and providing general and administrative support for these operations To date, we had received gross proceeds of $617.8 million from the sale of common stock including our August 2020 initial public offering and concurrent private placement, sales of our convertible preferred stock and through our collaborations with Vertex Pharmaceuticals Incorporated, or Vertex, and Genzyme Corporation, or Sanofi. We have incurred significant operating losses since inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current product candidates or any future product candidates. Our net losses were $21.5 million and $41.2 million for the years ended December 31, 2018 and 2019, respectively, and $32.9 million and $29.7 million for the nine months ended September 30, 2020 and 2019, respectively. In addition, as of September 30, 2020 and December 31, 2019 we had an accumulated deficit of $116.1 million and $76.5 million, respectively. We expect that our expense and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we: • continue preclinical activities of our initial programs, IRAK4, IRAKIMiD and STAT3, including the advancement of our IRAK4 program into a Phase 1 Clinical Trial; • initiate and continue research and preclinical and clinical development of our other product candidates; • advance the development of our product candidate pipeline; • continue to develop and expand our Pegasus platform to identify additional product candidates; • maintain, expand and protect our intellectual property portfolio; • seek marketing approvals for our product candidates that successfully complete clinical trials, if any; • acquire or in-license additional product candidates and technologies; • expand our infrastructure and facilities to accommodate our growing employee base and ongoing development activity; and • require the manufacture of larger quantities of our product candidates for clinical development and potential commercialization; 22 • establish a sales, marketing and distribution infrast ructure to commercialize any products for which we may obtain marketing approval; and • add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and operating as a public company. In addition, if we obtain marketing approval for any of our lead product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, which may include collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable 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, reduce or eliminate the development and commercialization of one or more of our product candidates. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain marketing approval for our drug candidates. The lengthy process of securing marketing approvals for new drugs requires the expenditure of substantial resources. Any delay or failure to obtain regulatory approvals would materially adversely affect our product candidate development efforts and our business overall. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As of September 30, 2020, we had cash, cash equivalents and marketable securities of $481.3 million. We believe the existing cash, cash equivalents and marketable securities on hand, will enable us to fund our operating expenses and capital expenditure requirements into 2025. 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. See “—Liquidity and capital resources.” Since it was reported to have surfaced in December 2019, a novel strain of coronavirus, COVID-19, has spread across the world and has been declared a pandemic by the World Health Organization. Efforts to contain the spread of COVID-19 have intensified and governments around the world, including in the United States, Europe and Asia, have implemented severe travel restrictions, social distancing requirements, stay-at-home orders and have delayed the commencement of non-COVID-19-related clinical trials, among other restrictions. As a result, the current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and is affecting our employees, patients, communities and business operations, as well as contributing to significant volatility and negative pressure on the U.S. economy and in financial markets We expect that COVID-19 precautions will directly or indirectly impact the timeline for some of our planned clinical trials and are continuing to assess the potential impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and clinical trials, as well as on our industry and the healthcare system. As a result of the outbreak, many companies have experienced disruptions in their operations and in markets served. To date, we have instated some and may take additional temporary precautionary measures intended to help ensure our employees’ well-being and minimize business disruption. These measures include devising contingency plans and securing additional resources from third-party service providers. For the safety of our employees and their families, we have temporarily reduced the presence of our scientists in our labs and continue to rely on third parties to conduct many of the experiments and studies for our research programs. Certain of our third-party service providers have also experienced shutdowns or other business disruptions. We are continuing to assess the impact of the COVID-19 pandemic on our current and future business and operations, including our expenses and planned clinical trial and other development timelines, as well as on our industry and the healthcare system. Reorganization We are a Delaware corporation that was incorporated in September 2015 under the name Project HSC, Inc. and in June 2016, changed our name to Project Chimera, Inc. On November 1, 2018, we completed a series of transactions, or the Reorganization, pursuant to which Kymera Therapeutics LLC, or Kymera LLC, merged with and into Kymera Therapeutics, Inc. The purpose of the Reorganization was to reorganize our corporate structure so that its existing investors would own capital stock in a corporation rather than equity interest in a limited liability company. In connection with the Reorganization, (i) the existing unitholders of Kymera LLC exchanged their units of Kymera LLC for the same number and classes of our common stock and convertible preferred stock on a one-to-one basis, with rights identical to the exchanged units of Kymera LLC; and (ii) the holders of all outstanding common incentive units 23 of Kymera LLC exchanged their units for a combination of our restricted common stock and options to purchase our common stock. These exchanges resulted in the common incentive unit holders being given either one-for-one restricted stock for their incentive units or a split of approximately sixt y to forty percent of restricted stock and options to purchase common stock based on the threshold value amount of the incentive units held by such holders. Upon completion of the Reorganization, the historical consolidated financial statements of Kymera LLC became the historical consolidated financial statements of Kymera Therapeutics, Inc. because the Reorganization was accounted for as a reorganization of entities under common control. Components of Our Results of Operations Revenue To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the foreseeable future. Our only revenues have been derived from research collaboration arrangements with Vertex and Sanofi. We expect that our revenue for the next several years will be derived primarily from our current collaboration agreements and any additional collaborations that we may enter into in the future. To date, we have not received any royalties under any of the collaboration agreements. Vertex Collaboration Agreement On May 9, 2019, we entered into a collaboration agreement, or the Vertex Agreement, with Vertex, to advance small molecule protein degradation against up to six targets. Under the Vertex Agreement, Vertex has the exclusive option to license the rights to the product candidates developed through the collaboration at which point Vertex will control development and commercialization. Pursuant to the Vertex Agreement, we are responsible for discovery and preclinical research on the targets, and Vertex is responsible for development, manufacturing, and commercialization of the product candidates after it exercises its option to license. Vertex provided us with a non-refundable upfront payment of $50.0 million and purchased 3,059,695 shares of our Series B-1 convertible preferred stock at $6.54 a share, pursuant to a separate, but simultaneously executed Share Purchase Agreement. We are eligible to receive up to $170 million in payments per target, including development, regulatory, and commercial milestones, as well as option exercise payments. In addition, Vertex is obligated to pay us tiered royalties on future net sales on any products that may result from the Vertex Agreement. None of the payments under the Vertex Agreement are refundable. We may also perform follow-on research activities for an optioned target upon Vertex’s request and at Vertex’s expense. Sanofi Agreement On July 7, 2020, we entered into a collaboration agreement, or the Sanofi Agreement, with Sanofi to co-develop drug candidates directed to two biological targets. Under the Sanofi Agreement, we granted to Sanofi a worldwide exclusive license to develop, manufacture and commercialize certain lead compounds generated during the collaboration directed against IRAK4 and one additional undisclosed target in an undisclosed field of use. Such license is exercisable on a collaboration target-by-collaboration target basis only after a specified milestone. For compounds directed against IRAK4, the field of use includes diagnosis, treatment, cure, mitigation or prevention of any diseases, disorders or conditions, excluding oncology and immune-oncology. We are responsible for discovery and preclinical research and conducting a phase 1 clinical trial for at least one degrader directed against IRAK4 plus up to three backup degraders. With respect to both targets, Sanofi is responsible for development, manufacturing, and commercialization of product candidates after a specified development milestone occurs with respect to each collaboration candidate. We have an exclusive option, or Opt-In Right, exercisable on a collaboration target-by-collaboration target basis that will include the right to (i) to fund 50% of the United States development costs for collaboration products directed against such target in the applicable field of use and (ii) share equally in the net profits and net losses of commercializing collaboration products directed against such target in the applicable field of use in the United States. In addition, if we exercise the Opt-In Right, Sanofi will grant to an exclusive option, applicable to each collaboration target, which upon exercise will allow us to conduct certain co-promotion activities in the field in the United States. The Sanofi Agreement, unless earlier terminated, will expire on a product-by-product basis on the date of expiration of all payment obligations under the Sanofi Agreement with respect to such product. We or Sanofi may terminate the agreement upon the other party’s material breach or insolvency or for certain patent challenges. In addition, Sanofi may terminate the agreement for convenience or for a material safety event upon advance prior written notice, and we may terminate the agreement with respect to any collaboration candidate if, following Sanofi’s assumption of responsibility for the development, commercialization or manufacturing of collaboration candidates with respect to a particular target, Sanofi ceases to exploit any collaboration candidates directed to such target for a specified period. 24 In consideration for the exclusive licenses granted to Sanofi under the Sanofi Agreement, Sanofi will pay an upfront payment of $150 million. In addition to the upfront payment, we are eligible to receive certain development milestone payments of up to $1.48 billion in the aggregate, of which more than $1.0 billion relates to the IRAK4 program, upon the achievement of certain developmental or regulatory events. We will be eligible to receive certain commercial milestone payments up to $700 million in the aggregate, of which $400 million relates to the IRAK4 program, which are payable upon the achievement of certain net sales thresholds. We will be eligible to receive tiered royalties for each program on net sales ranging from the high single digits to high teens, subject to low-single digits upward adjustments in certain circumstances. Operating expenses Our operating expenses since inception have consisted solely of research and development expenses and general and administrative expenses. Research and development expenses Research and development expenses consist primarily of costs incurred in connection with the discovery and development of targeted protein degradation therapeutics, including those in our initial programs, IRAK4, IRAKIMiD and STAT3. These research efforts and costs, which also support the development of, and enhancements to, our Pegasus platform, include external research costs, personnel costs, supplies, license fees and facility-related expenses. We expense research and development costs as incurred. These expenses include: • employee-related expenses, including salaries, related benefits and stock-based compensation expense, for employees engaged in research and development functions; • expenses incurred under agreements with organizations that support our platform program development; • contract manufacturing organizations, or CMOs, that are primarily engaged to provide drug substance and product for our preclinical research and development programs, nonclinical studies and other scientific development services; • the cost of acquiring and manufacturing nonclinical trial materials, including manufacturing registration and validation batches; • facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance; • costs related to compliance with quality and regulatory requirements; and • payments made under third-party licensing agreements. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned clinical development activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of any future product candidates. Our future clinical development costs may vary significantly based on factors such as: • per patient trial costs; • the number of trials required for approval; • the number of sites included in the trials; • the countries in which the trials are conducted; • the length of time required to enroll eligible patients; • the number of patients that participate in the trials; • the number of doses that patients receive; • the drop-out or discontinuation rates of patients; 25 • potential additional safety monitoring requested by regulatory agencies; • the duration of patient participation in the trials and follow-up; • the cost and timing of manufacturing our product candidates; • the phase of development of our product candidates; and • the efficacy and safety profile of our product candidates. The successful development and commercialization of product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following: • the timing and progress of nonclinical and clinical development activities; • the number and scope of nonclinical and clinical programs we decide to pursue; • the ability to raise necessary additional funds; • the progress of the development efforts of parties with whom we may enter into collaboration arrangements; • our ability to maintain our current development program and to establish new ones; • our ability to establish new licensing or collaboration arrangements; • the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority; • the receipt and related terms of regulatory approvals from applicable regulatory authorities; • the availability of drug substance and drug product for use in production of our product candidates; • our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if any of our product candidates are approved; • our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in the United States and internationally; • our ability to protect our rights in our intellectual property portfolio; • our ability to obtain and maintain third-party insurance coverage and adequate reimbursement; • the acceptance of our product candidates, if approved, by patients, the medical community and third-party payors; • the impact of competition with other products; • the impact of any business interruptions to our operations, including the timing and enrollment of patients in our planned clinical trials, or to those of our manufacturers, suppliers, or other vendors resulting from the COVID-19 pandemic or similar public health crisis; and • our ability to maintain a continued acceptable safety profile for our therapies following approval. A change in the outcome of any of these variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates. General and administrative expenses General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, corporate and business development, and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters, professional fees for accounting, auditing, tax and administrative consulting services, insurance costs, administrative travel expenses, marketing expenses and other operating costs. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support development of our product candidates and our continued research activities. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as legal, investor and public relations expenses associated with being a public company. 26 Other Income (Expense) Interest income and expense, net Interest income consists of interest earned on our invested cash balances. Results of Operations Comparison of three months ended September 30, 2020 and 2019 The following table summarizes our results of operations for the three months ended September 30, 2020 and 2019: Three Months Ended September 30, Change 2020 2019 (in thousands) Revenue—from related parties $ 14,533 $ 950 $ 13,583 Operating expenses: Research and development 15,778 11,310 4,468 General and administrative 6,838 1,501 5,337 Total operating expenses 22,616 12,811 9,805 Loss from operations (8,083 ) (11,861 ) 3,778 Interest income (expense), net 97 441 (344 ) Net loss $ (7,986 ) $ (11,420 ) $ 3,434 Collaboration revenue Collaboration revenues were $14.5 million for the three months ended September 30, 2020, of which $10.9 million and $3.6 million were attributable to our collaboration agreements with Sanofi and Vertex, respectively. Collaboration revenue was $1.0 million for the three months ended September 30, 2019 all of which were attributable to our collaboration with Vertex. Research and development expenses The following table summarizes our research and development expenses for each period presented: Three Months Ended September 30, Change 2020 2019 (in thousands) External research and development costs: IRAK4 and IRAKIMiD $ 5,037 $ 4,438 $ (599 ) STAT3 1,663 1,031 (632 ) Other 3,368 2,639 (729 ) Internal research and development costs 5,710 3,202 (2,508 ) Total research and development expenses $ 15,778 $ 11,310 $ 4,468 Research and development expenses were $15.8 million for the three months ended September 30, 2020, compared to $11.3 million for three months ended September 30, 2019. The increase of $4.5 million was primarily due to higher direct expenses related to IND-enabling studies for our IRAK programs of $0.6 million and lead optimization activities for our STAT3 programs of $0.6 million, as well as increased investment in our platform, exploratory programs, and Vertex collaboration of $0.7 million. We also had a $2.5 million increase in personnel, occupancy and related costs due to increases in employee headcount in the research and development functions and our move to a new facility. General and administrative expenses General and administrative expenses were $6.8 million for the three months ended September 30, 2020, compared to $1.5 million for the three months ended September 30, 2019. The increase of $5.3 million was primarily due to increases in legal and professional service fees in support of operations and an increase in personnel, facility and other expenses stemming from an increase in headcount to support our growth as a public company. 27 Other Income (Expense), Net Other income, net was $0.1 million for the three months ended September 30, 2020, as compared to $0.4 million for the three months ended September 30, 2019. The decrease in was primarily due to the prevailing interest rates in the respective periods. Comparison of nine months ended September 30, 2020 and 2019 The following table summarizes our results of operations for the nine months ended September 30, 2020 and 2019 : Nine Months Ended September 30, Change 2020 2019 (in thousands) Revenue—from related parties $ 21,249 $ 1,101 $ 20,148 Operating expenses: Research and development 41,713 26,072 15,641 General and administrative 13,058 5,451 7,607 Total operating expenses 54,771 31,523 23,248 Loss from operations (33,522 ) (30,422 ) (3,100 ) Interest income (expense), net 614 689 (75 ) Net loss $ (32,908 ) $ (29,733 ) $ (3,175 ) Collaboration revenue Collaboration revenues were $21.2 million for the nine months ended September 30, 2020, of which $10.9 million and $10.3 million were attributable to our collaboration agreements with Vertex and Sanofi, respectively. Collaboration revenue was $1.1 million for the nine months ended September 30, 2019, all of which was attributable to our collaboration with Vertex. Research and development expenses The following table summarizes our research and development expenses for each period presented: Nine Months Ended September 30, Change 2020 2019 (in thousands) External research and development costs: IRAK4 and IRAKIMiD $ 14,236 $ 9,092 $ (5,144 ) STAT3 4,755 1,433 (3,322 ) Other 7,667 7,114 (553 ) Internal research and development costs 15,055 8,433 (6,622 ) Total research and development expenses $ 41,713 $ 26,072 $ (15,641 ) Research and development expenses were $41.7 million for the nine months ended September 30, 2020, compared to $26.1 million for the nine months ended September 30, 2019. The increase of $15.6 million was primarily due to higher direct expenses related to IND-enabling activities for our IRAK programs of $5.1 million and lead optimization activities for our STAT3 programs of $3.3 million as well as increased investment in our platform, exploratory programs, and Vertex collaboration of $0.6 million. We also had a $6.7 million increase in personnel, occupancy and related costs due to increases in employee headcount in the research and development functions and our move to a new facility. General and administrative expenses General and administrative expenses were $13.1 million for the nine months ended September 31, 2020, compared to $5.5 million for the nine months ended September 30, 2019. The increase was primarily due to an increase in legal and professional service fees in support of our growth and increases in personnel, facility and other expenses stemming from an increase in headcount to support our initial public offering and operations as a public company. 28 Other Income (Expense), Net Other income, net was $0.6 million for the nine months ended September 30, 2020, compared to $0.7 million for the nine months ended September 30, 2019. The decrease in was primarily due to the prevailing interest rates in the respective periods. Liquidity and capital resources We have not yet generated any revenue from any product sales, and we have incurred significant operating losses since our inception. We have not yet commercialized any products and we do not expect to generate revenue from sales of products for several years, if at all. To date, we have funded our operations primarily with proceeds from our initial public offering, sale of our convertible preferred stock and collaboration agreements. To date, we had received gross proceeds of $617.8 million from the sale of common stock in our August 2020 initial public offering and concurrent private placement, sales of our convertible preferred stock and through our collaborations with Vertex and Sanofi. As of September 30, 2020, we had cash and cash equivalents and marketable securities of $481.3 million. Cash flows The following table summarizes our sources and uses of cash for each of the periods presented: Nine Months Ended September 30, 2020 2019 (in thousands) Cash provided by operating activities $ 108,198 $ 28,706 Cash used in investing activities (418,598 ) (78,445 ) Cash provided by financing activities 288,992 13,818 Net decrease in cash, cash equivalents and restricted cash $ (21,408 ) $ (35,921 ) Cash Flow from Operating Activities During the nine months ended September 30, 2020, operating activities provided $108.2 million of cash, primarily resulting from $150.0 million of proceeds received under our collaboration agreement with Sanofi executed in July 2020. Cash provided by operating activities also includes an increase of accounts payable and accruals of $2.8 million, an increase in net operating assets and liabilities of $4.0 million, offset by our net loss of $32.9 million adjusted for net non-cash items of $5.0 million (primarily stock-based compensation and depreciation expense). During the nine months ended September 30, 2019, operating activities provided $28.7 million of cash, resulting from the $55.8 million in aggregate payments received in connection with the Vertex Agreement, including the premium paid on the Series B-1 convertible preferred stock purchase. Cash provided by operating activities also includes a net increase of accounts payable and accruals of $2.2 million, an increase in net operating assets and liabilities of $0.3 million, offset by our net loss of $29.7 million adjusted for net non-cash items of $1.7 million (primarily stock-based compensation and depreciation expense). Cash Flow used in Investing Activities During the nine months ended September 30, 2020 cash used in investing activities was $418.6 million comprised of purchases of marketable securities of $460.9 million and purchases of property and equipment of $7.7 million offset by maturities of marketable securities of $50.0 million. During the nine months ended September 30, 2019 cash used in investing activities was $78.4 million comprised of purchases of marketable securities of $78.1 million and purchases of property and equipment of $0.3 million. Cash Flow from Financing Activities During the nine months ended September 30, 2020, net cash provided by financing activities was $289.0 million, primarily consisting of $182.7 million of net proceed received in our August 2020 initial public offering, $13.5 million from our August 2020 concurrent private place, $88.2 million of proceeds from our issuances of Series C convertible preferred stock in March 2020, net of issuance costs and $4.8 million of proceeds from the second closing of our Series B convertible preferred stock financing in January 2020, net of issuance costs. 29 During the nine months ended September 30, 2019, net cash provide d by financing activities was $13. 8 million, primarily consisting of $14. 0 million of proceeds from our issuances of Series B-1 convertible preferred stock in May 2019, net of issuance costs offset by payments of financing leases of $0.3 million. Future funding requirements We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the later-stage clinical development of our product candidates. In addition, we expect to incur additional costs associated with operating as a public company. Because of the numerous risks and uncertainties associated with the development of our product candidates and programs and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. The timing and amount of our operating expenditures will depend largely on: • the initiation, progress, timing, costs and results of nonclinical studies and clinical trials for our product candidates or any future product candidates we may develop; • our ability to maintain our relationships with Vertex and other key collaborators; • the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more nonclinical studies or clinical trials than those that we currently expect or change their requirements on studies that had previously been agreed to; • the cost to establish, maintain, expand, enforce and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing any patents or other intellectual property rights; • the effect of competing technological and market developments; • the costs of continuing to grow our business, including hiring key personnel and maintaining or acquiring operating space; • the degree of market acceptance of any approved product candidates, including product pricing, as well as product coverage and the adequacy of reimbursement by third-party payors; • the cost of acquiring, licensing or investing in additional businesses, products, product candidates and technologies; • the cost and timing of selecting, auditing and potentially validating a manufacturing site for commercial-scale manufacturing; • the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval and that we determine to commercialize; and • our need to implement additional internal systems and infrastructure, including financial and reporting systems. We believe the existing cash, cash equivalents and marketable securities on enable us to fund our operating expenses and capital expenditure requirements into 2025. 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. We expect that we will require additional funding to continue the clinical development of our IRAK4, IRAKIMiD and STAT3 programs, commercialize our product candidates if we receive regulatory approval, and pursue in-licenses or acquisitions of other product candidates. If we receive regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize our product candidates. Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or 30 at all. Market volatility resulting from the COVID-19 pa ndemic or other factors could also adversely impact our ability to access capital as and when needed. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockhold ers may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or marketing, distribu tion or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable t o raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candid ates that we would otherwise prefer to develop and market ourselves. Contractual Obligations and Other Commitments During the three and nine months ended September 30, 2020, there have been no material changes to our contractual obligations and commitments outside the ordinary course of business from those descri bed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations and Other Commitments” in our final prospectus for our IPO filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on August 21, 2020. Critical Accounting Policies and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. During the three and nine months ended September 30, 2020, there were no material changes to our critical accounting policies from those described in our final prospectus for our IPO filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on August 21, 2020. JOBS Act Accounting Election Under Section 107(b) of the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, an “emerging growth company” can delay the adoption of new or revised accounting standards until such time as those standards would apply to private companies. We have elected to avail ourselves of this exemption to delay adopting new or revised accounting standards until such time as those standards apply to private companies. However, where allowable we have early adopted certain standards as described in Note 2 of our consolidated financial statements. There are other exemptions and reduced reporting requirements provided by the JOBS Act that we are currently evaluating. For example, as an “emerging growth company,” we are exempt from Sections 14A(a) and (b) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would otherwise require us to (1) submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “golden parachutes;” and (2) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of our chief executive officer’s compensation to our median employee compensation. We also intend to rely on an exemption from the rule requiring us to provide an auditor’s attestation report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. We will continue to remain an “emerging growth company” until the earliest of the following: (1) the last day of the fiscal year following the fifth anniversary of the date of the completion of our initial public offering; (2) the last day of the fiscal year in which our total annual gross revenue is equal to or more than $1.07 billion; (3) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. 31 Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Recently Issued and Adopted Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our financial statements appearing elsewhere in this Quarterly Report .