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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-03-17 · 65 added, 116 removed, 220 unchanged (45% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following Management’s discussion and analysis (“MD&A”) of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto included as part of this Annual Report.

The following Management’s discussion and analysis (“MD&A”) of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes thereto included as part of this Annual Report.

This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve risks and uncertainties.

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We are a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of next generation targeted therapies for women’s cancers.

Our team has spent the past decade characterizing the structure and function of the ER, a key driver of breast cancer in approximately 75% of patients, in order to develop more potent, oral therapies that completely inactivate this signaling pathway.

Our wholly owned lead product candidate, OP-1250, is a novel oral therapy with combined activity as both a CERAN and a SERD, which we believe will drive deeper, more durable responses than existing therapies.

OP-1250, both as a monotherapy and in combination with inhibitors of CDK4/6 demonstrated robust tumor shrinkage in several xenograft models, including a breast cancer brain metastasis model.

In August 2020, we initiated an ongoing Phase 1/2 dose escalation and expansion trial evaluating OP-1250 for the treatment of recurrent, locally advanced or metastatic ER+, HER2- breast cancer, and expect to report initial data from this trial in the second half of 2021.

Our team has spent the past decade characterizing the structure and function of the estrogen receptor, or ER, a key driver of breast cancer in approximately 75% of patients, in order to develop more potent, oral therapies that completely inactivate this signaling pathway.

Our lead product candidate, OP-1250, is a novel oral therapy with combined activity as both a complete ER antagonist, or CERAN, and a selective ER degrader, or SERD, which we believe will drive deeper, more durable responses than existing therapies.

OP-1250, both as a monotherapy and in combination with inhibitors of cyclin-dependent kinase 4 and 6, or CDK4/6, demonstrated robust tumor shrinkage in several xenograft models, including a breast cancer brain metastasis model.

In August 2020, we initiated an ongoing Phase 1/2 dose escalation and expansion trial evaluating OP-1250 for the treatment of recurrent, locally advanced or metastatic ER-positive, or ER+, human epidermal growth factor receptor 2-negative, or HER2-, breast cancer.

We reported initial data from the Phase 1 dose escalation portion of this trial in November 2021, which provide proof-of-concept for OP-1250 as a monotherapy treatment for ER+/HER2- breast cancer.

We own worldwide development and commercialization rights to OP-1250.

As summarized in the figure below, our plan is to develop OP-1250 in a number of ER+ breast cancer indications, both as a monotherapy and in combination with approved targeted therapies that have shown improved outcomes with other endocrine therapies.

We believe OP-1250’s oral formulation and dual mechanism of action directly address the limitations of current endocrine therapies, such as fulvestrant and tamoxifen, and position OP-1250 as a potential endocrine therapy of choice for the treatment of ER+ breast cancers.

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We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment and personnel while also enabling us to focus our expertise and resources on the development of our product candidates.

Through December 31, 2020, we had received aggregate gross proceeds of $391.3 million from sales of our common stock, convertible preferred stock and issuance of convertible promissory notes since inception.

As of December 31, 2020, we had cash and cash equivalents of $338.5 million.

Through December 31, 2021, we had received aggregate gross proceeds of $392.7 million from sales of our common stock, convertible preferred stock, issuance of convertible promissory notes since our inception, stock option exercises, and sale of stock through the employee stock purchase plan (“ESPP”).

As of December 31, 2021, we had $287.3 million in cash, cash equivalents and marketable securities.

In January 2020, we received proceeds of $3.0 million from the issuance of convertible promissory notes, or the 2020 Notes.

From March 2020 through June 2020, we issued 10,801,277 shares of our Series B convertible preferred stock at a price of $4.712 per share for cash proceeds of $50.9 million, and 638,270 shares of our Series B convertible

preferred stock upon conversion of the 2020 Notes (including accrued interest).

From March 2020 through June 2020, we issued 10,801,277 shares of our Series B convertible preferred stock at a

price of $4.712 per share for cash proceeds of $50.9 million, and 638,270 shares of our Series B convertible preferred stock upon conversion of the 2020 Notes (including accrued interest).

In September 2020, we issued 7,904,135 shares of our Series C convertible preferred stock at a price of $11.063 per share for cash proceeds of $87.4 million.

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We received approximately $220.6 million in net proceeds, after deducting underwriting discounts, commissions and offering expenses.

Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to fund our planned operating expenses and capital expenditure requirements through the end of 2022.

Based on our current operating plan, we believe that our existing cash and cash equivalents will be sufficient to fund our planned operating expenses and capital expenditure requirements into 2024.

We have incurred significant operating losses since the commencement of our operations.

Our net losses were $22.1 million, $4.3 million, and $2.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, and we expect to incur significant and increasing losses for the foreseeable future as we continue to advance our product candidate, and as we transition to operating as a public company.

Our net losses were $71.1 million, $22.1 million, and $4.3 million for the years ended December 31, 2021, 2020 and 2019, respectively, and we expect to incur significant and increasing losses for the foreseeable future as we continue to advance our product candidate, and as we continue to operate as a public company.

Our net losses may fluctuate significantly from period to period, depending on the timing of expenditures on our research and development activities.

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During 2021, although we modified our operations and practices due to the COVID-19 pandemic and to comply with federal, state and local requirements, our business, operations and development timelines were not material adversely affected.

However, the extent to which the COVID-19 pandemic may affect our business, operations and development timelines and plans in the future, including the resulting impact on our expenditures and capital needs, remains uncertain.

In October 2021, the Company re-opened its offices to administrative employees, however due to the resurgence of cases relating to the spread of the Delta and Omicron variants, the Company continued to limit access to its offices and may close its offices again in the future as the COVID-19 pandemic continues to evolve.

The extent to which the COVID-19 pandemic may affect our business, operations and development timelines and plans in the future, including the resulting impact on our expenditures and capital needs, remains uncertain.

Components of our results of operations

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We expect our research and development expenses to increase substantially in absolute dollars for the foreseeable future as we advance OP-1250 or any other future product candidates we may develop into and through nonclinical studies and clinical trials and pursue regulatory approval of our product candidates.

The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-

The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming.

The actual probability of success for OP-1250 or any other future product candidates we may develop may be affected by a variety of factors including but not limited to:

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We expect that our general and administrative expenses will increase substantially in the foreseeable future as we increase our headcount to support the continued research and development of our programs and the growth of our business.

We also anticipate incurring additional expenses associated with operating as a public company, including increased expenses related to ongoing financial statement audit and interim-period quarterly reviews, internal control over financial reporting compliance and audit, legal, other regulatory and compliance, director and officer insurance, investor and public relations and tax-related services associated with maintaining compliance with the rules and regulations of the SEC and standards applicable to companies listed on a national securities exchange, additional insurance expenses, investor relations activities and other administrative and professional services.

We also anticipate incurring additional expenses associated with operating as a public company, including increased expenses related to ongoing consolidated financial statement audit and interim-period quarterly reviews, internal control over financial reporting compliance and audit, legal, other regulatory and compliance, director and officer insurance, investor and public relations and tax-related services associated with maintaining compliance with the rules and regulations of the SEC and standards applicable to companies listed on a national securities exchange, additional insurance expenses, investor relations activities and other administrative and professional services.

Total other income (expense), net

Interest income, interest expense and other income

Interest income primarily consists of interest income on our cash and cash equivalents.

Interest expense primarily consists of interest on our convertible promissory notes, and in the year ended December 31, 2020, a non-cash interest charge related to a beneficial conversion feature on a convertible note issued in January 2020.

Other income consists of miscellaneous income not related to operating activities.

Loss on extinguishment of convertible notes

Loss on extinguishment of convertible promissory notes consists of the loss recognized from the extinguishment of the unpaid principal and accrued interest on convertible promissory notes issued in 2017.

These notes were extinguished in July 2018 and noteholders were issued Series A-1 convertible preferred stock and common stock concurrent with the extinguishment of the notes.

Loss on remeasurement of convertible notes

Loss on remeasurement of convertible promissory notes consists of the loss recognized from the remeasurement of convertible promissory notes issued in 2018.

In July 2018, these notes were remeasured to their final fair value, and then settled with the issuance of Series A-1 convertible preferred stock and common stock provided to noteholders.

Interest income, interest expense and other expense

Total other income (expense), net consists of interest income, interest expense, and other expense.

Interest income primarily consists of interest income on our cash equivalents and marketable securities.

Interest expense primarily consisted of interest on our convertible promissory notes, and a non-cash interest charge related to a beneficial conversion feature on a convertible note that was issued in January 2020.

Other expense consists of miscellaneous expenses not related to operating activities.

Results of operations

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Loss from operations

Other (expense) income:

Other income (expense), net:

Interest income

Interest expense

Total other (expense) income, net

Net loss and comprehensive loss

Other expense

Total other income (expense), net

Research and development expenses

Research and development expenses for the year ended December 31, 2021 were $51.1 million, compared to $13.7 million for the year ended December 31, 2020.

The increase of $9.8 million was primarily due to increased spending in (i) advancing our lead product candidate OP-1250 clinical study and the associated contract manufacturing costs, (ii) other nonclinical research and discovery program costs, and (iii) personnel-related costs due to increased headcount, and an increase in the non-cash stock-based compensation of $2.0 million recognized during the year ended December 31, 2020.

The increase of $37.4 million was primarily due to increased spending in (i) advancing the clinical study for our lead product candidate OP-1250 and the associated contract manufacturing costs, (ii) nonclinical research and discovery program costs, and (iii) personnel-related costs due to increased headcount, and an increase in non-cash stock-based compensation of $7.4 million recognized during the year ended December 31, 2021.

General and administrative expenses

General and administrative expenses for the year ended December 31, 2021 were $20.4 million compared to $7.8 million for the year ended December 31, 2020.

The increase of $7.4 million was primarily due to increased salary expense associated with the expanded executive team, fees paid to outside consultants in connection with our initial public offering and operating as a public company, and an increase in the non-cash stock-based compensation of $1.1 million recognized during the year ended December 31, 2020.

Other (expense) income, net

Other (expense) income, net for the year ended December 31, 2020 was $(0.6) million, which primarily consisted of a non-cash interest charge incurred in connection with convertible notes issued in January 2020.

The increase of $12.6 million was primarily due to increased spending in (i) personnel-related costs due to higher headcount, (ii) public company-related expenses, and (iii) other corporate costs and an increase in non-cash stock-based compensation expenses of $5.5 million recognized during the year ended December 31, 2021.

Other income (expense), net

Other income (expense), net for the year ended December 31, 2021 was $0.4 million, compared to $0.6 million expense for the year ended December 31, 2020.

The increase of $1.0 million was primarily due to non-cash interest charge incurred in connection with convertible notes issued in January 2020 that was not repeated in 2021, and an increase in interest income from our marketable securities in the year ended December 31, 2021.

Comparison of the years ended December 31, 2020 and 2019

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Interest expense

Loss on convertible notes

Total other income (expense), net

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Research and development expenses for the year ended December 31, 2020 were $13.7 million, compared to $3.9 million for the year ended December 31, 2019.

The increase of $2.2 million was primarily due to the nonclinical research of OP-1250 and included a $0.7 million increase in lab services costs and $1.5 million increase in third-party research and development fees.

The increase of $9.8 million was primarily due to increased spending in (i) advancing our lead product candidate OP-1250 clinical study and the associated contract manufacturing costs, (ii) other nonclinical research and discovery program costs, and (iii) personnel-related costs due to increased headcount, and an increase in non-cash stock-based compensation of $2.0 million recognized during the year ended December 31, 2020.

General and administrative expenses

General and administrative expenses remained relatively unchanged year over year and were $0.4 million for the years ended December 31, 2019 and 2018, respectively.

General and administrative expenses for the year ended December 31, 2020 were $7.8 million compared to $0.4 million for the year ended December 31, 2019.

The increase of $7.4 million was primarily due to increased salary expense associated with our expanded executive team, fees paid to outside consultants in connection with our initial public offering and operating as a public company, and an increase in non-cash stock-based compensation of $1.1 million recognized during the year ended December 31, 2020.

Other income (expense), net

Other income (expense), net for the year ended December 31, 2019 was less than $0.1 million, compared to $(0.1) million during the year ended December 31, 2018.

The change was primarily due to the $0.1 million loss on extinguishment and remeasurement of the convertible promissory notes in 2018.

Other income (expense), net for the year ended December 31, 2020 was $(0.6) million, which primarily consisted of a non-cash interest charge incurred in connection with convertible notes issued in January 2020.

Liquidity and capital resources

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Our net losses were $71.1 million, $22.1 million, and $4.3 million for the years ended December 31, 2021, 2020, and 2019, respectively.

As of December 31, 2020, we had $338.5 million in cash and cash equivalents and an accumulated deficit of $33.1 million.

As of December 31, 2021, we had $287.3 million in cash, cash equivalents and marketable securities and an accumulated deficit of $104.2 million.

We had no debt outstanding as of December 31, 2021.

In January 2020, we received proceeds of $3.0 million from the issuance of convertible promissory notes, or the 2020 Notes.

In September 2020, we issued 7,904,135 shares of our Series C convertible preferred stock at a price of $11.063 per share for gross proceeds of $87.4 million.

In November 2020, we completed the initial public offering of our common stock, in which we issued an aggregate of 12,650,000 shares

of common stock, including 1,650,000 shares of common stock issued pursuant to the over-allotment option granted to the underwriters, at a price of $19.00 per share, for gross proceeds of $240.4 million, before underwriting discounts and commissions.

We received approximately $220.6 million in net proceeds, after deducting underwriting discounts, commissions and offering expenses.

Through December 31, 2021, we had received aggregate gross proceeds of $392.7 million from sales of our common stock, convertible preferred stock and issuance of convertible promissory notes, stock option exercises, and the sale of stock through the ESPP.

We expect to incur significant expenses and operating losses for the foreseeable future as we advance the nonclinical and clinical development of OP-1250.

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We currently have no financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years.

Future funding requirements

Future funding and material cash requirements

To date, we have not generated any revenue from product sales.

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The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts.

We expect our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through the end of 2022 at which point we would need to obtain substantial additional funding in connection with our continuing operations.

We expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into 2024 at which point we would need to obtain substantial additional funding in connection with our continuing operations.

The following table presents our material cash requirements for future periods:

Material cash requirements due by period

(in thousands)

Operating leases (1)

(1) We conduct our research and development programs internally and through third parties that include, among others, arrangements with vendors, consultants, CMOs, and CROs.

We have contractual arrangements in the normal course of business with these parties, however, our contracts with them are cancelable generally on reasonable notice within one year and our obligations under these contracts are primarily based on services performed.

We included certain contracts that have significant cancellation penalties and are material, which make the continuation of these arrangements reasonable.

If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

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Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Operating activities

Net cash used in operating activities during the year ended December 31, 2021 consisted primarily of our net loss of $71.1 million, partially offset by non-cash charges of $16.6 million and a net increase of $3.8 million in net operating assets and liabilities.

The net loss consisted primarily of $51.1 million in research and development expenses and $20.4 million in general and administrative expenses.

The non-cash charges consisted primarily of stock-based compensation of $15.9 million, depreciation and amortization expenses of $0.4 million, and non-cash lease expense of $0.2 million, net of cash payments of $1.0 million.

The change in operating assets and liabilities was primarily due to a net increase of $0.1 million in other assets and prepaid expenses and other current assets related to advanced payments for corporate insurance and subscriptions and licenses, and a decrease of $0.7 million in accounts payable, partially offset by an increase of $4.6 million in accrued liabilities, primarily as a result of timing of receipts of invoices.

Net cash used in operating activities during the year ended December 31, 2020 consisted primarily of our net loss of $22.1 million, partially offset by non-cash charges of $3.8 million and a net change of $1.5 million in net operating assets and liabilities.

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The non-cash charges consisted primarily of stock-based compensation of $3.1 million and non-cash interest expense of $0.6 million related to our 2020 Convertible Notes.

in accounts payable, partially offset by an increase of $2.8 million in invoices and accrued liabilities, primarily as a result of timing of invoice payment.

The change in operating assets and liabilities was primarily due to an increase of $3.6 million in prepaid expenses and other current assets related to advanced payments for corporate insurance and research and development activities, an increase of $0.5 million in other assets, and a decrease of $0.2 million in accounts payable, partially offset by an increase of $2.8 million in invoices and accrued liabilities, primarily as a result of timing of invoice payment.

Net cash used in operating activities during the year ended December 31, 2019 consisted primarily of our net loss of $4.3 million, partially offset by an increase in accounts payable of $1.2 million.

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The increase in accounts payable and other current liabilities was due to the timing of the posting of the invoices and the overall increase in research and development expenses in the year ended 2019.

Net cash used in operating activities during the year ended December 31, 2018 consisted primarily of our net loss of $2.2 million.

The net loss consisted of $1.7 million of research and development expenses, $0.4 million of general and administrative expenses and $(0.1) million of other (expenses) income, net.

Investing Activities

Net cash used in investing activities during the year ended December 31, 2021 was predominately due to purchases of marketable securities which was financed through the proceeds from the IPO and convertible preferred stock sale, and purchases of equipment, partially offset by the maturities of marketable securities.

Net cash used in investing activities during the year ended December 31, 2020 consisted of nominal purchases of equipment.

There were no cash flows from investing activities during the years ended December 31, 2019 and 2018.

There were no cash flows from investing activities during the years ended December 31, 2019.

Financing activities

Net cash provided by financing activities during the year ended December 31, 2021 consisted of $0.7 million and $0.7 million in net proceeds from the sale of our common stock under the 2020 ESPP and the exercise of stock options, respectively.

Net cash provided by financing activities during the year ended December 31, 2020 consisted primarily of $220.6 million, $85.8 million, and $50.6 million in net proceeds from our initial public offering, sale and issuance of our Series C and B convertible preferred stock, and $3.0 million in proceeds from the sale and issuance of our convertible promissory notes, respectively.

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There were no cash flows from financing activities during the year ended December 31, 2019.

Net cash provided by financing activities during the year ended December 31, 2018 consisted primarily of $4.9 million in proceeds from the sale and issuance of our Series A-1 convertible preferred stock and $0.3 million in proceeds from the sale and issuance of our convertible promissory notes, net of issuance costs.

Contractual obligations and commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2020:

Payments due by period

(in thousands)

Operating leases

We conduct our research and development programs internally and through third parties that include, among others, arrangements with vendors, consultants, CMOs, and CROs.

We included certain contracts that have significant cancellation penalties and are material, which make the continuation of these arrangements reasonable.

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.

Critical accounting policies and significant judgements and estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S.

Critical accounting estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles, or U.S.

The preparation of our financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and the disclosure of our contingent liabilities in our financial statements.

The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and the disclosure of our contingent liabilities in our consolidated financial statements.

We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

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Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our financial statements elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our audited financial statements.

Stock-Based Compensation

All stock-based compensation cost, including grants of stock options and restricted stock awards issued under our equity incentive plans and employee stock purchase plan, is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period, which is generally the vesting period.

We recognize stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation, or ASC 718.

ASC 718 requires the recognition of compensation expense, using a fair-value-based method, for costs related to all share-based payments including stock options.

ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant.

Our determination of the fair value of stock options with time-based vesting on the date of grant utilizes the Black-Scholes option-pricing model.

We estimate the expected contractual lives using historical data, volatility using stock prices of peer companies, risk-free rates using the implied yield currently available on U.S.

Treasury zero-coupon issues with a remaining term equal to the expected term, and dividend yield using our expectations and historical data.

We use the simplified method to calculate the expected term of employee stock option grants.

Under the simplified method, the expected term is estimated to be the mid-point between the vesting date and the contractual term of the option.

For awards with graded vesting, in which specified tranches of the options vest on different dates, we use a single weighted-average expected life to value the entire award, which is equal to the average of the weighted-average vesting period of the award and the contractual term of the award.

The fair value of each stock option grant is calculated based upon our common stock valuation on the date of the grant which we had to estimate prior to becoming a public company.

Equity instruments issued to nonemployees are recorded at their fair value on the grant date and without subsequent remeasurement.

The amount of stock-based compensation expense recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest, including awards with graded vesting.

As part of the requirements of ASC 718, we have elected to account for forfeitures of stock option grants as they occur.

Historically, for all periods prior to our initial public offering, the fair value of our common stock was estimated on each grant date by our board of directors.

In order to determine the fair value, our board of directors considered, among other things, contemporaneous valuations of our common stock and preferred stock prepared by management with the assistance of unrelated third-party valuation firms in accordance with the guidance provided by the American Institute of Certified Public Accountants 2013 Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid.

Prior to our initial public offering, given the absence of a public trading market of our shares of capital stock, our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our shares of common stock and preferred stock, which significant changes to the key assumptions underlying the factors used could have resulted in different fair values of common stock at each valuation date.

In determining the fair value of our common stock through December 31, 2018, we estimated the equity value of our business using income and market approaches including recent sales of our convertible preferred stock in arms’-length transactions (the back-solve method).

Once an equity value was determined, we utilized the Option-pricing method, or OPM, to allocate the overall value of equity to the various share classes.

In accordance with the Practice Aid, the OPM was the most appropriate method for determining the fair value of our common stock based on our stage of development and other relevant factors.

In determining the fair value of our common stock beginning May 2020, we estimated the equity value of our business using the Hybrid Method, which utilizes the Probability-Weighted Expected Return Method, or PWERM, a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for us assuming various outcomes.

We performed contemporaneous valuations, with the assistance of a third-party valuation specialist, as of December 31, 2018, May 31, 2020, July 31, 2020 and August 31, 2020, which resulted in valuations of our common stock of $0.725, $2.064, $4.406 and $4.824 per share, respectively.

We had initially used an OPM in assessing the fair value of our common stock as of May 31, 2020.

For financial reporting purposes in connection with our initial public offering, we retrospectively assessed the fair value of our common stock in connection with our June 2020 stock option grants and restricted stock awards using the Hybrid Method.

Following the closing of our IPO, the fair value of our common stock is determined based on the closing price of our common stock as reported by Nasdaq Global Select Market on the date of grant.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our audited consolidated financial statements.

Accrued research and development expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses.

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses.

This process involves reviewing purchase orders and open contracts, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the services when we have not yet been invoiced or otherwise notified of the actual cost.

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however, some require advance payments.

We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.

We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time.

We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.

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In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period.

If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly.

If the actual timing of the performance of services or the level of effort varies from our estimate, we

adjust the accrual or amount of prepaid expense accordingly.

Non-refundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.

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To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.

Internal Control over Financial Reporting

During August 2020, in connection with the preparation of our financial statements as of and for the years ended December 31, 2019 and 2018, we identified material weaknesses in our control over financial reporting.

The first material weakness identified in our internal control over financial reporting arose because we did not have an effective control environment commensurate with our financial reporting requirements.

Specifically, we lacked a sufficient number of professionals with an appropriate level of accounting knowledge, training and experience to appropriately analyze, record and disclose accounting matters timely and accurately.

This material weakness contributed to an additional material weakness in that we did not design and therefore did not have formal accounting policies, procedures and controls to achieve complete, accurate and timely financial accounting, reporting and disclosures, including controls over the preparation and review of account reconciliations and journal entries.

As of December 31, 2020, we remediated the material weaknesses by hir ing additional key finance and accounting personnel, creat ing formal financial policies and procedures, including month-end close process, and establish ing more robust processes supporting internal controls over financial reporting .

While we believe that these material weaknesses have now been remediated, we cannot assure you that these measures will be sufficient to prevent future material weaknesses or significant deficiencies in our internal control over financial reporting from occurring.

See “Risk Factors- If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common stock .”

Emerging growth company status

The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies.

We have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition provided in the JOBS act.

As a result, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies and our financial statements may not be comparable to other public companies that comply with new or revised accounting pronouncements as of public company effective dates.

We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.

The JOBS Act also exempts us from having to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b).

We will cease to be an “emerging growth company” on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (ii) December 31, 2025, (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv) the last day of the fiscal year in which we are deemed to be a large accelerated filer under the rules of the SEC, which generally is when we have more than $700.0 million in market value of our stock held by non-affiliates as of the last day of the second fiscal quarter and we have been a public company for at least 12 months and have filed one annual report.

Further, even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” which would allow us to take advantage of many of the same exceptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

We cannot predict if investors will find our shares of common stock less attractive because we may rely on these exemptions.

If some investors find our shares of common stock less attractive as a result, there may be a less active trading market for shares of our common stock and our share price may be more volatile.

Until December 31, 2021, we were an “emerging growth company” as defined in the JOBS Act, and therefore, we were able to take advantage of certain exemptions from various public company reporting requirements, including, the exemption from the requirement to obtain an attestation report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act, less extensive disclosure about our executive compensation arrangements, and no requirement for stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.

Effective December 31, 2021, we are deemed a “large accelerated filer” as our public float as of June 30, 2021 was greater than $700 million, and thus we are no longer classified as an “emerging growth company”.

As such, we conducted an Internal Control over Financial Reporting (“ICFR”) assessment for the year ended December 31, 2021, and have included management’s report in this Annual Report.

Recently issued accounting pronouncements

See Note 2 to our financial statements contained in this Annual Report for a description of recent accounting pronouncements applicable to our financial statements.

See Note 2 to our consolidated financial statements contained in this Annual Report for a description of recent accounting pronouncements applicable to our consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis