Ovid Therapeutics Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis should be read in conjunction with our financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and analysis and other parts of this Annual Report on Form 10-K contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as 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 “Risk Factors” and elsewhere in this Annual Report on Form 10-K. You should carefully read the “Risk Factors” section of this Annual Report on Form 10-K 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 developing impactful medicines for patients and families living with rare neurological disorders. We believe these disorders represent an attractive area for drug development as the understanding of the underlying biology has grown meaningfully over the last few years and today represent a substantial opportunity medically and commercially. Based on the rapid increase in scientific understanding of the role of genetics and key biological pathways relevant to diseases of the brain, we aim to identify, discover and develop novel compounds for the treatment of rare neurological disorders. We have built a deep knowledge of such diseases, how to treat them and how to develop the clinically meaningful endpoints required for development of a compound in these disorders. As a result of this knowledge, we have developed a pipeline of first-in-class compounds and programs and have demonstrated our model by progressing compounds through to late-stage development. We continue to execute on our strategy to build this pipeline by discovering in-licensing and collaborating with leading biopharmaceutical companies and academic institutions. Our latest pipeline includes two late-stage programs and several earlier stage programs. Since our inception in April 2014, we have devoted substantially all of our efforts to organizing and planning our business, building our management and technical team, acquiring operating assets and raising capital. During the year ended December 31, 2020, we generated $12.6 million of license and other revenue through our Collaboration and License Agreement, or the Angelini License Agreement, with Angelini Pharma Rare Diseases AG, or Angelini, and have otherwise funded our business primarily through the sale of our capital stock. Through December 31, 2020, we have raised net proceeds of $275.4 million from the sale of our convertible preferred stock and our common stock. As of December 31, 2020, we had $72.0 million in cash and cash equivalents. We recorded net losses of $81.0 million and $60.5 million for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, we had an accumulated deficit of $294.2 million. 62 We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures on our other research and development and commercial development activities. We expect our expenses will increase substantially over time as we: • continue the ongoing and planned preclinical and clinical development of our drug candidates; • build a portfolio of drug candidates through the development, acquisition or in-license of drugs, drug candidates or technologies; • initiate preclinical studies and clinical trials for any additional drug candidates that we may pursue in the future; • seek marketing approvals for our current and future drug candidates that successfully complete clinical trials; • establish a sales, marketing and distribution infrastructure to commercialize any drug candidate for which we may obtain marketing approval; • develop, maintain, expand and protect our intellectual property portfolio; • implement operational, financial and management systems; and • attract, hire and retain additional administrative, clinical, regulatory, manufacturing, commercial and scientific personnel. Recent Developments Royalty, License and Termination Agreement with Takeda On March 2, 2021, we entered into a royalty, license and termination agreement, or the Takeda License and Termination Agreement , with Takeda, relating to the Takeda collaboration agreement described above in Item 1. Business section. Under the terms of the Takeda License and Termination Agreement , upon closing of the transaction, the Takeda collaboration agreement will be terminated by mutual agreement, and Takeda will secure rights to our 50% global share in soticlestat, and an exclusive license under our relevant intellectual property rights, in exchange for an upfront payment, development and commercial milestone payments, and royalties. Takeda will assume all responsibility for, and costs of, both development and commercialization of soticlestat following closing. At closing, we will receive an upfront payment of $196.0 million and are eligible to receive up to an additional $660.0 million in development, regulatory and sales milestones. In addition, if soticlestat achieves regulatory approval, we will receive tiered royalties on net sales of soticlestat at percentages ranging from the low double-digits up to 20%, subject to standard reductions in certain circumstances. Royalties are payable on a country-by-country and product-by-product basis during the period beginning on the date of the first commercial sale of such product in such country and ending on the later to occur of the expiration of patent rights covering the product in such country and a specified anniversary of such first commercial sale. The Takeda License and Termination Agreement will remain in effect until Takeda’s cessation of commercialization of soticlestat. We expect to close the Takeda License and Termination Agreement in the first half of 2021, subject to the satisfaction of customary closing conditions, including regulatory review by the appropriate regulatory agencies under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Takeda License and Termination Agreement may be terminated upon the mutual agreement of the parties, or by either Takeda or the Company, if the closing has not occurred on or before May 14, 2021. COVID-19 Update We have implemented business continuity plans designed to address and mitigate the impact of the ongoing COVID-19 pandemic on our employees and our business. We continue to operate normally with the exception of enabling all of our employees to work productively at home and abiding by travel restrictions issued by federal, state and local governments. Our current plans to return to the office remain fluid as federal, state and local guidelines, rules and regulations continue to evolve . Financial Operations Overview Revenue We have generated limited revenue under the Angelini License Agreement and expect to recognize additional revenue as we satisfy our performance obligations . We have not generated any revenue from commercial drug sales and do not expect to generate any further revenue unless or until we obtain regulatory approval of and commercialize one or more of our current or future drug candidates. In the future, we may also seek to generate revenue from a combination of research and development payments, license fees and other upfront or milestone payments. 63 Research and Development Expenses Research and development expenses consist primarily of costs incurred for our research activities, including our product discovery efforts and the development of our product candidates, which include, among other things: • employee-related expenses, including salaries, benefits and stock-based compensation expense; • fees paid to consultants for services directly related to our drug development and regulatory effort; • expenses incurred under agreements with contract research organizations, as well as contract manufacturing organizations and consultants that conduct preclinical studies and clinical trials; • costs associated with preclinical activities and development activities; • costs associated with technology and intellectual property licenses; • milestone payments and other costs under licensing agreements; and • depreciation expense for assets used in research and development activities. Costs incurred in connection with research and development activities are expensed as incurred. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors. Research and development activities are and will continue to be central to our business model. We expect our research and development expenses to increase for the foreseeable future as we advance our current and future drug candidates through preclinical studies and clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. It is difficult to determine with certainty the duration and costs of any preclinical study or clinical trial that we may conduct. The duration, costs and timing of clinical trial programs and development of our current and future drug candidates will depend on a variety of factors that include, but are not limited to, the following: • number of clinical trials required for approval and any requirement for extension trials; • per patient trial costs; • number of patients who participate in the clinical trials; • number of sites included in the clinical trials; • countries in which the clinical trial is conducted; • length of time required to enroll eligible patients; • number of doses that patients receive; • drop-out or discontinuation rates of patients; • potential additional safety monitoring or other studies requested by regulatory agencies; • duration of patient follow-up; and • efficacy and safety profile of the drug candidate. In addition, the probability of success for any of our current or future drug candidates will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each drug candidate, as well as an assessment of each drug candidate’s commercial potential. General and Administrative Expenses General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation expense, related to our executive, finance, business development and support functions. Other general and administrative expenses include costs associated with operating as a public company described below, travel expenses, conferences, professional fees for auditing, tax and legal services and facility-related costs. Other Income, Net Other income consists of interest income earned on our cash and cash equivalents maintained in money market funds and prior short-term investments that were maintained in U.S. treasury notes. 64 Results of Operations Comparison of the Years Ended December 31, 2020 and 2019 The following table summarizes the results of our operations for the periods indicated: Year Ended Year Ended December 31, December 31, 2020 2019 Change $ (in thousands) Revenue: License and other revenue $ 12,617 $ - $ 12,617 Operating expenses: Research and development 63,417 42,157 21,260 General and administrative 30,631 19,252 11,379 Total operating expenses 94,048 61,409 32,639 Loss from operations (81,431 ) (61,409 ) (20,022 ) Other income, net 395 948 (553 ) Net loss $ (81,036 ) $ (60,461 ) $ (20,575 ) Revenue Total revenue was $12.6 million for the year ended December 31, 2020 as a result of revenue recorded in connection with the Angelini License Agreement. We did not generate any revenue during the year ended December 31, 2019. Research and Development Expenses Year Ended Year Ended December 31, December 31, 2020 2019 Change $ (in thousands) Preclinical and development expenses $ 43,612 $ 27,034 $ 16,578 Payroll and payroll-related expenses 15,439 11,496 3,943 Other expenses 4,366 3,627 739 Total research and development $ 63,417 $ 42,157 $ 21,261 Research and development expenses were $63.4 million for the year ended December 31, 2020 compared to $42.2 million for the year ended December 31, 2019. The increase of $21.3 million was primarily due to an increase in development activities related to our ongoing development programs . During the year ended December 31, 2020, total research and development expenses consisted of $43.6 million in preclinical and development expenses, including a credit of $0.7 million representing costs reimbursable to the Company from Takeda in respect of the Takeda collaboration, $15.4 million in payroll and payroll-related expenses, of which $2.8 million related to stock-based compensation, and $4.4 million in other expenses. During the year ended December 31, 2019, total research and development expenses consisted of $27.0 million in preclinical and development expenses, including a credit of $4.7 million representing costs reimbursed to us from Takeda in respect of the Takeda collaboration, $11.5 million in payroll and payroll-related expenses, of which $2.4 million related to stock-based compensation, and $3.6 million in other expenses . General and Administrative Expenses Year Ended Year Ended December 31, December 31, 2020 2019 Change $ (in thousands) Payroll and payroll-related expenses $ 13,390 $ 9,888 $ 3,502 Legal and professional fees 13,824 5,623 8,201 General office expenses 3,417 3,741 (324 ) Total general and administrative $ 30,631 $ 19,252 $ 11,379 General and administrative expenses were $30.6 million for the year ended December 31, 2020 compared to $19.3 million for the year ended December 31, 2019. The increase of $11.4 million primarily consisted of increases in legal fees, compliance and pre-commercialization expenses and professional fees of $8.2 million and payroll-related expenses of $3.5 million. Other Income, Net 65 Other income includes interest income of $0.4 million for the year ended December 31, 2020 and $0.9 million for the year ended December 31, 2019. Income Taxes There was no provision for income taxes for the years ended December 31, 2020 and 2019 because we have historically incurred operating losses and we maintain a full valuation allowance against our net deferred tax assets. The valuation allowance was approximately $89.8 million and $76.5 million at December 31, 2020 and 2019, respectively. Liquidity and Capital Resources Overview As of December 31, 2020, we had total cash, cash equivalents and short-term investments of $72.0 million as compared to $76.7 million as of December 31, 2019. On July 9, 2020, we entered into the Angelini License Agreement with Angelini, pursuant to which we granted to Angelini exclusive rights to develop and commercialize OV101 in the European Territory. Under the Angelini License Agreement, Angelini made an upfront payment and a milestone payment related to the transfer of a specified amount of compound and related information to the Company of $25.0 million during the year ended December 31, 2020. In addition, Angelini will be required to make additional milestone payments to us upon the completion of the specified components of the technology transfer, and achievement of specified regulatory milestones for OV101 in Angelman syndrome of up to $55.0 million in the aggregate, as well as up to €162.5 million ($199.9 million) in sales milestone payments for achievement of specified levels of net sales in the European Territory. Angelini also will be required to pay tiered royalties on net sales by Angelini, its affiliates or sublicensees at double-digit percentages above the teens, subject to certain standard reductions and offsets. In November 2020, we filed a new shelf registration statement on Form S-3 (Registration No. 333-250054) that allows us to sell up to an aggregate of $250.0 million of our common stock, preferred stock, debt securities and/or warrants (the “S-3 Registration Statement”), which includes a prospectus covering the issuance and sale of up to $75.0 million of common stock pursuant to an at-the-market (“ATM”) offering program. As of December 31, 2020, we had $250.0 million available under our S-3 Registration Statement, including $75.0 million available pursuant to our ATM program. In August 2020, we sold 6,250,000 shares of our common stock at a public offering price of $8.00 per share, for net proceeds of $46.7 million, after deducting underwriting discounts and commissions and other offering expenses payable by us, or the August 2020 Offering. In February 2019, we sold 13,993,778 shares of our common stock and 2,500 shares of Series A Convertible Preferred Stock at a public offering price of $2.00 and $2,000 per share, respectively, for net proceeds of $30.5 million, after deducting underwriting discounts and commissions and other offering expenses payable by us, or the February 2019 Offering. In October and November 2019, we sold 10,350,000 shares of our common stock, which included the full exercise of the underwriters’ option to purchase additional shares, and 4,000 shares of Series A Convertible Preferred Stock at a public offering price of $2.50 and $2,500 per share, respectively, for net proceeds of $33.5 million after deducting underwriting discounts and commissions and other offering expenses payable by us, or the October 2019 Offering. During the year ended December 31, 2019, we sold 6,893,888 shares of our common stock under our previous ATM program for net proceeds of $22.3 million after deducting sales agent commissions and other offering expenses payable by us, or the ATM Offering. Similar to other development-stage biotechnology companies, we have generated limited revenue, which has been through the Angelini License Agreement. We have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the next several years. We incurred net losses of approximately $81.0 million and $60.5 million for the year ended December 31, 2020 and 2019, respectively. As of December 31, 2020, we had an accumulated deficit of $294.2 million and working capital of $52.8 million. Management has identified these conditions or events, which, considered in the aggregate, raise substantial doubt about our ability to continue as a going concern, including the risk that we will be unable to raise adequate additional capital to fund operations through at least the next 12 months from the date of filing of this Annual Report on Form 10-K. Management’s response to these conditions and events is that the successful closing of the Takeda License and Termination Agreement with Takeda (see note 12 of our Consolidated Financial Statements) will provide the liquidity needed to alleviate the substantial doubt referred to above. As described in note 12 of our Consolidated Financial Statements, there are certain conditions to close the Takeda License and Termination Agreement, however, management has determined that the likelihood of not closing in the first half of 2021 is remote. In the event that we are unable to close the Takeda License and Termination Agreement, we will need to raise additional capital in order to 66 alleviate substantial doubt about our ability to continue as a going concern . The failure to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategy. If we are unable to raise capital, we may be required to delay, reduce the scope of or eliminate research and development programs, or obtain funds through arrangements with collaborators or others that may require us to relinquish rights to certain drug candidates that we might otherwise seek to develop or commercialize independently. In addition to the proceeds we expect to receive upon closing of the Takeda License and Termination Agreement, we plan to finance our cash needs through either equity offerings, debt financings, collaborations, strategic alliances, or licensing agreements or a combination of any such transactions. To the extent that we raise additional capital through future equity offerings or debt financings, ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt and equity financings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. There can be no assurance that such financings will be obtained on terms acceptable to us, if at all. The ongoing COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations. If we raise additional funds through collaborations, strategic alliances or licensing agreements with third parties for one or more of our current or future drug candidates, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or to grant licenses on terms that may not be favorable to us. Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy. Cash Flows The following table summarizes our cash flows for the periods indicated: Year Ended Year Ended December 31, December 31, 2020 2019 (in thousands) Net cash provided by (used in): Operating activities $ (51,584 ) $ (51,091 ) Investing activities 34,648 (30,041 ) Financing activities 47,072 86,539 Net increase in cash and cash equivalents $ 30,136 $ 5,407 Net Cash Used in Operating Activities Net cash used in operating activities was $51.6 million for the year ended December 31, 2020, which consisted of a net loss of $81.0 million offset by a net of $29.5 million of non-cash charges and indirect cash changes, primarily related to $7.5 million of stock-based compensation expense and $12.4 million of deferred revenue. Net cash used in operating activities was $51.1 million for the year ended December 31, 2019, which consisted of a net loss of $60.5 million offset by a net of $9.4 million of non-cash charges and indirect cash changes, primarily related to $5.2 million of stock-based compensation expense. Net Cash Provided by ( Used in) Investing Activities Net cash provided by investing activities was $34.6 million for the year ended December 31, 2020, compared to $30.0 million used in investing activities for the year ended December 31, 2019. The change in net cash provided by investing activities was primarily due to the higher maturities of short-term investments during the year ended December 31, 2020 compared to net purchases during the year ended December 31, 2019. Net Cash Provided by Financing Activities Net cash provided by financing activities of $47.0 million for the year ended December 31, 2020 was primarily due to the net proceeds from the August 2020 Offering. Net cash provided by financing activities of $86.5 million for the year ended December 31, 2019 was primarily due to the net proceeds from the February 2019 Offering, October 2019 Offering and ATM Offering. Contractual Obligations and Commitments As of December 31, 2020, we agreed to continue certain studies that were ongoing at the time of signing the Angelini License Agreement. In March 2021, we entered into the Takeda License and Termination Agreement under which Takeda will secure global rights at closing from us to develop and commercialize the investigational medicine OV935 for the treatment of developmental and epileptic encephalopathies, including DS and LGS . Closing of the Takeda License and Termination Agreement is subject to satisfaction of customary closing conditions, including regulatory review by the appropriate regulatory agencies under the HSR Act . We had no other material contractual obligations or commitments. We had no long-term debt or leases and no material non-cancelable 67 purchase commitments with service providers, as we have generally contracted on a cancelable, purchase order basis. We excluded any potential contingent payments upon the achievement by us of clinical, regulatory and commercial events, as applicable, or royalty payments that we may be required to make under license agreements we have entered into with various entities pursuant to which we have in-licensed certain intellectual property as contractual obligations or commitments, including agreements with H. Lundbeck A/S, Northwestern, and our Takeda license agreement. Pursuant to these license agreements, we have agreed to make milestone payments up to an aggregate of $ 279.3 million upon the achievement of certain development, regulatory and sales milestones. We excluded these contingent payments given that the timing, probability, and amount, if any, of such payments cannot be reasonably estimated at this time. 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. Emerging Growth Company Status and Smaller Reporting Company Status We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company until December 31, 2022. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include: • reduced disclosure about our executive compensation arrangements; • no non-binding stockholder advisory votes on executive compensation or golden parachute arrangements; and • exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. We have taken advantage of reduced reporting requirements in this Annual Report on Form 10-K and may continue to do so until such time that we are no longer an emerging growth company. We will remain an “emerging growth company” until the earliest of (a) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (b) December 31, 2022, the last day of the fiscal year following the fifth anniversary of the completion of the our IPO, (c) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. In addition, 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 and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. Critical Accounting Policies and Estimates Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these 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 financial statements, as well as the revenue and expenses incurred during the reported periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on 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 apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions. During the year ended December 31, 2020, we recognized revenue. In addition, see Note 2 of our Consolidated Financial Statements under the heading “Recent Accounting Pronouncements” for new accounting pronouncements or changes to the accounting pronouncements during the year ended December 31, 2020. Accrued Clinical Expenses When preparing our consolidated financial statements, we are required to estimate our accrued clinical expenses. This process involves reviewing open contracts and 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 service when we have not yet been invoiced or 68 otherwise notified of actual cost. Payments under some of the contracts we have with third parties depend on factors, such as successful enrollment of certain numbers of patients, site initiation and the completion of clinical trial milestones. When accruing clinical expenses, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If possible, we obtain information regarding unbilled services directly from our service providers. However, we may be required to estimate the cost of these services based only on information available to us. If we underestimate or overestimate the cost associated with a trial or service at a given point in time, adjustments to research and development expenses may be necessary in future periods. Historically, our estimated accrued clinical expenses have approximated actual expense incurred. Stock-Based Compensation We account for stock-based compensation awards in accordance with the Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation , or ASC 718 (see Note 2 of our Consolidated Financial Statements ). ASC 718 requires all stock-based compensation awards to be recognized as expense based on their grant date fair values. We recognized expenses over the requisite service period, which is generally the vesting period of the award under the straight-line method. We account for forfeitures as they occur. We record the expense for stock-based compensation awards subject to performance-based milestone vesting over the remaining service period when management determines that achievement of the milestone is probable. Management evaluates when the achievement of a performance-based milestone is probable based on the expected satisfaction of the performance conditions at each reporting date. We measure the grant-date fair value based on the Black-Scholes option-pricing model, which uses subjective assumptions and other inputs. These assumptions and inputs include: • Expected Volatility. Due to the lack of sufficient volatility data, the expected volatility is estimated using weighted average measures of the historical volatility of a representative group of small, publicly traded drug development companies at a similar stage of development as ourselves. • Expected Term. The expected term of the options outstanding is determined using the “simplified” method for “plain vanilla” options based on the mid-point between the vesting date and the end of the contractual term as prescribed by Staff Accounting Bulletin No. 107, Share-Based Payment. • Risk-Free Interest Rate . The risk-free interest rate is based on U.S. Treasury notes with remaining terms similar to the expected term of the option. • Expected Dividends . The dividend yield assumption is zero since we have never paid cash dividends and do not plan to pay cash dividends in the foreseeable future. Revenue Recognition We recognize revenue under sublicense agreements in accordance with the ASC 606. We currently have one such agreement, the Angelini License Agreement . The terms of the agreement within this scope may contain multiple performance obligations, including but not limited to licenses and research and development activities. ASC 606 requires that we evaluate these agreements to determine the distinct performance obligations. Non-refundable, up-front fees that are not contingent on any future performance and require no consequential continuing involvement by us, are recognized as revenue when the license term commences and the licensed data, technology or product is delivered. We defer recognition of non-refundable upfront fees if the performance obligations are not satisfied. Prior to recognizing revenue, we make estimates of the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration may include all or portions of upfront license fees, payments for research and development activities, reimbursement of certain third-party costs, payments based upon the achievement of specified milestones, royalty payments based on product sales derived from collaboration and other payments. If there are multiple distinct performance obligations, we allocate the transaction price to each distinct performance obligation based on its relative standalone selling price. For the Angelini License Agreement, t he transaction price was allocated based on the standalone selling prices of the license and ongoing trials . The portion of the upfront payment allocated to the license was recognized in full as it was non-refundable and not contingent on any future performance and requires no consequential continuing involvement by the Company. Revenue related to ongoing trials is recognized by measuring the progress toward complete satisfaction of the performance obligations over time based on the portion of estimated total trial costs to be incurred. Milestone payments are considered contingent variable consideration which are not accounted for until the contingencies are met. 69 Item 7A . Quantitative and Qualitat ive Disclosures About Market Risk. The primary objectives of our investment activities are to ensure liquidity and to preserve capital. As of December 31, 2020, we had cash and cash equivalents of $72.0 million that were held in an interest-bearing money market account. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term maturities of our cash equivalents and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents. To minimize the risk in the future, we intend to maintain our portfolio of cash equivalents in institutional market funds that are comprised of U.S. Treasury and U.S. Treasury-backed repurchase agreements. Item 8. Financial Statements and Supplementary Data Our financial statements, together with the report of our independent registered public accounting firm, appear in this Annual Report on Form 10-K beginning on page F-1. Item 9 . Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.