Ovid Therapeutics Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following information should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission (“SEC”) on March 13, 2023. In addition to historical financial information, the following discussion contains forward-looking statements based upon our current plans, expectations and beliefs that involve risks, uncertainties and assumptions. Our actual results and the timing of selected events may differ materially from those described in or implied by these forward-looking statements as a result of many factors, including those set forth under the section titled “Risk Factors” in Part II, Item 1A. You should carefully read the “Risk Factors” section of this Quarterly Report on Form 10-Q 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 committed to developing medicines that transform the lives of people with epilepsies and seizure-related disorders in a manner that is scientifically driven and patient focused. We have set out to be a leader in the field of rare epilepsies and intractable neurological diseases with seizure symptoms. Our differentiated pipeline of potential small molecule medicines has produced four unique anti-seizure programs to date, three of which we are actively developing, and the fourth, which we co-developed, was subsequently repurchased by Takeda Company Limited (“Takeda”). This pipeline was curated using an integrated and disciplined approach to business development, research, and clinical development. All of the programs in our pipeline act upon either extrinsic or intrinsic factors modulating neuronal hyperexcitability, which we believe underlies seizures and other neurological conditions. Our management team has substantial understanding of rare disease and neurological conditions gained from the management team's collective experience and contributions to the development and launch of more than 25 approved medicines in their respective careers prior to joining Ovid. Such experience includes many approved anti-seizure medicines. Our knowledge of the underlying biologic targets driving hyperexcitability and the pathology of refractory epilepsies has produced clinical-stage development programs, the most advanced of which was soticlestat, which was repurchased by Takeda in 2021 and is being actively studied by Takeda in two pivotal Phase 3 trials in Lennox-Gastaut syndrome and Dravet syndrome. Two of our three programs are in clinical trials. We expect to submit an investigational new drug (IND) application to begin clinical trials for the third program in the second half of 2024. Over time, we have built a replicable and scalable approach to develop small molecule candidates, which begins with conducting animal disease models and toxicology studies in the pre-clinic to build evidence and confidence before moving into the clinic. Initially, we are pursuing therapeutic assets for rare epilepsies and seizure disorders as they can leverage cost-efficient and accelerated development programs and they can be evaluated with concrete and measurable endpoints such as seizures and electroencephalogram (EEG) readings. In addition to seizures, if successfully developed and marketed, we intend to explore our pipeline assets for broader neurologic indications caused by neuronal hyperexcitabilty, as applicable. Our cohesive focus in rare epilepsies and seizures reinforces our belief that we can develop and produce multiple novel medicines, scale our infrastructure, and thereby succeed in our mission. 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. We have historically funded our business primarily through the sale of our capital stock. Through September 30, 2023, we have raised net proceeds of $275.4 million from the sale of our convertible preferred stock and our common stock, which excludes the $30 million received from Ligand Pharmaceuticals Incorporated (“Ligand”) pursuant to the purchase and sale agreement (the “Ligand Agreement”) for the sale to Ligand of certain royalty, regulatory and commercial milestone payments that we are eligible to receive under the royalty, license and termination agreement (“RLT Agreement”) with Takeda. We have also, in previous periods, generated revenue through license and collaboration agreements. As of September 30, 2023, we had $87.1 million in cash, cash equivalents and marketable securities. As of September 30, 2023, we had an accumulated deficit of $262.5 million. We expect to continue to incur significant expenses and 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; 23 Table of Contents • 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. The following chart sets forth the status and mechanism of action of our drug candidates: In connection with Takeda's second quarter earnings announcement in October 2023, Takeda reiterated the anticipated timeline for regulatory filing of the two pivotal Phase 3 trials evaluating soticlestat for Lennox-Gastaut and Dravet syndromes are expected in Takeda’s 2024 fiscal year. Under the RLT Agreement with Takeda, if soticlestat is successfully approved and commercialized, Ovid is eligible to receive up to $660 million in regulatory and commercial milestones and tiered royalties up to 20% on all indications and regions. In October 2023, we entered into the Ligand Agreement for the sale to Ligand of a 13% interest in the potential milestone and royalty payments that we are eligible to receive under the RLT Agreement. Under the Ligand Agreement, Ligand paid the Company $30 million, less $100,000 of reimbursable expenses. We retain ownership of 87% of such potential milestone and royalty payments. In May 2023, we in-licensed OV888 (formerly GV101) and a library of highly-selective Rho-associated coiled-coil containing pr otein kinase 2 (ROCK2) inhibitors from Graviton Biosciences and entered into a research and collaboration agreement with Graviton Biosciences. Under the collaboration, Graviton is responsible for developing the lead program through Phase 2 development and we will then assume responsibility for Phase 3 development and commercialization. The lead program from this collaboration, OV888, is in a Phase 1 multiple ascending dose study. OV888 is formulated as a hard gel cap, which we expect to be the future clinical formulation. That Phase 1 study is anticipated to be completed in the first half of 2024. Ovid and Graviton intend to initiate a signal-finding trial in people living with cerebral cavernous malformations in the second half of 2024. No serious adverse events have been observed in the Phase 1 study thus far. In December 2022, we initiated a Phase 1 study for OV329, a next-generation GABA-aminotransferase inhibitor, in healthy volunteers. That study is continuing to dose-escalate in the single-ascending dose cohorts and anticipates initiating a multiple-ascending dose study . No serious adverse events have been observed in the Phase 1 study thus far. At our R&D Day on October 2, 2023, we shared preclinical data demonstrating OV329 elicits an EEG response which is a pharmacodynamic marker of anti-convulsant activity. We subsequently guided that we will be adding a transcranial 24 Table of Contents magnetic stimulation to the Phase 1 study to serve as a second biomarker for efficacy in addition to measuring target engagement via magnetic resonance spectroscopy. The current Phase 1 is expected to be completed in the second half of 2024. Additionally, we announced plans to develop an IV formulation of OV329 for potential use in acute seizures based upon emerging evidence that GABA-AT inhibition may be effective in the treatment of status epilepticus. An IND application for the IV formulation is expected in the second half of 2024. We are also developing a portfolio of direct activators of the potassium chloride co-transporter 2 (KCC2) for the potential treatment of seizures and other neurological indications, including OV350. We are conducting multiple non-clinical studies to characterize the therapeutic potential of direct activation of the KCC2 from our library of compounds, which is a biological target implicated in many neurological conditions including seizures. An IV formulation of OV350 is progressing toward an anticipated IND for an anti-convulsant indication in the second half of 2024. In October 2023, we also presented at our R&D Day animal studies that validate OV350’s potential anti-psychotic properties. We believe non-epilepsy indications may represent future development collaboration opportunities for the Company. Significant Risks and Uncertainties The global economic slowdown, the overall disruption of global healthcare systems and other risks and uncertainties associated with bank failures, public health crises and global geopolitical tensions, like the ongoing war between Russia and Ukraine and the war in Israel, may have a material adverse effect on our business, financial condition, results of operations and growth prospects. The resulting high inflation rates may materially affect our business and corresponding financial position and cash flows. Inflationary factors, such as increases in the cost of our clinical trial materials and supplies, interest rates and overhead costs may adversely affect our operating results. Rising interest rates also present a recent challenge impacting the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future. Furthermore, economic conditions have produced downward pressure on share prices. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates remain high or begin to rise again) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, global geopolitical tensions as a result of the ongoing war between Russia and Ukraine and the war in Israel, worsening global macroeconomic conditions and employee availability and wage increases, which may result in additional stress on our working capital resources. In addition, we are subject to other challenges and risks specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: identifying, acquiring or in-licensing products or product candidates; obtaining regulatory approval of product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing our intellectual property rights; complying with applicable regulatory requirements. Financial Operations Overview Revenue We have generated revenue under various licensing and collaboration agreements. We have not generated any revenue from commercial drug sales and we do not expect to generate any further revenue unless or until we obtain regulatory approval 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. 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 and payments under licensing agreements, research agreements and collaboration agreements; and 25 Table of Contents • 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, legal, business development and support functions. Other general and administrative expenses include costs associated with operating as a public company, travel expenses, conferences, and professional fees for auditing, tax and legal services. Other Income (Expense), net Other income (expense), net primarily consists of unrealized gains (losses) on long-term equity investments and interest income and accretion of discount on investments in marketable securities. 26 Table of Contents Results of Operations Comparison of the Three Months Ended September 30, 2023 and 2022 The following table summarizes the results of our operations for the periods indicated: Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 Change $ (in thousands) Revenue: License and other revenue $ 109 $ 11 $ 98 Total revenue 109 11 98 Operating expenses: Research and development 5,333 5,183 150 General and administrative 6,805 7,632 (827) Total operating expenses 12,138 12,815 (677) Loss from operations (12,029) (12,804) 775 Other income (expense), net 776 836 (60) Loss before provision for income taxes (11,253) (11,968) 715 Provision for income taxes — — — Net loss $ (11,253) $ (11,968) $ 715 Revenue Royalty revenue of $108,972 was generated in the three months ended September 30, 2023, compared to revenue of $11,102 recognized in the three months ended September 30, 2022. Research and Development Expenses Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 Change $ (in thousands) Preclinical and development expenses $ 2,140 $ 2,164 $ (24) Payroll and payroll-related expenses 2,297 2,208 89 Other expenses 895 812 83 Total research and development $ 5,333 $ 5,183 $ 149 During the three months ended September 30, 2023 and 2022, total research and development expenses were $5.3 million compared to $5.2 million for the same period in 2022. 27 Table of Contents General and Administrative Expenses Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 Change $ (in thousands) Payroll and payroll-related expenses $ 3,567 $ 3,973 $ (406) Legal and professional fees 1,908 1,484 424 General office expenses 1,330 2,175 (844) Total general and administrative $ 6,805 $ 7,632 $ (826) General and administrative expenses were $6.8 million and $7.6 million for the three months ended September 30, 2023 and 2022, respectively. The $0.8 million decrease between the periods was primarily due to a reduction in force in general and administrative roles completed in the second quarter of 2023, partially offset by increased legal and professional fees relating to projects during the same period in 2022. General office expenses decreased as a result of cost-reduction initiatives during the period. Other Income (Expense), net Other income (expense), net for the three months ended September 30, 2023 and 2022 includes unrealized gain (loss) on long-term equity investments and interest earned and accretion of discount on marketable securities. Other income (expense), net for the three months ended September 30, 2023 and 2022 was $0.8 million. Comparison of the Nine Months Ended September 30, 2023 and 2022 The following table summarizes the results of our operations for the periods indicated: Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Change $ (in thousands) Revenue: License and other revenue $ 250 $ 1,456 $ (1,206) Total revenue 250 1,456 (1,206) Operating expenses: Research and development 17,946 19,062 (1,116) General and administrative 23,397 25,770 (2,373) Total operating expenses 41,343 44,832 (3,489) Loss from operations (41,093) (43,375) 2,282 Other income (expense), net 4,076 711 3,365 Loss before provision for income taxes (37,017) (42,664) 5,648 Provision for income taxes — — — Net loss $ (37,017) $ (42,664) $ 5,648 Revenue Royalty revenue of $250,132 was generated in the nine months ended September 30, 2023, compared to revenue of $1.5 million recognized in the same period in 2022 relating to licensing agreements. 28 Table of Contents Research and Development Expenses Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Change $ (in thousands) Preclinical and development expenses $ 7,754 $ 6,947 $ 807 Payroll and payroll-related expenses 7,698 9,473 (1,775) Other expenses 2,493 2,642 (149) Total research and development $ 17,946 $ 19,062 $ (1,116) During the nine months ended September 30, 2023, total research and development expenses were $17.9 million compared to $19.1 million for the same period in 2022. The decrease of $1.1 million was primarily due to a $1.8 million reduction in payroll and payroll-related expenses following an organizational restructuring in 2022, offset by $0.8 million increase in preclinical and development expenses, primarily related to OV329 Phase 1 trial. General and Administrative Expenses Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 Change $ (in thousands) Payroll and payroll-related expenses $ 13,343 $ 12,511 $ 832 Legal and professional fees 5,404 7,478 (2,074) General office expenses 4,650 5,780 (1,130) Total general and administrative $ 23,397 $ 25,770 $ (2,372) General and administrative expenses were $23.4 million for the nine months ended September 30, 2023 compared to $25.8 million for the same period in 2022. The decrease of $2.4 million was primarily due to a reduction in legal and professional fees of $2.2 million and a decrease in general office expenses of $1.1 million, partially offset by an increase in payroll and payroll-related expenses of $0.8 million. Severance costs of $1.6 million were recognized during the nine months ended September 30, 2023 compared to $0.7 million for the same period in 2022. Other Income (Expense), net Other income (expense), net for the nine months ended September 30, 2023 results from unrealized gain (loss) on long-term equity investments and interest earned and accretion of discount on marketable securities. Other income, net for the nine months ended September 30, 2023 was $4.1 million compared to $0.7 million for the same period in 2022. The increase of $3.4 million is primarily due to interest and accretion on investments in marketable securities on such investments that began in the second half of 2022. Liquidity and Capital Resources Overview As of September 30, 2023, we had total cash, cash equivalents and marketable securities of $87.1 million, which does not include the $29.9 million received from Ligand in October 2023 pursuant to the Ligand Agreement. We believe that our cash, cash equivalents and marketable securities as of September 30, 2023 will fund our projected operating expenses and capital expenditure requirements for at least 12 months from the issuance of this Quarterly Report on Form 10-Q. Similar to other development-stage biotechnology companies, we have generated limited revenue, which has been through various license and collaboration agreements. With the exception of the three months ended March 31, 2021, when we received a one-time upfront payment of $196.0 million as part of the RLT Agreement, we have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses and experience negative operating cash flows for at least the next several years. We recorded net losses of approximately $11.3 million and $12.0 million for the three months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, we had an accumulated deficit of $262.5 million and working capital of $83.0 million, which does not include the $29.9 million received from Ligand in October 2023 pursuant to the Ligand Agreement. 29 Table of Contents Future Funding Requirements We believe that our available cash, and cash equivalents and marketable securities are sufficient to fund existing and planned cash requirements for at least the next 12 months. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, clinical costs, legal and other regulatory expenses and general overhead costs. We have based our estimates on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect. Additionally, the process of testing drug candidates in clinical trials is costly, and the timing of progress in these trials is uncertain. We cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. As of September 30, 2023, we had no long-term debt and no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancellable, purchase order basis. We cannot estimate whether we will receive or the timing of any potential contingent payments upon the achievement by us of clinical, regulatory and commercial events, as applicable. In addition, we cannot estimate the timing of any potential 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 AstraZeneca and Northwestern. 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 from the condensed consolidated financial statements, given that the timing, probability, and amount, if any, of such payments cannot be reasonably estimated at this time. In September 2021, we entered into a 10-year lease agreement for our corporate headquarters with a term commencing March 10, 2022, for approximately 19,000 square feet of office space at Hudson Commons in New York, New York. The lease provides for monthly rental payments over the lease term. The base rent under the lease is currently $2.3 million per year. Rent payments commenced January 10, 2023, and will continue for 10 years following the rent commencement date. We issued a letter of credit in the amount of $1.9 million in association with the execution of the lease agreement, which is reflected as restricted cash on our condensed consolidated balance sheets. Payment obligations under the lease agreement include approximately $1.9 million in the 12 months subsequent to September 30, 2023 and approximately $22.5 million over the remaining term of the agreement. For additional information see Note 5 to our condensed consolidated financial statements under the heading “Leases.” We have no products approved for commercial sale and have not generated any revenue from product sales to date. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings and additional funding from license and collaboration arrangements. Except for any obligations of our collaborators to reimburse us for research and development expenses or to make milestone or royalty payments under our agreements with them, we will not have any committed external source of liquidity. 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. Additionally, inflation rates have increased recently to levels not seen in decades, contributing to the ongoing economic slowdown. Increased inflation may result in increased operating costs (including labor costs) and may affect our operating budgets. In response to concerns about inflation, the U.S. Federal Reserve has raised, and is expected to further raise, interest rates. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks. If the disruptions and slowdown deepen or persist, we may not be able to access additional capital on favorable terms, or at all, which could in the future negatively affect our ability to pursue our business strategy. 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. See “Risk Factors” for additional risks associated with our capital requirements. At-the-Market Offering Program In November 2020, we filed a 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 (“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 September 30, 2023, we had up to $250.0 million available under our S-3 Registration Statement, including up to $75.0 million available pursuant to our ATM offering program. 30 Table of Contents Cash Flows The following table summarizes our cash flows for the periods indicated: Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022 (in thousands) Net cash (used in) provided by: Operating activities $ (33,907) $ (46,051) Investing activities 45,974 (83,714) Financing activities 502 224 Net increase (decrease) in cash, cash equivalents, and restricted cash $ 12,568 $ (129,541) Net Cash Used In Operating Activities Net cash used in operating activities was $33.9 million for the nine months ended September 30, 2023, which primarily consisted of a net loss of $37.0 million offset by non-cash charges, primarily related to $5.5 million of stock-based compensation expense. Net cash used in operating activities was $46.1 million for the nine months ended September 30, 2022, which consisted of net loss of $42.7 million offset by a net of $4.8 million in stock-based compensation expense and decreases in accounts payable and accrued expenses of $8.1 million. Net Cash Provided By (Used In) Investing Activities Net cash provided by investing activities was $46.0 million for the nine months ended September 30, 2023, which was primarily due to sales of and maturity of marketable securities during the period. Net cash used in investing activities was $83.7 million for the nine months ended September 30, 2022, which was primarily due to purchases of marketable securities. Net Cash Provided By Financing Activities Net cash provided by financing activities during the nine months ended September 30, 2023 and 2022 resulted from proceeds from the exercise of stock options under the 2017 equity incentive plan and purchases of shares under the 2017 employee stock purchase plan. Smaller Reporting Company Status We are a smaller reporting company as defined in the Exchange Act. 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. As a smaller reporting company, we are permitted to comply with scaled-back disclosure obligations in our SEC filings compared to other issuers, including with respect to disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We have elected to adopt the accommodations available to smaller reporting companies, including but not limited to: • reduced disclosure obligations regarding our executive compensation arrangements; and • being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure . 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 31 Table of Contents 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 three and nine months ended September 30, 2023, there were no material changes to our critical accounting policies as reported for the year ended December 31, 2022 as part of our Annual Report on Form 10-K, which was filed with the SEC on March 13, 2023. In addition, see Note 2 of our Condensed Consolidated Financial Statements under the heading “Recent Accounting Pronouncements” for new accounting pronouncements or changes to the accounting pronouncements during the three and nine months ended September 30, 2023.