What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-03-06 compared with 2022-03-03 · 73 added, 104 removed, 152 unchanged (54% of the section changed)

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We are a clinical stage genetic medicines company focused on developing transformative therapies for CNS disorders.

Our vision is to finally fulfill the promise of gene therapy by developing groundbreaking therapies that transform the lives of patients with CNS diseases.

Our vision is to fulfill the promise of gene therapy by developing groundbreaking therapies that transform the lives of patients with CNS diseases.

The field of genetic medicine is rapidly expanding and we believe we have a differentiated approach to developing treatments for CNS disorders that enables us to select and advance product candidates with a higher probability of technical and regulatory success.

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We also leverage our close working relationship with Penn’s Orphan Disease Center, or ODC, to develop historical and prospective comparable natural history patient profiles for comparison to participants in interventional trials.

Through this collaboration we have assembled a deep portfolio of genetic medicine product candidates, including our three clinical product candidates, all of which we retain global rights.

Through this collaboration we have assembled a deep portfolio of genetic medicine product candidates, for which we retain global rights, including our two lead clinical product candidates:

PBGM01 for the treatment of GM1 gangliosidosis, or GM1, and PBFT02 for the treatment of frontotemporal dementia, or FTD, and two clinical stage product candidates for which, in order to reduce operating expenses, we have stopped further clinical development and are exploring strategic alternatives:

PBKR03 for the treatment of Krabbe disease and PBML04 for metachromatic leukodystrophy, or MLD.

We have two programs in the research stage:

PBAL05 for amyotrophic lateral sclerosis, or ALS, and an unnamed program for Huntington’s disease.

We also have an exploratory research program for Temporal Lobe Epilepsy, or TLE.

We were incorporated in July 2017 under the laws of the State of Delaware.

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In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.

Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.

Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

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If we are unable to secure adequate additional funding, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions.

In March 2022, we announced a 13 percent reduction in workforce and plans to prioritize research and development programs to reduce operating expenses and to extend our cash runway.

In November 2022, we announced a further 23 percent reduction in workforce and plans to prioritize research and development programs to reduce operating expenses and to extend our cash runway.

As of December 31, 2022, we had cash, cash equivalents and marketable securities of $189.6 million.

We expect our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expense and capital expenditures requirements until the end of 2023.

COVID-19 Impact

We are continuing to proactively monitor and assess the current coronavirus disease 2019, or COVID-19, global pandemic.

Since early March 2020, we have activated a management team task force to assess the potential impact on our business that may result from this rapidly evolving crisis and to avoid any unnecessary potential delays to our programs.

The safety and well-being of employees, patients and partners is our highest priority.

As we diligently work to activate sites for our clinical programs, we are experiencing some impacts to our site initiation activities related to COVID-19, such as meeting delays with various investigational review bodies or ethics committees that have prioritized COVID-19 related clinical trials and staffing levels at site hospitals.

For example, the clinical initiation of our upliFT-D clinical study for PBFT02 and the GALax-C clinical study for PBKR03 were substantially impacted by COVID-19-related issues.

Our expected timelines for clinical trials could be further delayed by these impacts.

We expect our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements into the first half of 2025.

Financial Operations Overview

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We have a research, collaboration and licensing agreement, as amended, or the Penn Agreement, with Penn, for research and development collaborations and exclusive license rights to patents for certain products and technologies.

Under the Penn Agreement, we have the obligation to fund certain research relating to the preclinical development of selected products in research programs as well as the new exploratory research program in non-rare and/or non-monogenic (or large) CNS indications, initially Alzheimer’s Disease, or AD, and Temporal Lobe Epilepsy, or TLE.

We also fund discovery research conducted by Penn through August 2026 and will receive exclusive rights, subject to certain limitations, to technologies resulting from the discovery program for products developed with GTP, such as novel capsids, toxicity reduction technologies and delivery and formulation improvements.

Our discovery research funding commitment is $5.0 million a year for five years, with quarterly payments of $1.3 million through June 2026.

Under the Penn Agreement we have eight remaining options available to us to commence additional licensed programs for CNS indications until May 2026.

If we were to exercise any of these remaining options, we would owe Penn a non-refundable aggregate fee of $1.0 million, with $0.5 million per product indication paid immediately and another $0.5 million fee owned upon a further developmental milestone.

The Penn Agreement requires that we make payments of up to (i) $16.5 million per product candidate for rare, monogenic disorders in aggregate and (ii) $39.0 million per product candidate in the aggregate arising from the exploratory program for large CNS indications, initially AD and TLE and such other mutually agreed upon large CNS indications.

Under the Penn Agreement we have eight remaining options available to us to commence additional licensed programs for CNS indications until August 2026.

The Penn Agreement requires that we make payments of up to (i) $16.5 million per product candidate for rare, monogenic disorders in aggregate and (ii) $39.0 million per product candidate in the aggregate arising from the exploratory program for large CNS indications, currently TLE and such other mutually agreed upon large CNS indications.

Each payment will be due upon the achievement of specific development milestone events by such licensed product for a first indication, reduced development milestone payments for the second and third indications and no development milestone payments for subsequent indications.

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In addition, we are obligated to pay to Penn a percentage of sublicensing income, ranging from the mid-single digits to low double digits, for sublicenses under the Penn Agreement.

We and Penn entered into an amendment, or the Amendment, to the Penn Agreement, on August 3, 2021.

Under the Amendment, we and Penn expanded the scope of the collaboration to include certain non-rare and/or non-monogenic, or large, CNS indications, initially AD and TLE and such other mutually agreed upon large CNS indications;

included an exploratory research collaboration to identify targets and early product candidates in such large CNS indications;

and extended the term to August 3, 2026 by which product candidates for CNS indications may be selected for the entire

The exploratory research program is focused on discovering targets and novel gene therapy candidates for large CNS diseases, initially focused on AD and TLE, and that can be expanded to other large CNS diseases upon mutual agreement.

The initial term of the exploratory research program is 3 years, which term can be extended by mutual agreement.

In addition, we will pay Penn a tiered transaction fee ranging from 1-2% of the net proceeds upon certain change of control events.

The Penn Agreement includes an exploratory research collaboration to identify targets and early product candidates in such large CNS indications.

The exploratory research program is focused on discovering targets and novel gene therapy candidates for large CNS diseases, currently focused on TLE, and that can be expanded to other large CNS diseases upon mutual agreement.

The initial term of the exploratory research program is 3 years, or until August 2024, which term can be extended by mutual agreement.

During such term we will have an exclusive right of first negotiation to include additional targets to the exploratory research program in the agreed upon large CNS indications.

Under the exploratory research program, we will have the right to further develop and commercialize any gene therapy product candidates specific for those selected targets within AD and TLE (and any future large CNS indications that are mutually agreed upon) that arise from the exploratory research programs on substantially the same terms of the current Penn Agreement.

The election of any option to any such product candidates will count against our remaining eight options and will trigger the aggregate $1.0 million option fee.

As a result, we now will fund discovery research through August 3, 2026, and will now have until August 3, 2026 to exercise our remaining eight options.

We made an upfront payment of $5.0 million;

will reimburse Penn for expenses incurred in the exploratory research program;

and will pay Penn a tiered transaction fee ranging from 1-2% of the net proceeds upon certain change of control events.

Under the exploratory research program, we will have the right to further develop and commercialize any gene therapy product candidates specific for those selected targets within TLE (and any future large CNS indications that are mutually agreed upon) that arise from the exploratory research programs on substantially the same terms of the current Penn Agreement.

In November 2022, we agreed with GTP to not continue further advancement of our exploratory research program in AD.

Collaboration and Manufacturing and Supply Agreements

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There is a minimum annual purchase commitment owed to Catalent for five years beginning in November 2020, subject to certain inflationary adjustments.

The Manufacturing and Supply Agreement provides for a term of five years which period may be extended once, at our option, for an additional five-year period.

We have the right to terminate the Manufacturing and Supply Agreement for convenience or other reasons specified in the Manufacturing and Supply Agreement upon prior written notice.

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Research and Development and Acquired In-Process Research and Development

Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates.

Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates.

These expenses include:

● expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval, including payments to Penn for preclinical research and development;

● expenses incurred in obtaining technology licenses related to technology that has not reached technological feasibility and has no alternative future use;

● expenses incurred in obtaining technology licenses related to technology that has not reached technological feasibility and has no alternative future use, which are classified as acquired In-process research and development;

● personnel expenses, including salaries, benefits and share-based compensation expense for employees engaged in research and development functions;

● expenses related to funding research performed by third parties, including pursuant to agreements with CROs, as well as investigative sites and consultants that conduct our preclinical studies and clinical trials;

● expenses incurred under agreements with contract manufacturing organizations, or CMOs, including manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical study and clinical trial materials;

● expenses related to funding research performed by third parties, including pursuant to agreements with clinical research organizations, or CROs, as well as investigative sites and consultants that conduct our preclinical studies and clinical trials;

● expenses incurred under agreements with contract manufacturing organizations, or CMOs, including the cost of acquiring and manufacturing preclinical study and clinical trial materials;

● expenses and fees paid to consultants who assist with research and development activities;

● allocated expenses for facilities costs, including rent, utilities, depreciation and maintenance.

We track outsourced development expenses and other external research and development expenses to specific product candidates on a program-by-program basis, such as expenses incurred under our collaboration with Penn, fees paid to CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities.

However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and other expenses which are deployed across multiple projects under development.

CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities.

However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation and other expenses which are deployed across multiple projects under development.

Expenses incurred in obtaining technology licenses are expensed as acquired in-process research and development if the technology licensed has not reached technological feasibility and has no alternative future use.

Research and development activities are central to our business model.

Product candidates in later stages of clinical development generally have higher development expenses than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.

We expect our research and development expenses to increase over the next several years as we increase personnel costs, including share-based compensation, conduct our clinical trials, including later-stage clinical trials, for current and future product candidates and prepare regulatory filings for our product candidates.

Expenses incurred in obtaining technology licenses are expenses as acquired in-process research and development if the technology licensed has not reached technological feasibility and has no alternative future use.

Given our reductions in workforce and prioritization of research and development programs, in order to reduce operating expenses, we expect our research and development expenses to remain consistent or decrease in the near future.

If our product candidate portfolio progresses into later-stage clinical trials, we expect that our research and development expenses will increase in the future to support our continued research and development activities and production of clinical supply.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel expenses, including salaries, benefits and share-based compensation expense, for employees and consultants in executive, finance, accounting, legal, information technology, commercial, quality, regulatory, operations and human resource functions.

General and administrative expense also includes corporate facility costs, including rent, utilities, depreciation and maintenance, not otherwise included in research and development expense, legal expenses related to intellectual property and corporate matters, insurance expense, and expenses for accounting and consulting services.

We expect that our general and administrative expenses will increase in the future to support our continued research and development activities, potential commercialization efforts and continued increased expenses of operating as a public company.

General and administrative expenses also include corporate facility costs, including rent, utilities, depreciation and maintenance, legal expenses related to intellectual property and corporate matters, insurance expense, and expenses for accounting and consulting services.

Given our recent reduction in workforce and prioritization of operating expenses, we expect our general and administrative expenses to remain consistent or decrease in the near future.

If our product candidate portfolio progresses into later-stage clinical trials, we expect that our general and administrative expenses will increase in the future to support our continued research and development activities, potential commercialization efforts, and increased expenses of operating as a public company.

These increases will likely include increased expenses related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other expenses.

Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with the requirements of The Nasdaq Stock Market, LLC and the SEC, insurance and investor relations expenses.

If any of our current or future product candidates obtains U.S.

regulatory approval, we expect that we would incur significantly increased expenses associated with building a commercial sales and marketing team.

If any of our current or future product candidates obtain regulatory approval, we expect that we would incur significantly increased expenses associated with building a commercial sales and marketing team.

Interest Income, net

Interest income, net consists of interest earned on our cash equivalents and marketable securities, offset by amortization of premium and discount on our marketable securities and fees paid to our external asset manager.

Interest income, net consists of interest earned on our cash equivalents and marketable securities, offset by amortization of premium and discount on our marketable securities.

Results of Operations

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Research and Development Expenses

Research and development expenses increased by $35.9 million from $81.8 million for the year ended December 31, 2020 to $117.7 million for the year ended December 31, 2021.

The increase was primarily due to increases of:

$19.7 million in personnel-related expenses, including share-based compensation, due to an increase in employee headcount in the research and development function and expenses related to the modification of stock options, which increased by $5.5 million;

$18.7 million in clinical manufacturing expenses related to manufacturing supply for our clinical product candidates and in preparation of an IND filing for a research program;

$10.9 million in clinical operations expenses to support the clinical trials of our clinical product candidates;

and, $3.7 million in facility and other expenses.

These increases were partially offset by decreases of:

$2.5 million in professional services and consulting expense;

and, $14.6 million in research and development expenses with Penn, which relates to expenses incurred for preclinical work performed in preparation for IND filings for our clinical programs.

Research and development expenses decreased by $31.6 million from $117.7 million for the year ended December 31, 2021 to $86.1 million for the year ended December 31, 2022.

The decrease was primarily due to decreases of:

$22.7 million and $3.5 million in expenses for clinical manufacturing and clinical operations, respectively, which relates to the timing of our clinical manufacturing and operational activities to support our clinical trials;

$9.6 million in research and development expenses with Penn;

and, $3.0 million in personnel-related and share-based compensation expense.

We expect that expenses associated with Penn will continue to vary from period to period based on the status of our preclinical pipeline and the timing of preclinical work performed.

We track outsourced development, outsourced personnel costs and other external research and development costs of specific programs.

We do not track our internal research and development costs on a program-by-program basis.

These decreases were partially offset by an increase of $3.6 million in professional services and an increase of $3.6 million in facility and other expenses, primarily due to depreciation.

We track outsourced development, outsourced personnel expenses and other external research and development costs of specific programs.

We do not track our internal research and development expenses on a program-by-program basis.

Research and development expenses are summarized by program in the table below:

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Program Specific Expenses

PBFT02 (FTD‑GRN)

PBKR03 (Krabbe)

Other Programs and Discovery

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Acquired in-process research and development expenses were $3.0 million for the year ended December 31, 2022 compared to $8.0 million for the year ended December 31, 2021.

We incurred $1.5 million in license fees, $1.5 million

in fees related to the achievement of a development milestone, and $5.0 million in fees related to the August 2021 amendment with Penn during the year ended December 31, 2021.

We incurred $3.0 million in fees related to the achievement of development milestones for dosing our first patients in PBFT02 for the treatment of FTD and PBKR03 for the treatment of Krabbe during the year ended December 31, 2022.

General and Administrative Expenses

General and administrative expenses increased by $30.0 million from $30.1 million for the year ended December 31, 2020 to $60.1 million for the year ended December 31, 2021.

The increase was primarily due to increases of:

$21.8 million in personnel-related and share-based compensation expense due to increases in employee headcount;

and, $8.2 million in facility, professional services and other expense related to expanding our operations to support our research and development efforts.

General and administrative expenses decreased by $10.8 million from $60.1 million for the year ended December 31, 2021 to $49.3 million for the year ended December 31, 2022.

The decrease was primarily due to decreases of $8.8 million in personnel-related and share-based compensation expense and a $4.4 million decrease in professional services and other expenses.

These decreases were partially offset by an increase of $2.4 million in facility and other expenses.

Interest Income, net

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Liquidity and Capital Resources

Historically, we have funded our operations through the sale of convertible preferred stock and public offerings of common stock.

In January 2021, we received $165.8 million in net proceeds from the sale of our common stock.

As of December 31, 2022, we had $189.6 million in cash, cash equivalents and marketable securities and had an accumulated deficit of $492.4 million.

We expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating expense and capital expenditures until the end of 2023.

We expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating expense and capital expenditures into the first half of 2025.

Funding Requirements

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We currently have no credit facility or committed sources of capital.

Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.

Because of the numerous risks and uncertainties associated with the development and

commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements.

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If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, further reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

On March 5, 2021, we entered into a Sales Agreement, or the Sales Agreement, with Cowen and Company, LLC, or Cowen, pursuant to which we may, but are not obligated to, offer and sell, from time to time, shares of our common stock with an aggregate offering price up to $125.0 million through Cowen, as sales agent.

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(in thousands)

Cash used in operating activities

Cash used in investing activities

Cash provided by financing activities

Cash provided by (used in) operating activities

Cash provided by (used in) investing activities

Cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

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During the year ended December 31, 2022, we used $118.2 million of net cash in operating activities, primarily to fund our operations related to the development of our product candidates and related general and administrative support activities.

Cash used in operating activities reflected our net loss of $136.1 million, which was partially offset by adjustments to reconcile net loss to net cash used in operating activities of $26.9 million related to acquired in-process research and development expense, share-based compensation, depreciation and amortization, amortization of premium and discount of marketable securities, net and amortization of operating lease ROU asset as well as a $9.0 million net decrease in cash flows resulting from changes in our operating assets and liabilities.

During the year ended December 31, 2021, we used $126.9 million of net cash in operating activities, primarily to fund our operations related to the development of our product candidates and related general and administrative support activities.

Cash used in operating activities reflected our net loss of $185.4 million, which was partially offset by adjustments to reconcile net loss to net cash used in operating activities of $47.1 million related to acquired in-process research and development expense, share-based compensation, depreciation and amortization, amortization of premium and discount of marketable securities, net and changes in deferred rent as well as a $11.4 million net increase in cash flows resulting from changes in our operating assets and liabilities.

During the year ended December 31, 2020, we used $80.5 million of net cash in operating activities, primarily to fund our operations related to the development of our product candidates.

Cash used in operating activities reflected our net loss of $112.2 million, which was partially offset by non-cash charges of $17.3 million related to acquired in-process

research and development expense, share-based compensation, depreciation and amortization, amortization of premium and discount, net and changes in deferred rent as well as a $14.4 million net increase in cash flows resulting from changes in our operating assets and liabilities.

Net Cash Used in Investing Activities

Net Cash From Investing Activities

During the year ended December 31, 2022, we purchased $157.8 million in marketable securities and had sales and maturities of $188.3 million in marketable securities.

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Additionally, we used $17.6 million for the purchase of property and equipment and we used $8.0 million to purchase technology rights from Penn.

Net Cash Provided by Financing Activities

Net Cash Used in Financing Activities

During the year ended December 31, 2022, we received $0.1 million from the exercise of stock options, received $0.3 million in proceeds from the issuance of common stock under the ESPP and paid $1.8 million for insurance premiums and insurance premium financing expenses under our short-term insurance premium financing arrangement.

During the year ended December 31, 2021, financing activities provided $165.8 million from the sale of our common stock, we received $0.9 million from the issuance of common stock under our employee stock purchase plan, we received $0.3 million from the exercise of stock options, partially offset by payments for offering costs of $0.3 million.

During the year ended December 31, 2020, financing activities provided $228.3 million from the sale of our common stock, we received $0.2 million from the issuance of common stock under our employee stock purchase plan, and we received $0.3 million from the exercise of stock options.

Contractual obligations and other commitments

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We have an option to extend the term of the lease by up to two additional five-year terms.

The aggregate estimated rent payments due over the initial term of the lease is $11.8 million, with rent payments beginning in 2022.

The landlord provided us with a tenant improvement allowance of up to $2.8 million.

The aggregate estimated rent payments due over the initial term of the lease is $11.8 million, with rent payments that began in 2022.

We lease approximately 62,000 square feet of laboratory space in Hopewell, NJ.

The lease will expire in March 2036.

The aggregate estimated rent payments due over the initial term of the lease is approximately $40.3 million, with rent payments beginning in 2021.

The landlord provided us with a tenant improvement allowance of up to $1.3 million.

The aggregate estimated rent payments due over the initial term of the lease is approximately $40.3 million, with rent payments that began in 2021.

Under both the Collaboration Agreement and the Manufacturing and Supply Agreement with Catalent, we have an annual minimum commitment of $10.6 million per year owed to Catalent through November 2025, subject to certain inflationary adjustments.

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If we terminate the Manufacturing and Supply Agreement, we will be obligated to pay an early termination fee to Catalent.

Under the Penn Agreement, we agreed to fund discovery research conducted by Penn for five years, beginning in May 2020.

Under the Penn Agreement, we agreed to fund discovery research conducted by Penn for five years, which began in May 2020.

Our funding commitment is $5.0 million a year through June 2026.

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

While our significant accounting policies are described in more detail in Note 3 to our annual financial statements included elsewhere in this Form 10-K, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements.

While our significant accounting policies are described in more detail in Note 3 to our annual financial statements included elsewhere in this Form 10-K, we believe the following accounting policy is the most critical to the judgments and estimates used in the preparation of our financial statements.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates.

We expense research and development costs as incurred.

We accrue an expense for preclinical studies and clinical trial activities performed by Penn and other vendors based on an estimate of progress to completion of specific tasks using facts and circumstances known to us at that time.

We determine the estimates by reviewing contracts, vendor agreements and change orders, and through discussions with our internal clinical personnel and external service providers as to the progress to completion of trials or services and the agreed-upon fee to be paid for such services.

However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan.

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

If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly.

Nonrefundable advance payments for goods and services, including fees for process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expenses in the period that the related goods are consumed or services are performed.

Share-Based Compensation

We recognize compensation costs related to share-based awards granted to employees and directors, including stock options and restricted stock units, based on the estimated fair value of the awards on the date of grant.

We estimate the grant date fair value, and the resulting share-based compensation, using the Black-Scholes option-pricing model.

The grant date fair value of the stock-based awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards.

We estimate the fair value of stock options using the Black-Scholes option-pricing model, which requires assumptions, including the fair value of our common stock prior to our initial public offering, volatility, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options, and our expected dividend yield.

Certain assumptions used in our Black-Scholes option-pricing model represent management’s best estimates and involve a number of variables, uncertainties, and assumptions and the application of management’s judgment, as they are inherently subjective.

If any assumptions change, our share-based compensation expense could be materially different in the future.

The subjective assumptions is estimated as follows:

Expected volatility —We do not have sufficient historical trading history based on the length of time we have been a public company.

Therefore, the expected volatility is estimated based on the average volatility for a composite of comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants.

The comparable companies are chosen based on their similar size, stage in the life cycle or area of specialty.

As a public company we have and will continue to use the average volatility for comparable publicly traded biotechnology companies until we have sufficient trading history of our own stock commensurate with the estimated expected term of our options.

Research and development costs are expensed as incurred and consist primarily of expenses incurred with Penn, contract research organizations, contract manufacturing organizations, internal analytical and testing activities, and employee-related expenses, including salaries, benefits, and share-based compensation.

We make estimates of our external accrued research and development expenses, which primarily relates to activities performed by our contract research organizations and contract manufacturing organizations, as of each balance sheet date in our financial statements based on an estimate of progress to completion of specific tasks using facts and circumstances known to us at that time.

We determine the estimates by reviewing contracts, vendor agreements and change orders, invoicing to date, reviewing vendor provided supporting documentation and through discussions with our internal personnel and external service providers as to the progress to completion of services and the agreed-upon fee to be paid for such services.

Actual costs and estimates of progress to completion of our contract research organizations and contract manufacturing organizations are uncertain, subject to risks and may change depending upon a number of factors, including our enrollment levels and status of our clinical trials, and timing of our manufacturing activities.

Such estimates are uncertain given the level of visibility we have towards the activities of our contract research organizations and contract manufacturing organizations.

If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual and related expenses accordingly.

Recent Accounting Pronouncements

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We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

Under the JOBS ACT, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards would 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 period provided by the JOBS Act.

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earliest of (1) the last day of our first fiscal year (a) in which we have total annual gross revenues of at least $1.235 billion, or (b) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period and (3) December 31, 2025.

In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.

This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700.0 million and our annual revenue is less than $100.0 million during the most recently completed fiscal year.

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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