Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Form 10-K. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. You should review the section titled “Risk Factors” in this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described below.
Overview
We are a clinical stage genetic medicines company focused on developing transformative therapies for CNS disorders. 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. We have entered into a strategic research collaboration with the Trustees of the University of Pennsylvania’s, or Penn’s, Gene Therapy Program, or GTP, headed by Dr. James Wilson, a leader in the genetic medicines field. 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, 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. Since inception, we have devoted substantially all of our resources to acquiring and developing product and technology rights, conducting research and development, organizing and staffing our company, business planning and raising capital. We have incurred recurring losses, the majority of which are attributable to research and development activities, and negative cash flows from operations. Historically, we have funded our operations through the sale of convertible preferred stock and public offerings of common stock. Our net losses were $136.1 million and $185.4 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $492.4 million. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval. 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. 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.
We will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we plan to finance our operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. 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.
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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 expenses and capital expenditure requirements into the first half of 2025.
Financial Operations Overview
License Agreement
University of Pennsylvania
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, currently in 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 August 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 owed 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, 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. In addition, on a product-by-product basis, we are obligated to make up to $55.0 million in sales milestone payments on each licensed product based on annual sales of the licensed product in excess of defined thresholds.
Upon successful commercialization of a product using the licensed technology, we are obligated to pay to Penn, on a licensed product-by-licensed product and country-by-country basis, tiered royalties (subject to customary reductions) in the mid-single digits on annual worldwide net sales of such licensed product. 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. 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 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.
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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
Catalent
In June 2019, we entered into a collaboration agreement, or the Collaboration Agreement, with Catalent Maryland, Inc., or Catalent. As part of the Collaboration Agreement, we paid Catalent an upfront fee for the commissioning, qualification, validation and equipping of a dedicated clean room suite, or the Clean Room Suite. We will pay an annual fee for five years for the exclusive use of the Clean Room Suite, which commenced in November 2020 upon its validation.
In April 2020, we entered into a development services and clinical supply agreement, or the Manufacturing and Supply Agreement, with Catalent to secure clinical scale manufacturing capacity for batches of active pharmaceutical ingredients for our gene therapy product candidates. 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. The Collaboration Agreement continues to be in effect pursuant to its terms . Under the terms of the Manufacturing and Supply Agreement, Catalent has agreed to manufacture batches of drug product for our gene therapy product candidates at the Clean Room Suite provided for in the Collaboration Agreement. There is a minimum annual purchase commitment owed to Catalent for five years beginning in November 2020, subject to certain inflationary adjustments. 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. If we terminate the Manufacturing and Supply Agreement, we will be obligated to pay an early termination fee to Catalent.
Under both the Collaboration Agreement and the Manufacturing and Supply Agreement, we have an annual minimum commitment of $10.6 million per year owed to Catalent for five years from November 2020, subject to certain inflationary adjustments.
Components of Results of Operations
Research and Development and Acquired In-Process Research and Development
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, 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 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; and
● 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
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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.
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 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. 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.
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Results of Operations
Comparison of the Years Ended December 31, 2022 and 2021
The following table sets forth our results of operations for the years ended December 31, 2022 and 2021.
Year ended
December 31,
(in thousands)
2022
2021
Change
Operating expenses:
Research and development
$
86,053
$
117,673
$
(31,620)
Acquired in‑process research and development
3,000
8,000
(5,000)
General and administrative
49,341
60,056
(10,715)
Loss from operations
(138,394)
(185,729)
47,335
Interest income, net
2,269
343
1,926
Net loss
$
(136,125)
$
(185,386)
$
49,261
Research and Development Expenses
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. 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:
Year ended
December 31,
(in thousands)
2022
2021
Program Specific Expenses
PBGM01 (GM1)
$
10,055
$
16,871
PBFT02 (FTD‑GRN)
10,133
15,982
PBKR03 (Krabbe)
8,527
18,022
PBML04 (MLD)
5,949
12,542
Other Programs and Discovery
10,695
10,529
Unallocated Internal Expenses
Personnel-related (including share-based compensation)
31,940
34,956
Other
8,755
8,771
$
86,053
$
117,673
Acquired In-Process Research and Development Expenses
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 $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.
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General and Administrative Expenses
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
Interest income, net was $2.3 million and $0.3 million for the years ended December 31, 2022 and 2021, respectively. Interest income is primarily attributable to interest income earned on our cash, cash equivalents and marketable securities, partially offset by amortization of premium and discount on our marketable securities and fees paid to our external asset manager.
Liquidity and Capital Resources
Overview
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 into the first half of 2025.
Funding Requirements
Our primary use of cash is to fund operating expenses, most significantly research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
● the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;
● the expenses of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;
● the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;
● the expenses of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
● the expenses and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;
● our ability to establish additional collaborations on favorable terms, if at all;
● the expenses required to scale up our clinical, regulatory and manufacturing capabilities;
● the expenses of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive marketing approval; and
● revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.
We will need additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and
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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. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing stockholders’ ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect existing stockholders’ rights as common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. 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, 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. No sales of common stock have been made pursuant to this Sales Agreement to date.
Cash Flows
The following table shows a summary of our cash flows for the periods indicated:
Year ended
December 31,
(in thousands)
2022
2021
Cash provided by (used in) operating activities
$
(118,210)
$
(126,879)
Cash provided by (used in) investing activities
25,199
(45,814)
Cash provided by (used in) financing activities
(1,353)
166,656
Net increase (decrease) in cash and cash equivalents
$
(94,364)
$
(6,037)
Net Cash Used in Operating Activities
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.
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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. Additionally, we used $2.3 million for the purchase of property and equipment and we used $3.0 million to purchase technology rights from Penn.
During the year ended December 31, 2021, we purchased $202.5 million in marketable securities and had sales and maturities of $182.4 million in marketable securities. 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 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.
Contractual obligations and other commitments
We lease approximately 37,000 square feet of office space in Philadelphia, Pennsylvania. The lease will expire in December 2031. 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 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 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. 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. 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, which began in May 2020. Our funding commitment is $5.0 million a year through June 2026.
The contractual obligations and commitments above are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. Payments due upon cancellation consisting only of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation are not included in the preceding table as the amount and timing of such payments are not known.
The contractual obligations and commitments above do not include any potential milestone or royalty payments that we may be required to make under the Penn Agreement.
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Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 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 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 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
See Note 3 to our financial statements found elsewhere in this Form 10-K for a description of recent accounting pronouncements applicable to our financial statements.
JOBS Act Accounting Election
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 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 in the JOBS Act. 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.
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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.
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. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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