Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is intended to provide material information around events and uncertainties known to management relevant to an assessment of the financial condition and results of operations of the Company and should therefore be read in conjunction with our audited Financial Statements and the accompanying Notes to Financial Statements and other disclosures included in this Annual Report on Form 10-K (including the disclosures under Part I, Item 1A. Risk Factors) where other material events and uncertainties not otherwise discussed below are disclosed. Certain amounts and percentages herein may not sum or recalculate due to rounding. The following discussion and analysis does not address certain items regarding the year ended December 31, 2021. Discussion and analysis of 2021 and year-to-year comparisons between 2022 and 2021 that are not included in this Report can be found in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2022 Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC on March 9, 2023”).
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate we have conducted exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
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Overview
We are a late stage biopharmaceutical company focused on discovering and developing novel therapies for the treatment of fibrosis and related diseases. Our initial focus is on treating fibrosis by inhibiting integrin-mediated activation of TGF-β. We have applied our deep understanding of fibrosis biology, along with our medicinal chemistry and translational medicine expertise to develop a set of proprietary tools designed to discover and de-risk product candidates quickly and efficiently. Our wholly-owned lead product candidate, bexotegrast (PLN-74809), is an oral, small molecule, dual selective inhibitor of αvß6 and αvß1 integrins that we are developing for the treatment of idiopathic pulmonary fibrosis, or IPF, and primary sclerosing cholangitis, or PSC. We are currently conducting a Phase 2b trial in IPF and a Phase 2a trial in PSC. We announced positive data from our Phase 2a INTEGRIS-IPF trial in May 2023. We are currently conducting BEACON-IPF, a 52-week, randomized, double-blind, placebo-controlled Phase 2b trial in patients with IPF. We announced positive interim data from our Phase 2a INTEGRIS-PSC trial in September 2023 and February 2024. We expect to release final data from the INTEGRIS-PSC trial in mid-2024.
In January 2023, we received FDA clearance of investigational new drug application, or IND, for our third clinical program to date, PLN-101095, a dual inhibitor of integrins αvß8 and αvß1 for the treatment of solid tumors that are resistant to immune checkpoint inhibitors. We are currently dosing the third of five dose cohorts in a Phase 1 open label dose-escalation trial of PLN-101095 as monotherapy and in combination with pembrolizumab in patients with solid tumors that are resistant to immune checkpoint inhibitors. We expect to release preliminary data from the trial in late 2024.
Our fourth program to date, PLN-101325, in development for treatment of muscular dystrophies, including Duchenne muscular dystrophy. PLN-101325 is a monoclonal antibody designed to act as an allosteric agonist of integrin α7ß1. We expect to file with regulators for first-in-human studies in the first quarter of 2024.
We have developed PLN-1474, a Phase 2-ready oral, small molecule selective inhibitor of αvß1 for the treatment of advanced liver fibrosis associated with nonalcoholic steatohepatitis, or NASH. PLN-1474 was licensed to Novartis in 2019, and as part of a broad strategic realignment, Novartis has discontinued clinical development in NASH and, as a result, discontinued development of PLN-1474. In February 2023, Novartis returned global rights to PLN-1474 to Pliant.
Recent Highlights
Bexotegrast Highlights
• Positive safety and efficacy data from 320 mg dose cohort of INTEGRIS-PSC Phase 2a trial in patients with primary sclerosing cholangitis (PSC). At a once-daily dose of 320 mg, bexotegrast was well tolerated over 12 weeks of treatment with no drug-related severe or serious adverse events. At the 320 mg dose, bexotegrast reduced both Enhanced Liver Fibrosis (ELF) scores and PRO-C3 levels and showed improvements in hepatocyte function and bile flow by contrast MRI imaging relative to placebo at Week 12. Twenty-four-week data from the 320 mg dose group is expected in mid-2024.
• Enrollment continues in BEACON-IPF, a Phase 2b trial of bexotegrast in patients with idiopathic pulmonary fibrosis ( IPF). BEACON-IPF is a 52-week, multinational, randomized, dose-ranging, double-blind, placebo-controlled trial evaluating bexotegrast at once-daily doses of 160 mg or 320 mg. BEACON-IPF is expected to enroll approximately 270 patients with IPF.
Pipeline Programs
• Phase 1 trial of PLN-101095 in solid tumors is enrolling. This is a Phase 1 open label trial of PLN-101095, an oral, small molecule, dual selective inhibitor of αvβ8 and αvβ1 integrins designed to block TGF-β activation in the tumor microenvironment. The trial is currently dosing the third of five planned dose cohorts in a Phase 1 open label dose-escalation trial of PLN-101095 as monotherapy and in combination with pembrolizumab in patients with solid tumors that are resistant to immune checkpoint inhibitors. Preliminary data is expected in late 2024.
• Muscular dystrophy program on track for regulatory filing in the first quarter of 2024. PLN-101325 is a monoclonal antibody designed to act as an allosteric agonist of integrin α7β1. Filing for first-in-human clinical studies in Duchenne muscular dystrophy (DMD) is expected in the first quarter of 2024.
Since inception, we have had significant operating losses. Our net loss was $161.3 million, $123.3 million and $97.3 million for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, we had an accumulated deficit of $499.7 million and cash, cash equivalents, restricted cash and short-term investments of $495.7 million. We expect to continue to incur net losses for the foreseeable future, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will increase in connection with our ongoing activities, as we:
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• perform research and development activities to identify and develop product candidates;
• advance product candidates into and through clinical development;
• require the manufacture of supplies to support research and development, preclinical studies and clinical trials;
• seek regulatory approvals for any product candidates that successfully complete clinical trials;
• expand our operational, financial and management systems and increase personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;
• maintain, expand and protect our intellectual property portfolio; and
• invest in or in-license other technologies or product candidates.
Financial Operations Overview
Revenue
We have not generated any revenue from product sales and do not expect to do so in the near future. Our revenue to date is derived from a Collaboration and License Agreement with Novartis, or the "Novartis Agreement," that was executed in 2019.
The Novartis Agreement was for the development and commercialization of PLN-1474 and up to three additional integrin research targets. Under the terms of the Novartis Agreement, we received an upfront license fee payment of $50.0 million for the worldwide, exclusive license to PLN-1474 and an additional $29.0 million upon the achievement of specified research and development milestones. As part of a broad strategic realignment, Novartis has discontinued clinical development in NASH and, as a result, discontinued development of PLN-1474. In February 2023, Novartis issued a termination notice for the collaboration and license agreement, and returned global rights to Pliant for PLN-1474.
Following termination of the Novartis Agreement, we were no longer eligible to receive additional milestone or royalty payments under the arrangement, however, we continued to earn research and development services revenues through the effective termination date of April 18, 2023.
Revenues for the years ended December 31, 2023, 2022 and 2021 were $1.6 million, $9.7 million and $7.6 million respectively.
Operating Expenses
Research and Development
Our research and development expenses consist of expenses incurred in connection with the development of our product candidates. Research and development expenses include:
• employee-related expenses, which include salaries, benefits and stock-based compensation for our research and development personnel;
• expenses incurred under agreements with third-party contract organizations for pre-clinical studies, clinical trials and consultants that conduct research and development activities on our behalf;
• costs associated with the manufacture of supplies to support research and development, preclinical studies and clinical trials;
• depreciation of laboratory equipment and costs of equipment and supplies;
• costs associated with technology and intellectual property licenses; and
• facilities and other allocated expenses, which include expenses for rent and other facility related costs and other supplies.
The following table summarizes our research and development expenses for the years ended December 31, 2023, 2022 and 2021 (in thousands):
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Year Ended December 31,
2023 2022 2021
Employee-related expenses $ 46,605 $ 30,316 $ 20,730
Outside and consulting services for preclinical studies and research and development activities by third party contract organizations 15,948 25,402 15,674
Clinical trials expenses 49,252 26,032 29,263
Depreciation of lab equipment and costs of equipment and supplies 5,588 5,859 5,968
Facilities and other allocated expenses
10,326 9,242 5,880
Technology and intellectual property licenses
78 85 33
Total research and development expenses $ 127,797 $ 96,936 $ 77,548
We expense all research and development costs in the periods in which they are incurred. We do not allocate our internal costs by product candidates or by preclinical programs. Additionally, although external third-party costs are allocable between product candidates and programs, we do not perform this allocation.
We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates and our preclinical programs and as they advance into later stages of development. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates.
General and Administrative
Our general and administrative expenses consist primarily of salaries, benefits and stock-based compensation for our general and administrative personnel, allocated facilities costs, insurance and other expenses for outside professional services, including legal, marketing, investor relations, human resource and accounting services. We expect general and administrative expenses to increase for the foreseeable future as does the size of our administrative function to support the growth of our business. In addition, if we obtain regulatory approval for any of our product candidates and do not enter into a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support product sales, marketing and distribution activities.
Interest and Other Income (Expense), net
Our interest and other income (expense), net consists of interest, accretion income and amortization expense on cash, cash equivalents and short-term investments, and realized gains and losses on short-term investments.
Interest Expense
Our interest expense is derived from a term loan executed under the Oxford Loan Agreement that we entered into in May 2022. Borrowings under the Oxford Loan Agreement bear interest at a rate per annum equal to 1-month term Secured Overnight Financing Rate (SOFR) plus 8.5%, subject to an agreed upon floor and cap.
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Results of Operations
Comparison of the Years Ended December 31, 2023 and 2022
(In thousands, except percentages) Year Ended December 31,
2023 2022 $ Change % Change
Revenue $ 1,580 $ 9,685 $ (8,105) (83.7 %)
Operating expenses:
Research and development (127,797) (96,936) (30,861) 31.8 %
General and administrative (57,928) (39,949) (17,979) 45.0 %
Total operating expenses (185,725) (136,885) (48,840) 35.7 %
Loss from operations (184,145) (127,200) (56,945) 44.8 %
Interest and other income (expense), net 24,076 4,670 19,406 415.5 %
Interest expense (1,267) (791) (476) 60.2 %
Net loss $ (161,336) $ (123,321) $ (38,015) 30.8 %
Revenue
Revenue decreased by $8.1 million due to decreased research and development services resulting from the termination of the Novartis Agreement.
Research and Development Expenses
The increase in research and development expenses of $30.9 million was primarily due to:
• $16.3 million increase in employee-related costs, including stock-based compensation, driven by an increase in our research and development workforce;
• $9.5 million decrease in outside and consulting services for preclinical studies which is largely attributable to decreased preclinical spend related to PLN-101095 as we initiated a phase 1 clinical trial during the second quarter of 2023, and an overall decrease in research and development activities as we prioritize bexotegrast clinical development;
• $23.2 million increase in clinical trial expenses largely due to continued development of bexotegrast, in particular our Phase 2b trial in patients with IPF, as well as the initiation of our phase 1 trial of PLN-101095 in solid tumors during the second quarter of 2023;
• $0.3 million decrease in depreciation of lab equipment and costs of equipment and supplies; and
• $1.1 million increase in facilities and other allocated expenses.
General and Administrative Expenses
The increase in general and administrative expenses by $18.0 million was primarily due to a $16.6 million increase in employee-related costs, including a $12.6 million increase in stock-based compensation, and increases in accounting and other professional services.
Interest and Other Income (Expense), Net
Interest and other income (expense), net increased $19.4 million due to higher average investment balances in 2023 compared to 2022 resulting from significant financing activities occurring mid-year 2022 and the public offering in January 2023, coupled with an increase in the yield on our short-term investment portfolio.
Interest Expense
Interest expense increased $0.5 million during the year as our Term Loan, issued in the second quarter of 2022, was outstanding the entire year of 2023 compared to eight months in the prior year.
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Liquidity and Capital Resources
Overview
As of December 31, 2023, we had cash, cash equivalents, restricted cash and short-term investments of $495.7 million. Our cash, cash equivalents and short-term investments consist of money market funds, U.S. Treasury securities, U.S. Government Agency securities and highly rated, investment-grade corporate debt securities.
In May 2022, as amended in October 2022, we entered into a Loan and Security Agreement (the “Oxford Loan Agreement”) with Oxford Finance LLC (or "Oxford"). Upon closing of the Oxford Loan Agreement, we drew $10.0 million and decided to forego drawing on the additional $65.0 million that became available to us over the course of 2023 as certain conditions related to the development of bexotegrast and one of our preclinical product candidates were satisfied. At December 31, 2023, $25.0 million remained available to us under the Oxford Loan Agreement.
In July 2022, we completed an underwritten public offering of 12,432,432 shares of common stock, including the exercise in full of the underwriters' option to purchase 1,621,621 additional shares of common stock. The shares were offered at a price to the public of $18.50 per share, resulting in aggregate proceeds of approximately $215.4 million, net of underwriting discounts, commissions and offering expenses.
In January 2023, we completed an underwritten public offering of 9,583,334 shares of common stock, including the exercise in full of the underwriters' option to purchase 1,250,000 additional shares of common stock. The shares were offered at a price to the public of $30.00 per share, resulting in aggregate proceeds of approximately $269.8 million, net of underwriting discounts, commissions and offering expenses.
During the third quarter of 2021, we entered into a Controlled Equity Offering SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co., as sales agent, pursuant to which we may issue and sell shares of common stock in an "at-the-market" offering. In March 2023, we filed a prospectus registering the offer and sale of up to $150.0 million of shares of common stock from time to time pursuant to the Sales Agreement. We have not issued any shares pursuant to any at-the-market offerings, including pursuant to the Sales Agreement, but may do so at a future date.
We believe that our existing capital resources, together with the funds available to us under the Oxford Loan Agreement, will be sufficient to fund our anticipated operating expenses and capital expenditure requirements for the next 12 months and for the longer-term period into the second half of 2026. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned.
Our operations have been financed primarily through the issuance and sale of common stock and convertible preferred stock and our collaboration with Novartis.
Funding Requirements
Our primary use of cash is to fund operating expenses, primarily 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.
Our future funding requirements will depend on many factors, including the following:
• the initiation, progress, timing, costs and results of preclinical studies and clinical trials for our product candidates;
• the clinical development plans we establish for these product candidates;
• the timelines of our clinical trials and the overall costs to conduct and complete the clinical trials, which may be impacted by health epidemics and pandemics, such as COVID-19;
• the number and characteristics of product candidates that we develop;
• the outcome, timing and cost of meeting regulatory requirements established by the U.S. Food and Drug Administration, or FDA, and other comparable foreign regulatory authorities including but not limited to the European Medicines Agency (EMA), the U.. Medicines and Healthcare products Regulatory Agency (MHRA);
• whether we enter into any collaboration agreements and the terms of any such agreements;
• the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights;
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• the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates;
• the effect of competing technological and market developments;
• the cost and timing of completion of commercial-scale outsourced manufacturing activities;
• the cost and timing of achieving favorable pricing and reimbursement agreements with the pricing authorities in each market of interest, including of securing a positive recommendation after undergoing a health technology assessment by health technology authorities;
• the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own; and
• the cost of operating as a public company.
Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures. If we need to raise additional capital to fund our operations, funding may not be available to us on acceptable terms, or at all. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our preclinical studies, clinical trials, research and development programs or commercialization efforts. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations and other licensing arrangements. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us.
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Cash Flows
The following summarizes our cash flows for the periods indicated (in thousands):
Year Ended December 31,
2023 2022 2021
Net cash used in operating activities $ (116,361) $ (94,631) $ (75,443)
Net cash (used in) provided by investing activities
(127,012) (150,204) 73,699
Net cash provided by financing activities 274,405 226,854 2,527
Net increase (decrease) in cash, cash equivalents and restricted cash
$ 31,032 $ (17,981) $ 783
Cash Used in Operating Activities
The increase in cash used in operating activities of $21.7 million between the year ended December 31, 2023 and 2022 was primarily due to an increase in our operating expenses, notably for the continued development of bexotegrast and our other pipeline programs. Further, revenue related receipts decreased $6.2 million as we ceased to earn research and development services revenue following the termination of the Novartis Agreement.
Cash Used in Investing Activities
The decrease in cash used in investing activities of $23.2 million between the year ended December 31, 2023 and 2022 is primarily due to the timing of purchases of short-term investments compared to related maturities during each year.
Cash Provided by Financing Activities
The increase in cash provided by financing activities of $47.6 million between the year ended December 31, 2023 and 2022 is primarily due to net proceeds from the Company's January 2023 underwritten public offering.
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Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements or holdings in any variable interest entities other than the operating lease commitments described in Note 14 to our financial statements appearing elsewhere in this Annual Report.
Material Cash Requirements
At December 31, 2023, we had various non-cancelable operating leases for office space and equipment, which expire between December 31, 2023 and March 31, 2031. Refer to Note 13 and Note 14 to our financial statements appearing elsewhere in this Annual Report for a discussion of material obligations and commitments.
We enter into contracts in the normal course of business with third-party contract organizations for clinical trials, non-clinical studies and testing, manufacturing and other services and products. These contracts generally provide for termination following a certain period after notice and therefore we believe that our cancellable obligations under these agreements are not material.
Critical Accounting Polices and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles. 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 reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not 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 2 to our financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
As of December 31, 2023, all of our revenue to date has been generated from the Novartis Agreement. We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, ("Topic 606") we perform the following five steps: (i) identification of the contract(s) with the customer, (ii) identification of the promised goods or services in the contract and determination of whether the promised goods or services are performance obligations, (iii) measurement of the transaction price, (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to our customer.
Identification of the Contracts with the Customers
We evaluate every contract to determine whether it in its entirety or in part represent a contract with a customer, or a collaboration agreement and, based on this determination, apply appropriate accounting guidance.
We account for a contract with a customer that is within the scope of Topic 606 when all of the following criteria are met: (i) the arrangement has been approved by the parties and the parties are committed to perform their respective obligations, (ii) each party’s rights regarding the goods or services to be transferred can be identified, (iii) the payment terms for the goods or services to be transferred can be identified, (iv) the arrangement has commercial substance and (v) collection of substantially all of the consideration to which we will be entitled in exchange for the goods or services that will be transferred to the customer is probable.
Identification of the Performance Obligations
The promised goods or services in our collaboration and option arrangements consist of license and research and development services. The arrangements also have options for additional items (i.e., license rights). Options are considered to be marketing offers and are to be accounted for as separate contracts when the customer elects such options, unless we determine the option provides a material right which would not be provided without entering into the contract. The determination as to whether such options are material rights requires significant management judgment, and management
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considers factors such as other similar arrangements, market data and the terms of the contractual arrangement to make such conclusion. Performance obligations are promised goods or services in a contract to transfer a distinct good or service to the customer. Promised goods or services are considered distinct when: (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised goods or services are distinct, we consider factors such as the stage of development of the underlying intellectual property, the capabilities of our customer to develop the intellectual property on their own and whether the required expertise is readily available.
Determination of the Transaction Price
We estimate the transaction price based on the amount of consideration we expect to receive for transferring the promised goods or services in the contract. The consideration may include both fixed consideration and variable consideration. At the inception of each arrangement that includes variable consideration, we evaluate the amount of the potential payments and the likelihood that the payments will be received. We utilize either the most likely amount method or expected value method to estimate the transaction price based on which method better predicts the amount of consideration expected to be received. If it is probable that a significant revenue reversal would not occur, the variable consideration is included in the transaction price.
All contingent future payments, which include research, development, regulatory, and sales-based royalty payments, were not considered in the initial analysis, as they were contingent upon options being exercised or were subject to significant risk of achievement.
Allocation of Transaction Price
We allocate the transaction price based on the estimated standalone selling price. We must develop assumptions that require judgment to determine the standalone selling price for each performance obligation identified in the contract. We utilize key assumptions to determine the standalone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction, and the estimated costs. Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amounts we would expect to receive for satisfying each performance obligation.
Recognition of Revenue
We recognize revenue at the point in time when distinct, functional licenses are transferred to the licensee and/or over the period of time which we perform research and development services. We utilize a cost-based input method to measure proportional performance, as such costs have direct relationship between our effort and the progress made towards satisfying its performance obligations to Novartis.
Accrued and Prepaid Research and Development Expenses
We record accrued expenses for estimated costs of our research and development activities which include the conduct of clinical studies and preclinical studies by third-party service providers. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and include these costs in accrued liabilities in the balance sheets and within research and development expenses in the statements of operations and comprehensive loss. These costs are a significant component of our research and development expenses. We record accrued expenses for these costs based on factors such as estimates of the work completed and in accordance with agreements established with these third-party service providers. Any payments made in advance of services provided are recorded as prepaid assets, which are expensed as the contracted services are performed.
We estimate the amount of work completed through review of detailed budgets and timelines included in our contracts and agreements, and update these estimates with information obtained from third-party service providers and internal personnel on a quarterly basis. We make significant judgments and estimates in determining the accrued and/or prepaid balance in each reporting period. As actual costs become known, we adjust our estimates. Our accrued expenses and prepaid research and development expenses are dependent, in part, upon the receipt of timely and accurate reporting from contract research organizations, other third-party service providers and internal research and development personnel. If we under estimate or over-estimate the level of services performed or the costs of these services, our accrued expenses could differ from our estimates. For the periods presented, we have experienced no material differences between our accrued expenses and actual expenses.
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Recent Accounting Pronouncements
The information set forth under Note 2 to the financial statements under the caption “Recently Issued Accounting Pronouncements” is incorporated herein by reference.