Praxis Precision Medicines, Inc. 10-Q

Item 1. Financial Statements. PRAXIS PRECISION MEDICINES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Amounts in thousands, except share and per share data) September 30, 2020 December 31, 2019 Assets Current assets: Cash and cash equivalents $ 114,772 $ 44,815 Prepaid expenses and other current assets 1,079 681 Total current assets 115,851 45,496 Property and equipment, net 98 128 Restricted cash 600 600 Operating lease right-of-use assets 933 1,450 Other assets 2,066 20 Total assets $ 119,548 $ 47,694 Liabilities, redeemable convertible preferred stock and stockholders’ deficit Current liabilities: Accounts payable $ 3,452 $ 2,667 Accrued expenses 6,186 3,455 Operating lease liabilities 746 696 Total current liabilities 10,384 6,818 Long-term liabilities: Non-current portion of operating lease liabilities 198 763 Total liabilities 10,582 7,581 Commitments and contingencies (Note 5) Series A redeemable convertible preferred stock, $0.0001 par value; 8,075,799 shares authorized as of September 30, 2020 and December 31, 2019; 8,075,799 shares issued and outstanding as of September 30, 2020 and December 31, 2019; liquidation value as of September 30, 2020 and December 31, 2019 of $10,416 and $9,932, respectively 10,416 9,932 Series B redeemable convertible preferred stock, $0.0001 par value; 14,913,704 shares authorized as of September 30, 2020 and December 31, 2019; 14,913,704 shares issued and outstanding as of September 30, 2020 and December 31, 2019; liquidation value as of September 30, 2020 and December 31, 2019 of $52,648 and $49,969, respectively 52,648 49,969 Series B-1 redeemable convertible preferred stock, $0.0001 par value; 2,666,666 shares authorized as of September 30, 2020 and December 31, 2019; 2,666,666 shares issued and outstanding as of September 30, 2020 and December 31, 2019; liquidation value as of September 30, 2020 and December 31, 2019 of $11,029 and $10,431, respectively 11,029 10,431 Series C redeemable convertible preferred stock, $0.0001 par value; 8,543,692 shares authorized as of September 30, 2020 and 11,067,963 shares authorized as of December 31, 2019; 8,543,692 shares issued and outstanding as of September 30, 2020 and 9,805,827 shares issued and outstanding as of December 31, 2019; liquidation value as of September 30, 2020 and December 31, 2019 of $46,244 and $50,789, respectively 46,244 50,789 Series C-1 redeemable convertible preferred stock, $0.0001 par value; 19,444,453 shares authorized as of September 30, 2020 and no shares authorized as of December 31, 2019; 19,444,453 shares issued and outstanding as of September 30, 2020 and no shares issued and outstanding as of December 31, 2019; liquidation value as of September 30, 2020 and December 31, 2019 of $111,892 and $0, respectively 111,892 — Stockholders’ deficit: Common stock, $0.0001 par value; 70,500,000 shares authorized as of September 30, 2020 and 46,000,000 shares authorized as of December 31, 2019; 1,681,698 shares issued and 1,672,935 shares outstanding as of September 30, 2020 and 1,670,070 shares issued and 1,621,880 shares outstanding as of December 31, 2019 1 1 Accumulated deficit (123,264 ) (81,009 ) Total stockholders’ deficit (123,263 ) (81,008 ) Total liabilities, redeemable convertible preferred stock and stockholders’ deficit $ 119,548 $ 47,694 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Table of Contents PRAXIS PRECISION MEDICINES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) (Amounts in thousands, except share and per share data) Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Operating expenses: Research and development $ 12,786 $ 9,346 $ 28,704 $ 23,858 General and administrative 3,431 1,308 7,552 4,437 Total operating expenses 16,217 10,654 36,256 28,295 Loss from operations (16,217 ) (10,654 ) (36,256 ) (28,295 ) Other income: Interest income 1 48 134 171 Total other income 1 48 134 171 Loss before benefit from income taxes (16,216 ) (10,606 ) (36,122 ) (28,124 ) Benefit from income taxes — — (8 ) — Net loss and comprehensive loss $ (16,216 ) $ (10,606 ) $ (36,114 ) $ (28,124 ) Accretion and cumulative dividends on redeemable convertible preferred stock (3,943 ) (1,267 ) (8,046 ) (3,450 ) Gain on repurchase of redeemable convertible preferred stock — — 493 — Net loss attributable to common stockholders $ (20,159 ) $ (11,873 ) $ (43,667 ) $ (31,574 ) Net loss per share attributable to common stockholders, basic and diluted $ (12.10 ) $ (7.61 ) $ (26.53 ) $ (21.02 ) Weighted average common shares outstanding, basic and diluted 1,665,902 1,559,800 1,645,982 1,501,908 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Table of Contents PRAXIS PRECISION MEDICINES, INC. CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (Unaudited) (Amounts in thousands, except share data) Three Months Ended Series A Redeemable Convertible Preferred Stock Series B Redeemable Convertible Preferred Stock Series B-1 Redeemable Convertible Preferred Stock Series C Redeemable Convertible Preferred Stock Series C-1 Redeemable Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Deficit Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance at June 30, 2020 8,075,799 $ 10,254 14,913,704 $ 51,749 2,666,666 $ 10,828 8,543,692 $ 45,359 — $ — 1,648,165 $ 1 $ — $ (104,085 ) $ (104,084 ) Issuance of Series C-1 redeemable convertible preferred stock, net of issuance costs of $154 — — — — — — — — 19,444,453 110,096 — — — — — Stock-based compensation expense — — — — — — — — — — — — 953 — 953 Issuance of common stock upon exercise of stock options — — — — — — — — — — 11,628 — 27 — 27 Accretion of redeemable convertible preferred stock to redemption value — 162 — 899 — 201 — 885 — 1,796 — — (980 ) (2,963 ) (3,943 ) Vesting of restricted stock awards — — — — — — — — — — 13,142 — — — — Net loss — — — — — — — — — — — — — (16,216 ) (16,216 ) Balance at September 30, 2020 8,075,799 $ 10,416 14,913,704 $ 52,648 2,666,666 $ 11,029 8,543,692 $ 46,244 19,444,453 $ 111,892 1,672,935 $ 1 $ — $ (123,264 ) $ (123,263 ) Balance at June 30, 2019 8,075,799 $ 9,606 14,913,704 $ 48,164 2,666,666 $ 10,027 — $ — — $ — 1,525,500 $ 1 $ — $ (60,461 ) $ (60,460 ) Stock-based compensation expense — — — — — — — — — — — — 276 — 276 Accretion of redeemable convertible preferred stock to redemption value — 163 — 902 — 202 — — — — — — (276 ) (991 ) (1,267 ) Vesting of restricted stock awards — — — — — — — — — — 58,410 — — — — Net loss — — — — — — — — — — — — — (10,606 ) (10,606 ) Balance at September 30, 2019 8,075,799 $ 9,769 14,913,704 $ 49,066 2,666,666 $ 10,229 — $ — — $ — 1,583,910 $ 1 $ — $ (72,058 ) $ (72,057 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents PRAXIS PRECISION MEDICINES, INC. CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT (Unaudited) (Amounts in thousands, except share data) Nine Months Ended Series A Redeemable Convertible Preferred Stock Series B Redeemable Convertible Preferred Stock Series B-1 Redeemable Convertible Preferred Stock Series C Redeemable Convertible Preferred Stock Series C-1 Redeemable Convertible Preferred Stock Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Deficit Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Balance at December 31, 2019 8,075,799 $ 9,932 14,913,704 $ 49,969 2,666,666 $ 10,431 9,805,827 $ 50,789 — $ — 1,621,880 $ 1 $ — $ (81,009 ) $ (81,008 ) Repurchase of Series C redeemable convertible preferred stock — — — — — — (5,825,243 ) (30,493 ) — — — — — 493 493 Issuance of Series C redeemable convertible preferred stock, net of issuance costs of $41 — — — — — — 4,563,108 23,459 — — — — — — — Issuance of Series C-1 redeemable convertible preferred stock, net of issuance costs of $154 — — — — — — — — 19,444,453 110,096 — — — — — Stock-based compensation expense — — — — — — — — — — — — 1,385 — 1,385 Issuance of common stock upon exercise of stock options — — — — — — — — — — 11,628 — 27 — 27 Accretion of redeemable convertible preferred stock to redemption value — 484 — 2,679 — 598 — 2,489 — 1,796 — — (1,412 ) (6,634 ) (8,046 ) Vesting of restricted stock awards — — — — — — — — — — 39,427 — — — — Net loss — — — — — — — — — — — — — (36,114 ) (36,114 ) Balance at September 30, 2020 8,075,799 $ 10,416 14,913,704 $ 52,648 2,666,666 $ 11,029 8,543,692 $ 46,244 19,444,453 $ 111,892 1,672,935 $ 1 $ — $ (123,264 ) $ (123,263 ) Balance at December 31, 2018 8,075,799 $ 9,284 14,913,704 $ 46,436 — $ — — $ — — $ — 1,408,677 $ 1 $ 326 $ (41,365 ) $ (41,038 ) Issuance of Series B-1 redeemable convertible preferred stock, net of issuance costs of $61 — — — — 2,666,666 9,939 — — — — — — — — — Stock-based compensation expense — — — — — — — — — — — — 510 — 510 Accretion of redeemable convertible preferred stock to redemption value — 485 — 2,630 — 290 — — — — — — (836 ) (2,569 ) (3,405 ) Vesting of restricted stock awards — — — — — — — — — — 175,233 — — — — Net loss — — — — — — — — — — — — — (28,124 ) (28,124 ) Balance at September 30, 2019 8,075,799 $ 9,769 14,913,704 $ 49,066 2,666,666 $ 10,229 — $ — — $ — 1,583,910 $ 1 $ — $ (72,058 ) $ (72,057 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents PRAXIS PRECISION MEDICINES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands) Nine Months Ended September 30, 2020 2019 Cash flows from operating activities: Net loss $ (36,114 ) $ (28,124 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation expense 30 27 Stock-based compensation expense 1,385 510 Non-cash operating lease expense 517 477 Changes in operating assets and liabilities: Prepaid expenses and other current assets (398 ) 829 Accounts payable 544 (356 ) Accrued expenses 2,160 3,664 Operating lease liabilities (515 ) (468 ) Other (4 ) (25 ) Net cash used in operating activities (32,395 ) (23,466 ) Cash flows from investing activities: Purchases of property and equipment — (103 ) Net cash used in investing activities — (103 ) Cash flows from financing activities: Proceeds from issuance of redeemable convertible preferred stock, net of issuance costs 133,442 9,939 Repurchase of Series C redeemable convertible preferred stock (30,000 ) — Payment of deferred offering costs (1,117 ) — Proceeds from exercise of options to purchase common stock 27 — Net cash provided by financing activities 102,352 9,939 Increase (decrease) in cash, cash equivalents and restricted cash 69,957 (13,630 ) Cash, cash equivalents and restricted cash, beginning of period 45,415 18,550 Cash, cash equivalents and restricted cash, end of period $ 115,372 $ 4,920 Supplemental disclosures of non-cash activities: Accretion of redeemable convertible preferred stock to redemption value $ 8,046 $ 3,405 Operating lease liabilities recorded upon adoption of ASC 842 $ — $ 2,092 Deferred offering costs included in accounts payable and accrued expenses $ 925 $ — The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents PRAXIS PRECISION MEDICINES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Nature of the Business Praxis Precision Medicines, Inc. (“Praxis” or the “Company”) is a clinical-stage biopharmaceutical company translating genetic insights into the development of therapies for central nervous system (“CNS”) disorders characterized by neuronal imbalance. The Company has established a broad portfolio, including five disclosed programs across multiple CNS disorders, including depression, epilepsy, movement disorders and pain syndromes, with three clinical-stage product candidates. The Company’s most advanced programs, PRAX-114 and PRAX-944, are currently in Phase 2 development. PRAX-114 is being developed for the treatment of major depressive disorder and perimenopausal depression, and PRAX-944 is a selective small molecule inhibitor of T-type calcium channels for the treatment of essential tremor. The Company plans to continue to discover and develop additional product candidates and expand into additional therapeutic areas. Praxis was incorporated in 2015 and commenced operations in 2016. The Company has funded its operations primarily with proceeds from the issuance of convertible debt, Series A redeemable convertible preferred stock (the “Series A Preferred Stock”), Series B redeemable convertible preferred stock (the “Series B Preferred Stock”), Series B-1 redeemable convertible preferred stock (the “Series B-1 Preferred Stock”), Series C redeemable convertible preferred stock (the “Series C Preferred Stock”) and Series C-1 redeemable convertible preferred stock (the “Series C-1 Preferred Stock”) (the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock are collectively referred to as the “Preferred Stock”). From inception through September 30, 2020, the Company raised $210.7 million in aggregate cash proceeds from these transactions, net of issuance costs. On October 8, 2020, the board of directors and the Company’s stockholders approved a one-for-2.14 reverse stock split. Effective on October 8, 2020, the reverse stock split impacted the Company’s issued and outstanding shares of common stock. Stockholders entitled to fractional shares as a result of the reverse stock split will receive a cash payment in lieu of receiving fractional shares. All shares of common stock, per share amounts, aggregate par value and additional paid-in capital amounts for all periods presented in the accompanying condensed consolidated financial statements and related notes have been retroactively adjusted, where applicable, to reflect the reverse stock split. Shares of common stock underlying outstanding stock options and other equity instruments were proportionately reduced and the respective exercise prices were proportionately increased, as applicable, in accordance with the terms of the agreements governing such securities. The respective conversion prices of the Preferred Stock were proportionately increased. The number of shares of common stock authorized for issuance and the per share par value of common stock were not adjusted as a result of the reverse stock split. On October 20, 2020, the Company completed its initial public offering (“IPO”), in which the Company issued and sold 11,500,000 shares of its common stock at a public offering price of $19.00 per share, including 1,500,000 shares of common stock sold pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock, for aggregate gross proceeds of $218.5 million. The Company raised approximately $199.9 million in net proceeds after deducting underwriting discounts and commissions and offering expenses payable by the Company. Upon the closing of the IPO, all of the outstanding shares of the Company’s Preferred Stock automatically converted into 25,067,977 shares of common stock. On October 20, 2020, in connection with the closing of the IPO, the Company filed its Amended and Restated Certificate of Incorporation which provides that the authorized capital stock of the Company consists of 150,000,000 shares of common stock and 10,000,000 shares of undesignated preferred stock, both with a par value of $0.0001 per share. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including but not limited to, risks associated with completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Programs currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales. 6 Table of Contents Liquidity In accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these condensed consolidated financial statements are issued. The Company has incurred recurring losses since its inception, including net losses of $36.1 million and $28.1 million for the nine months ended September 30, 2020 and 2019, respectively. In addition, as of September 30, 2020, the Company had an accumulated deficit of $123.3 million. The Company expects to continue to generate operating losses for the foreseeable future. The Company previously identified conditions and events that raised substantial doubt about its ability to continue as a going concern. As a result of the completion of its IPO, the Company expects that its cash and cash equivalents as of September 30, 2020 of $114.8 million, in addition to the net proceeds of $199.9 million from its IPO, will be sufficient to fund the operating expenses and capital expenditure requirements necessary to advance its research efforts and clinical trials for at least one year from the date of issuance of these condensed consolidated financial statements. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and ASUs of the FASB. The Company’s significant accounting policies are disclosed in the audited consolidated financial statements included in the Company’s final prospectus filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule 424(b)(4) on October 16, 2020. Since the date of those audited consolidated financial statements, there have been no changes to the Company’s significant accounting policies except as noted below. Unaudited Interim Condensed Consolidated Financial Information The accompanying condensed consolidated balance sheet as of September 30, 2020, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019, the condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 and the condensed consolidated statements of redeemable convertible preferred stock and stockholders’ deficit for the three and nine months ended September 30, 2020 and 2019 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual consolidated financial statements, and in the opinion of management reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the Company’s financial position as of September 30, 2020, the results of its operations for the three and nine months ended September 30, 2020 and 2019 and its cash flows for the nine months ended September 30, 2020 and 2019. Financial statement disclosures for the three and nine months ended September 30, 2020 and 2019 are condensed and do not include all disclosures required for an annual set of financial statements in accordance with GAAP. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ended December 31, 2020, any other interim periods, or any future year or period. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual for research and development expenses, stock-based compensation expense, and the valuation of equity awards. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates. 7 Table of Contents Cash, Cash Equivalents and Restricted Cash The following table reconciles cash, cash equivalents and restricted cash to the total amounts on the condensed consolidated statements of cash flows (in thousands): September 30, 2020 2019 Cash and cash equivalents $ 114,772 $ 4,320 Restricted cash 600 600 Total cash, cash equivalents and restricted cash as shown in the condensed consolidated statement of cash flows $ 115,372 $ 4,920 Deferred Offering Costs The Company capitalizes certain legal, accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After the consummation of the equity financing, these costs are recorded in stockholders’ deficit as a reduction of additional paid-in capital or the associated preferred stock account, as applicable. In the event the offering is terminated, all capitalized deferred offering costs are expensed. Deferred offering costs as of September 30, 2020 were $2.0 million. Such costs are classified in other assets in the accompanying condensed consolidated balance sheet. No deferred offering costs were capitalized as of December 31, 2019. Stock-Based Compensation The Company utilizes significant estimates and assumptions in determining the fair value of its equity and equity-based awards. Beginning in the nine months ended September 30, 2020, the Company determined the fair value of shares of its common stock underlying stock-based awards granted using a hybrid probability-weighted expected return method (“PWERM”). The fair value of the Company’s common stock was calibrated to contemporaneous transactions in the Series C Preferred Stock and Series C-1 Preferred Stock. The hybrid PWERM determined the fair value of the Company’s common stock using a probability-weighted present value of expected future investment returns considering various outcomes, as well as the rights of each class of stock, with one of the outcomes calculated using an option pricing model (“OPM”). The hybrid PWERM considered three scenarios: an “early” IPO completed in 2020, a “late” IPO completed in 2021, and a “remain private” scenario in which value is allocated using the OPM. An incremental discount for lack of marketability (“DLOM”) was applied to the values of the common stock. The DLOM was estimated using a put option model which considered the expected time to liquidity and the volatility of the common shares. The hybrid PWERM used a risk-adjusted discount rate. Other than as noted herein, there were no other changes to the Company’s stock-based compensation policy since the date of the audited consolidated financial statements included in the Company’s final prospectus filed pursuant to Rule 424(b)(4) on October 16, 2020. Comprehensive Loss Comprehensive loss includes net loss and certain changes in stockholders’ deficit that are excluded from net loss. The Company’s comprehensive loss was equal to net loss for the three and nine months ended September 30, 2020 and 2019. Net Loss per Share The Company follows the two-class method to compute net loss per share attributable to common stockholders as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income (losses) for the period to be allocated between common and participating securities based upon their respective rights to share in the earnings as if all income (losses) for the period had been distributed. During periods of loss, there is no allocation required under the two-class method since the participating securities do not have a contractual obligation to fund the losses of the Company. 8 Table of Contents Net loss attributable to common stockholders is equal to the net loss for the period, as adjusted for: (i) cumulative dividends accrued for redeemable convertible preferred stock, whether or not declared, (ii) increases in carrying value recorded for redeemable convertible preferred stock, including accretion on redeemable convertible preferred stock to redemption value for amounts other than cumulative dividends and (iii) gains on the redemptions of redeemable convertible preferred stock. Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, which excludes shares of restricted common stock that are not vested. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding for the period, after giving consideration to the dilutive effect of potentially dilutive common shares. For purposes of this calculation, outstanding options to purchase shares of common stock, unvested shares of restricted common stock and shares of redeemable convertible preferred stock are considered potentially dilutive common shares. The Company has generated a net loss in all periods presented so the basic and diluted net loss per share attributable to common stockholders are the same as the inclusion of the potentially dilutive securities would be anti-dilutive. 3. Fair Value of Financial Assets The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values (in thousands): As of September 30, 2020 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 114,386 $ — $ — $ 114,386 $ 114,386 $ — $ — $ 114,386 As of December 31, 2019 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 44,429 $ — $ — $ 44,429 $ 44,429 $ — $ — $ 44,429 9 Table of Contents 4. Accrued Expenses Accrued expenses consisted of the following (in thousands): September 30, 2020 December 31, 2019 Accrued external research and development expenses $ 3,370 $ 1,552 Accrued personnel-related expenses 1,606 1,059 Accrued license fees — 363 Accrued professional services 1,135 110 Accrued other 75 371 Total accrued expenses $ 6,186 $ 3,455 5. Commitments and Contingencies In October 2018, the Company entered into a sublease agreement for office space located in Cambridge, Massachusetts that expires on December 30, 2021, with no option to renew or terminate early. The base rent increases by approximately 1% annually. The Company issued a letter of credit to the landlord related to the security deposit, secured by restricted cash, which is reflected as a non-current asset on the accompanying condensed consolidated balance sheets. This lease qualifies as an operating lease. In January 2019, the Company entered into an arrangement with a third party to sublease a portion of its Cambridge, Massachusetts office space. This sublease was terminated in November 2019. 6. Redeemable Convertible Preferred Stock As of September 30, 2020, the authorized capital stock of the Company included 53,644,314 shares of $0.0001 par value Preferred Stock, of which 8,075,799 shares were designated as Series A Preferred Stock, 14,913,704 shares were designated as Series B Preferred Stock, 2,666,666 shares were designated as Series B-1 Preferred Stock, 8,543,692 shares were designated as Series C Preferred Stock and 19,444,453 shares were designated as Series C-1 Preferred Stock. As of December 31, 2019, the authorized capital stock of the Company included 36,724,132 shares of $0.0001 par value Preferred Stock, of which 8,075,799 shares were designated as Series A Preferred Stock, 14,913,704 shares were designated as Series B Preferred Stock, 2,666,666 shares were designated as Series B-1 Preferred Stock and 11,067,963 shares were designated as Series C Preferred Stock. The rights, preferences and privileges of the Series A Preferred Stock, the Series B Preferred Stock, the Series B-1 Preferred Stock and the Series C Preferred Stock are detailed in the final prospectus filed with the SEC pursuant to Rule 424(b)(4) on October 16, 2020. On January 20, 2020, the Company granted two investors holding 5,825,243 shares of Series C Preferred Stock that were purchased in December 2019 the option to put their shares back to the Company at the original issuance price. On February 19, 2020 and March 3, 2020, the investors exercised their put option in full via the execution of Stock Redemption and Release Agreements in order to effect the repurchase. Pursuant to the Stock Redemption and Release Agreements, the Company agreed to repurchase a total of 5,825,243 shares of Series C Preferred Stock at the original issuance price of $5.15 per share, for an aggregate cash repurchase price of $30.0 million. Under the terms of the Stock Redemption and Release Agreements, the investors waived their right to cumulative dividends that had accumulated from the original issuance date through the date of repurchase. The 5,825,243 shares of Series C Preferred Stock were retired upon repurchase, and subsequently authorized for reissuance pursuant to a waiver to the Company’s Amended and Restated Certificate of Incorporation entered into by the Company and the holders of the Preferred Stock. The Company determined that the additional put right that was granted to the investors represented a modification of the affected shares of Series C Preferred Stock, but that it did not result in incremental value to the shareholders. As there was no incremental value associated with the modification, there was no impact to the accounting for the Series C Preferred Stock. The Company also determined that the put right did not require bifurcation, as it does not contain the characteristics of a derivative instrument. Further, the Company determined that the shares of Series C Preferred Stock that were subject to repurchase did not become mandatorily redeemable until the execution of the Stock Redemption and Release Agreements because the parties did not have an unconditional legal obligation to complete the redemptions until the associated agreements were finalized. Such determination was made in consultation with legal counsel. Accordingly, the Company recorded each of the redemptions on the respective date of repurchase and recognized a gain on repurchase equal to the difference between the repurchase price and the carrying value of the Series C Preferred Stock on the respective date of repurchase. The aggregate gain of $0.5 million was recorded upon repurchase as an adjustment to accumulated deficit in the statement of redeemable convertible preferred stock and stockholders’ deficit. The gain relates exclusively to the dividends accrued on the repurchased shares, which were waived by the investors as part of the Stock Redemption and Release Agreements. 10 Table of Contents On April 15, 2020 and May 8, 2020, the Company completed additional closings for the sale and issuance of its Series C Preferred Stock for a total of 4,563,108 shares at $5.15 per share for aggregate cash proceeds of $23.5 million, less an immaterial amount of issuance costs. On July 24, 2020, the Company entered into the Series C-1 Preferred Stock Purchase Agreement, which authorized the sale and issuance of up to 19,444,453 shares of its Series C-1 Preferred Stock at a purchase price of $5.67 per share. During the nine months ended September 30, 2020, the Company issued all 19,444,453 shares of Series C-1 Preferred Stock for gross cash proceeds of $110.3 million, and incurred issuance costs of approximately $0.2 million. Although there were multiple closings of the Series C-1 Preferred Stock, there was no obligation under the initial closing for investors to purchase, or for the Company to sell to such investors, additional shares of Series C-1 Preferred Stock. The holders of the Series C-1 Preferred Stock are entitled to accrue dividends at an annual rate of $0.4536 per share. Except for the original issuance price and cumulative dividend accrual rate, the terms of the Series C-1 Preferred Stock are substantially the same as the terms of the Series C Preferred Stock. The issuance of the Series C-1 Preferred Stock resulted in changes to certain rights, preferences and privileges of the Series A Preferred Stock, the Series B Preferred Stock, the Series B-1 Preferred Stock and the Series C Preferred Stock. The Company concluded that such changes were not significant and resulted in a modification, rather than an extinguishment, of the previously outstanding Preferred Stock. The changes to the terms of the Series A Preferred Stock, the Series B Preferred Stock, the Series B-1 Preferred Stock and the Series C Preferred Stock did not result in incremental value to the shareholders, and therefore there was no impact to the accounting for the previously outstanding Preferred Stock. The Preferred Stock consisted of the following (in thousands, except share amounts): As of September 30, 2020 Shares Authorized Preferred Stock Issued and Outstanding Carrying Value Liquidation Preference Redemption Value Common Stock Issuable Upon Conversion Series A Preferred Stock 8,075,799 8,075,799 $ 10,416 $ 10,416 $ 10,416 3,773,820 Series B Preferred Stock 14,913,704 14,913,704 52,648 52,648 52,648 6,969,173 Series B-1 Preferred Stock 2,666,666 2,666,666 11,029 11,029 11,029 1,246,133 Series C Preferred Stock 8,543,692 8,543,692 46,244 46,244 46,244 3,992,463 Series C-1 Preferred Stock 19,444,453 19,444,453 111,892 111,892 111,892 9,086,388 53,644,314 53,644,314 $ 232,229 $ 232,229 $ 232,229 25,067,977 As of December 31, 2019 Shares Authorized Preferred Stock Issued and Outstanding Carrying Value Liquidation Preference Redemption Value Common Stock Issuable Upon Conversion Series A Preferred Stock 8,075,799 8,075,799 $ 9,932 $ 9,932 $ 9,932 3,773,820 Series B Preferred Stock 14,913,704 14,913,704 49,969 49,969 49,969 6,969,173 Series B-1 Preferred Stock 2,666,666 2,666,666 10,431 10,431 10,431 1,246,133 Series C Preferred Stock 11,067,963 9,805,827 50,789 50,789 50,789 4,582,257 36,724,132 35,461,996 $ 121,121 $ 121,121 $ 121,121 16,571,383 Common stock issuable upon conversion in the tables above represents shares of common stock issuable upon an automatic conversion in the event of a qualified public offering, pursuant to the Company’s Amended and Restated Certificate of Incorporation. As of September 30, 2020, the applicable conversion price for the Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock was equal to $2.14, $6.42, $8.03, $11.02 and $12.13, respectively, as adjusted for the Company’s reverse stock split. 11 Table of Contents The Company’s cumulative dividends on its Preferred Stock were as follows (in thousands): As of September 30, 2020 As of December 31, 2019 Series A Preferred Stock $ 2,340 $ 1,857 Series B Preferred Stock 7,907 5,228 Series B-1 Preferred Stock 1,029 431 Series C Preferred Stock 2,244 289 Series C-1 Preferred Stock 1,642 — $ 15,162 $ 7,805 7. Common Stock As of September 30, 2020 and December 31, 2019, the authorized capital stock of the Company included 70,500,000 and 46,000,000 shares of common stock, $0.0001 par value, respectively. Shares Reserved for Future Issuance The Company has reserved the following shares of common stock for future issuance: September 30, 2020 December 31, 2019 Series A Preferred Stock 3,773,820 3,773,820 Series B Preferred Stock 6,969,173 6,969,173 Series B-1 Preferred Stock 1,246,133 1,246,133 Series C Preferred Stock 3,992,463 4,582,257 Series C-1 Preferred Stock 9,086,388 — Shares reserved for vesting of restricted common stock 8,763 48,190 Shares reserved for exercise of outstanding stock options 5,814,944 1,634,686 Shares reserved for future awards under the 2017 Stock Incentive Plan 6,051 617,101 Total shares of authorized common stock reserved for future issuance 30,897,735 18,871,360 8. Stock-Based Compensation 2017 Stock Incentive Plan The total number of shares of common stock authorized for issuance under the 2017 Stock Incentive Plan (“the 2017 Plan”) as of September 30, 2020 and December 31, 2019 was 5,937,763 shares and 2,356,927 shares, respectively. As of September 30, 2020, the Company did not hold any treasury shares. Restricted Common Stock The following table summarizes all of the Company’s restricted common stock activity: Shares Weighted Average Grant Date Fair Value Unvested as of December 31, 2019 48,190 $ 0.06 Issued — — Vested (39,427 ) 0.05 Repurchased — — Unvested as of September 30, 2020 8,763 $ 0.08 12 Table of Contents The total fair value of restricted common stock that vested during the three months ended September 30, 2020 and 2019 was $0.1 million and $0.2 million, respectively. The total fair value of restricted common stock that vested during the nine months ended September 30, 2020 and 2019 was $0.2 million and $0.5 million, respectively. Stock Options The following table summarizes the Company’s stock option activity: Number of Shares Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Term Aggregate Intrinsic Value (In years) (In thousands) Outstanding as of December 31, 2019 1,634,686 $ 2.46 Granted 4,295,618 7.54 Exercised (11,628 ) 2.32 $ 40 Cancelled or Forfeited (103,732 ) 3.26 Outstanding as of September 30, 2020 5,814,944 $ 6.20 9.41 $ 15,761 Exercisable as of September 30, 2020 959,256 $ 2.29 8.10 $ 6,350 Vested and expected to vest as of September 30, 2020 5,814,944 $ 6.20 9.41 $ 15,761 The aggregate intrinsic value of stock options outstanding, exercisable, and vested and expected to vest is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company’s common stock for those stock options that had exercise prices lower than the estimated fair value of the Company’s common stock at September 30, 2020. The aggregate intrinsic value of stock options exercised is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company’s common stock on the date of exercise for those stock options that had exercise prices lower than the estimated fair value of the Company’s common stock on the exercise date. Stock Option Valuation The assumptions that the Company used in the Black-Scholes option pricing model to determine the grant-date fair value of stock options granted to employees, members of the board of directors and non-employees on the date of grant were as follows for the three and nine months ended September 30, 2020 and 2019: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Risk-free interest rate 0.37 – 0.68 % 1.55 % 0.37 – 0.91 % 1.55 % Expected term (in years) 6.00 – 10.00 6.00 6.00 – 10.00 6.00 Expected volatility 85.74 – 87.30 % 79.09 % 85.74 – 88.11 % 79.09 % Expected dividend yield 0.00 % 0.00 % 0.00 % 0.00 % Fair value per share of common stock $ 8.27 – 8.91 $ 3.30 $ 5.59 – 8.91 $ 3.30 The weighted-average grant-date fair value of the Company’s stock options granted during the three months ended September 30, 2020 and 2019 was $6.30 per share and $2.25 per share, respectively. The weighted-average grant-date fair value of the Company’s stock options granted during the nine months ended September 30, 2020 and 2019 was $5.41 per share and $2.25 per share, respectively. 13 Table of Contents Stock-Based Compensation Stock-based compensation expense was allocated as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Research and development $ 384 $ 175 $ 639 $ 316 General and administrative 569 101 746 194 Total stock-based compensation expense $ 953 $ 276 $ 1,385 $ 510 As of September 30, 2020, total unrecognized compensation cost related to unvested stock-based awards was $23.3 million, which is expected to be recognized over a weighted-average period of 3.74 years. 9. Net Loss per Share Basic and diluted net loss per share attributable to common stockholders was calculated as follows (in thousands, except share and per share data): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Numerator: Net loss $ (16,216 ) $ (10,606 ) $ (36,114 ) $ (28,124 ) Accretion and cumulative dividends on redeemable convertible preferred stock (3,943 ) (1,267 ) (8,046 ) (3,450 ) Gain on repurchase of redeemable convertible preferred stock — — 493 — Net loss attributable to common stockholders $ (20,159 ) $ (11,873 ) $ (43,667 ) $ (31,574 ) Denominator: Weighted average common shares outstanding, basic and diluted 1,665,902 1,559,800 1,645,982 1,501,908 Net loss per share attributable to common stockholders, basic and diluted $ (12.10 ) $ (7.61 ) $ (26.53 ) $ (21.02 ) The following potential shares of common stock, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have been anti-dilutive: Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Series A Preferred Stock 3,773,820 3,773,820 3,773,820 3,773,820 Series B Preferred Stock 6,969,173 6,969,173 6,969,173 6,969,173 Series B-1 Preferred Stock 1,246,133 1,246,133 1,246,133 1,246,133 Series C Preferred Stock 3,992,463 — 3,992,463 — Series C-1 Preferred Stock 9,086,388 — 9,086,388 — Outstanding stock options 5,814,944 1,634,686 5,814,944 1,634,686 Unvested restricted common stock 8,763 86,160 8,763 86,160 30,891,684 13,709,972 30,891,684 13,709,972 The shares of common stock issuable upon conversion of the Preferred Stock assume automatic conversion in the event of a qualified public offering. 14 Table of Contents 10. Related Party Transactions On September 11, 2019, the Company entered into a Cooperation and License Agreement (the “License Agreement”) with RogCon Inc. (“RogCon”). Under the License Agreement, RogCon granted to the Company an exclusive, worldwide license under RogCon’s intellectual property to research, develop and commercialize products for the treatment of all forms of epilepsy and/or neurodevelopmental disorders in each case caused by any mutation of the SCN2A gene. Pursuant to the terms of the License Agreement, the Company will conduct, at its own cost and expense, the research and development activities assigned to it under the associated research plan. In addition, the Company is responsible for reimbursing RogCon for any costs associated with research and development activities RogCon performs at the request of the Company. One of the founders of RogCon became the Company’s General Counsel in June 2020. The Company continues to reimburse RogCon for its out-of-pocket costs incurred for activities performed under the License Agreement. During the three months ended September 30, 2020, the Company expensed less than $0.1 million for the reimbursement of RogCon’s out-of-pocket costs. During the nine months ended September 30, 2020, the Company expensed $0.1 million for the reimbursement of RogCon’s out-of-pocket costs. As of September 30, 2020, the Company had accrued expenses of $0.3 million due to RogCon under the License Agreement. 11. Subsequent Events The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the condensed consolidated financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. In addition to those subsequent events disclosed previously, the Company has identified the following subsequent events: 2020 Stock Option and Incentive Plan and 2020 Employee Stock Purchase Plan The Company’s 2020 Stock Option and Incentive Plan (the “2020 Plan”) and 2020 Employee Stock Purchase Plan (the “2020 ESPP”) were adopted by the board of directors on September 9, 2020 and approved by the Company’s stockholders on October 8, 2020. Both the 2020 Plan and the 2020 ESPP became effective upon the date immediately preceding the date on which the Company’s registration statement filed with the SEC pursuant to Rule 424(b)(4) was declared effective by the SEC, which was October 15, 2020. The 2020 Plan replaced the 2017 Plan. However, the 2017 Plan will continue to govern outstanding equity awards granted thereunder. Under the 2020 Plan, the Company may make equity-based and cash-based incentive awards to its officers, employees, directors and consultants. The Company has initially reserved 3,271,028 shares and 327,102 shares of common stock for issuance under the 2020 Plan and the 2020 ESPP, respectively. 15 Table of Contents Item 2. 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 condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the final prospectus for our initial public offering filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act, with the Securities and Exchange Commission, or SEC, on October 16, 2020. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Overview We are a clinical-stage biopharmaceutical company translating genetic insights into the development of therapies for central nervous system, or CNS, disorders characterized by neuronal imbalance. Normal brain function requires a delicate balance of excitation and inhibition in neuronal circuits, which, when dysregulated, leads to abnormal function and disease. We are applying insights into the genetic mutations that drive excitation-inhibition imbalance in diseases to select biological targets for severe pediatric epilepsies and more broadly for prevalent psychiatric diseases and neurologic disorders. We apply a deliberate and pragmatic precision approach, leveraging a suite of translational tools including novel transgenic and predictive translational animal models and electrophysiology markers, to enable an efficient path to proof-of-concept in patients. Through this approach, we have established a broad portfolio, including five disclosed programs across multiple CNS disorders, including depression, epilepsy, movement disorders and pain syndromes, with three clinical-stage product candidates. We expect multiple topline clinical trial readouts from all three programs within the next 18 months and anticipate the launch of a new clinical development program in 2021. We intend to develop differentiated therapies that can deliver long-term benefits to human health by meaningfully impacting patients and society. Our most advanced programs, PRAX-114 and PRAX-944, are currently in Phase 2 development. PRAX-114 is being developed for the treatment of major depressive disorder and perimenopausal depression. Together, these conditions affect more than 22 million patients in the United States. PRAX-944 is a selective small molecule inhibitor of T-type calcium channels for the treatment of essential tremor, a progressive and debilitating movement disorder affecting up to seven million people in the United States. In addition, we have initiated a Phase 1 trial of PRAX-562, a persistent sodium current blocker, for the treatment of a broad range of rare, devastating CNS disorders, such as severe pediatric epilepsy and adult cephalgia. In addition to our clinical programs, we have two disclosed preclinical product candidates in development for severe genetic epilepsies. We were incorporated in 2015 and commenced operations in 2016. Since inception, we have devoted substantially all of our resources to developing our preclinical and clinical product candidates, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. We employ a “virtual” research and development model, relying heavily upon external consultants, collaborators and contract research organizations to conduct our preclinical and clinical activities. Since inception, we have financed our operations primarily with proceeds from the issuance of convertible debt, sales of our Series A redeemable convertible preferred stock, Series B redeemable convertible preferred stock, Series B-1 redeemable convertible preferred stock, Series C redeemable convertible preferred stock and Series C-1 redeemable convertible preferred stock and the closing of our initial public offering, or IPO. On October 20, 2020, we completed our IPO in which we issued and sold 11,500,000 shares of our common stock at a public offering price of $19.00 per share, including 1,500,000 shares of common stock sold pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock, for aggregate gross proceeds of $218.5 million. We raised approximately $199.9 million in net proceeds after deducting underwriting discounts and commissions and offering expenses payable by us. Upon the closing of the IPO, all of the outstanding shares of our Series A redeemable convertible preferred stock, Series B redeemable convertible preferred stock, Series B-1 redeemable convertible preferred stock, Series C redeemable convertible preferred stock and Series C-1 redeemable convertible preferred stock automatically converted into 25,067,977 shares of common stock. Subsequent to the closing of the IPO, there were no shares of preferred stock outstanding. In connection with the closing of the IPO, we filed an Amended and Restated Certificate of Incorporation to change the authorized capital stock to 150,000,000 shares of common stock and 10,000,000 shares of undesignated preferred stock. 16 Table of Contents We are a development stage company and we have not generated any revenue from product sales, and do not expect to do so for several years, if at all. All of our programs are still in preclinical and clinical development. 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 product candidates, if approved. We have incurred recurring operating losses since inception, including a net loss of $36.1 million for the nine months ended September 30, 2020. As of September 30, 2020, we had an accumulated deficit of $123.3 million. We expect to incur significant expenses and operating losses for the foreseeable future as we expand our research and development activities. In addition, our losses from operations 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 anticipate that our expenses will increase significantly in connection with our ongoing activities, as we: • advance our lead product candidates, PRAX-114 and PRAX-944, to late stage clinical trials; • advance our PRAX-562 product candidate to Phase 2 clinical trials; • advance our preclinical programs to clinical trials; • further invest in our pipeline; • further invest in our manufacturing capabilities; • seek regulatory approval for our investigational medicines; • maintain, expand, protect and defend our intellectual property portfolio; • acquire or in-license technology; • secure facilities to support continued growth in our research, development and commercialization efforts; • increase our headcount to support our development efforts and to expand our clinical development team; and • incur additional costs and headcount associated with our transition to becoming a public company. In addition, as we progress toward marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. As a result, we will need substantial additional funding 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 expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As of September 30, 2020, we had cash and cash equivalents of $114.8 million. We believe that our existing cash and cash equivalents, combined with the net proceeds from our IPO, will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2022. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources.” COVID-19 Business Update With the global spread of the ongoing COVID-19 pandemic in 2020, we have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our employees and our business, including our preclinical studies and clinical trials. Our operations are considered an essential business and we are continuing to operate during this period. We have taken measures to secure our research and development activities. While we are experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition and results of operations could be materially adversely affected. We continue to closely monitor the COVID-19 pandemic as we evolve our business continuity plans, clinical development plans and response strategy. 17 Table of Contents In addition, while we have taken and are continuing to take steps to mitigate against possible delays, our planned clinical trials may be affected by the COVID-19 pandemic, including (i) delays or difficulties in enrolling and retaining patients in our planned clinical trials, including patients that may not be able or willing to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services; (ii) delays or difficulties in clinical site initiation, including difficulties in recruiting and retaining clinical site investigators and clinical site staff; (iii) diversion or prioritization of healthcare resources away from the conduct of clinical trials and towards the COVID-19 pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials, and because, who, as healthcare providers, may have heightened exposure to COVID-19 and adversely impact our clinical trial operations; (iv) interruption of our future clinical supply chain or key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal, state/provincial or municipal governments, employers and others; and (v) limitations in outsourced third-party resources that would otherwise be focused on the conduct of our planned clinical trials, including because of sickness of third-party personnel or their families, or the desire of third-party personnel to avoid contact with large groups of people. Financial Operations Overview Revenue We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products for several years, if at all. If our development efforts for our current or future product candidates are successful and result in marketing approval or collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements that we may enter into with third parties. Operating Expenses Research and Development Expense The nature of our business and primary focus of our activities generate a significant amount of research and development costs. Research and development expenses represent costs incurred by us for the following: • costs to develop our portfolio; • discovery efforts leading to development candidates; • clinical development costs for our programs; and • costs to develop our manufacturing technology and infrastructure. The costs above comprise the following categories: • personnel-related expenses, including salaries, benefits and stock-based compensation expense; • expenses incurred under agreements with third parties, such as consultants, investigative sites and contract research organizations, or CROs, that conduct our preclinical and clinical studies and in-licensing arrangements; • costs incurred to maintain compliance with regulatory requirements; • costs incurred with third-party contract manufacturing organizations, or CMOs, to acquire, develop and manufacture materials for preclinical and clinical studies; and • depreciation, amortization and other direct and allocated expenses, including rent, insurance and other operating costs, incurred as a result of our research and development activities. We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated balance sheets as prepaid expenses or accrued research and development expenses. Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized, even when there is no alternative future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed. A significant portion of our research and development costs have been external costs. We track direct external research and development expenses to specific programs upon commencement. Due to the number of ongoing programs and our ability to use resources across several projects, indirect or shared operating costs incurred for our research and development programs, such as personnel, facility costs and certain consulting costs, are not recorded or maintained on a program-specific basis. 18 Table of Contents Our major programs, PRAX-114, PRAX-944 and PRAX-562, are those for which we have initiated clinical activities. Our discovery-stage programs are those which are at an earlier point in the development process. The following table reflects our research and development expenses, including direct program-specific expenses summarized by major program, discovery-stage program costs and indirect or shared operating costs recognized as research and development expenses during each period presented (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 PRAX-114 $ 4,077 $ 1,241 $ 9,137 $ 6,122 PRAX-944 1,707 862 3,284 3,641 PRAX-562 885 873 2,527 3,132 Discovery-stage programs 2,154 4,294 4,050 5,024 Personnel-related (including stock-based compensation) 3,098 1,405 7,443 3,946 Other indirect research and development expenses 865 671 2,263 1,993 Total research and development expenses $ 12,786 $ 9,346 $ 28,704 $ 23,858 Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase in the foreseeable future as we advance our product candidates through the development phase, and as we continue to discover and develop additional product candidates, build manufacturing capabilities and expand into additional therapeutic areas. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales or licensing of our product candidates. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of: • our ability to add and retain key research and development personnel; • the timing and progress of preclinical and clinical development activities; • the number and scope of preclinical and clinical programs we decide to pursue; • our ability to successfully complete clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the U.S. Food and Drug Administration, or FDA, or any comparable foreign regulatory authority; • our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our product candidates; • our successful enrollment in and completion of clinical trials; • the costs associated with the development of any additional product candidates we identify in-house or acquire through collaborations; • our ability to discover, develop and utilize biomarkers to demonstrate target engagement, pathway engagement and the impact on disease progression of our product candidates; • our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidates are approved; • the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder; • our ability to obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates if and when approved; • our receipt of marketing approvals from applicable regulatory authorities; • our ability to commercialize products, if and when approved, whether alone or in collaboration with others; and 19 Table of Contents • the continued acceptable safety profiles of the product candidates following approval. A change in any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time to complete our clinical development activities. We may never obtain regulatory approval for any of our product candidates. Drug commercialization will take several years and millions of dollars in development costs. General and Administrative Expense General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for personnel in our executive, finance, legal, business development and administrative functions. General and administrative expenses also include legal fees relating to corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for office rent and other operating costs. These costs relate to the operation of the business, unrelated to the research and development function, or any individual program. Costs to secure and defend our intellectual property, or IP, are expensed as incurred and are classified as general and administrative expenses. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our product candidates. We also expect to incur increased expenses associated with being a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs and investor and public relations costs. We also expect to incur additional IP-related expenses as we file patent applications to protect innovations arising from our research and development activities. Other Income Interest Income Interest income consists of interest earned on our cash and cash equivalents. Income Taxes Since our inception, we have not recorded any U.S. federal or state income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. Income taxes are determined at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Our income tax provision may be significantly affected by changes to our estimates. The income tax benefit recognized for the nine months ended September 30, 2020 related to income tax associated with our operations in Australia. 20 Table of Contents Results of Operations Comparison of the Three Months Ended September 30, 2020 and 2019 The following table summarizes our consolidated statements of operations for each period presented (in thousands): Three Months Ended September 30, Change 2020 2019 Operating expenses: Research and development $ 12,786 $ 9,346 $ 3,440 General and administrative 3,431 1,308 2,123 Total operating expenses 16,217 10,654 5,563 Loss from operations (16,217 ) (10,654 ) (5,563 ) Other income: Interest income 1 48 (47 ) Total other income 1 48 (47 ) Net loss $ (16,216 ) $ (10,606 ) $ (5,610 ) Research and Development Expense The following table summarizes our research and development expenses for each period presented, along with the changes in those items (in thousands): Three Months Ended September 30, Change 2020 2019 PRAX-114 $ 4,077 $ 1,241 $ 2,836 PRAX-944 1,707 862 845 PRAX-562 885 873 12 Discovery-stage programs 2,154 4,294 (2,140 ) Personnel-related (including stock-based compensation) 3,098 1,405 1,693 Other indirect research and development expenses 865 671 194 Total research and development expenses $ 12,786 $ 9,346 $ 3,440 Research and development expenses increased approximately $3.4 million from $9.3 million for the three months ended September 30, 2019 to $12.8 million for the three months ended September 30, 2020. The increase in research and development expenses was primarily attributable to the following: • $2.8 million increase in expense related to our PRAX-114 program, driven by a $2.4 million increase in clinical-related spend and a $0.4 million increase in manufacturing spend both related to our ongoing Phase 2a clinical trial for this program; • $1.7 million increase in personnel-related costs due to increased headcount; • $0.8 million increase in expense related to our PRAX-944 program, driven primarily by a $0.9 million increase in clinical-related spend for our ongoing Phase 2a clinical trial; • $0.2 million increase in other indirect research and development expenses, primarily driven by an increase in facility, office, software and other overhead costs due to increased research and development headcount; and • $2.1 million offsetting decrease in expense related to our discovery-stage programs, primarily driven by a $2.0 million decrease in research and development spend for discovery program assets acquired in the prior year. 21 Table of Contents General and Administrative Expense General and administrative expenses increased $2.1 million from $1.3 million for the three months ended September 30, 2019 to $3.4 million for the three months ended September 30, 2020. The increase in general and administrative expenses was primarily attributable to the following: • $1.1 million increase in professional fees including legal and consulting services, driven by a $0.5 million increase in accounting costs as we prepared for our IPO, a $0.4 million increase in legal fees, primarily related to intellectual property filings as we expand our research and development activities, and a $0.2 million increase in corporate development-related work; and • $1.0 million increase in personnel-related costs driven by increased headcount. Other Income Other income for the three months ended September 30, 2020 and 2019, comprised of interest income on our cash and cash equivalents, was not material. Comparison of the Nine Months Ended September 30, 2020 and 2019 The following table summarizes our consolidated statements of operations for each period presented (in thousands): Nine Months Ended September 30, Change 2020 2019 Operating expenses: Research and development $ 28,704 $ 23,858 $ 4,846 General and administrative 7,552 4,437 3,115 Total operating expenses 36,256 28,295 7,961 Loss from operations (36,256 ) (28,295 ) (7,961 ) Other income: Interest income 134 171 (37 ) Total other income 134 171 (37 ) Loss before benefit from income taxes (36,122 ) (28,124 ) (7,998 ) Benefit from income taxes (8 ) — (8 ) Net loss $ (36,114 ) $ (28,124 ) $ (7,990 ) Research and Development Expense The following table summarizes our research and development expenses for each period presented, along with the changes in those items (in thousands): Nine Months Ended September 30, Change 2020 2019 PRAX-114 $ 9,137 $ 6,122 $ 3,015 PRAX-944 3,284 3,641 (357 ) PRAX-562 2,527 3,132 (605 ) Discovery-stage programs 4,050 5,024 (974 ) Personnel-related (including stock-based compensation) 7,443 3,946 3,497 Other indirect research and development expenses 2,263 1,993 270 Total research and development expenses $ 28,704 $ 23,858 $ 4,846 22 Table of Contents Research and development expenses increased $4.8 million from $23.9 million for the nine months ended September 30, 2019, to $28.7 million for the nine months ended September 30, 2020. The increase in research and development expenses was primarily attributable to the following: • $3.5 million increase in personnel-related costs due to increased headcount; • $3.0 million increase expense related to our PRAX-114 program, driven primarily by a $3.6 million increase in clinical-related spend for our ongoing Phase 2a clinical trial for this program, partially offset by a $0.5 million decrease related to pre-clinical expenses incurred during the nine months ended September 30, 2019; • $0.3 million increase in other indirect research and development expenses, primarily driven by an increase in facility, office, software and other overhead costs due to increased research and development headcount; • $1.0 million offsetting decrease in discovery-stage program expense, driven by a $0.7 million decrease in expense for discovery program assets acquired in the prior year and a $0.3 million decrease in spend for our other discovery-stage programs; • $0.6 million offsetting decrease in our PRAX-562 program, driven by a $1.7 million decrease related to pre-clinical expenses incurred during the nine months ended September 30, 2019 to identify our clinical candidate, offset by a $0.7 million increase in clinical-related spend and a $0.4 million manufacturing spend related to our ongoing Phase 1 clinical trial for this program; and • $0.4 million offsetting decrease in expense related to our PRAX-944 program, driven by a $1.1 million decrease for pre-clinical work performed during the nine months ended September 30, 2019 to prepare for our Phase 2a clinical trial and a $0.6 million decrease related to a drug product manufacturing campaign that was executed during the nine months ended September 30, 2019, offset by a $1.3 million increase in clinical-related spend for our ongoing Phase 2 clinical trial for this program. General and Administrative Expense General and administrative expenses increased approximately $3.1 million from $4.4 million for the nine months ended September 30, 2019 to $7.6 million for the nine months ended September 30, 2020. The increase in general and administrative expenses was primarily attributable to the following: • $1.6 million increase in professional fees including legal and consulting services, driven by a $1.2 million increase in consulting costs, including $0.8 million of increased accounting costs as we prepared for the IPO and $0.3 million of increased corporate development spend to support commercial assessments of our clinical-stage programs, and a $0.4 million increase in legal fees primarily related to intellectual property filings as we expand our research and development activities; • $1.4 million increase in personnel-related costs driven by increased headcount; and • $0.1 million increase in facilities, office and other general and administrative expenses to support the increase in our operating activities. Total Other Income Total other income for the nine months ended September 30, 2020 and 2019 was $0.1 million and $0.2 million, respectively, comprised of interest income on our cash and cash equivalents. Liquidity and Capital Resources Sources of Liquidity Since our inception, we have incurred significant losses in each period. We have not yet commercialized any of our product candidates, which are in various phases of preclinical and clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all. To date, we have financed our operations primarily with proceeds from sales of our redeemable convertible preferred stock, the issuance of convertible debt and the closing of our IPO. Prior to our IPO, we raised an aggregate of $206.7 million in proceeds from the sale of our redeemable convertible preferred stock and $4.0 million in proceeds from the issuance of convertible promissory notes. As of September 30, 2020, we had cash and cash equivalents of $114.8 million. On October 20, 2020, we completed our IPO for approximately $199.9 million in net proceeds after deducting underwriting discounts and commissions and offering expenses payable by us. 23 Table of Contents Historical Cash Flows The following table provides information regarding our cash flows for each period presented (in thousands): Nine Months Ended September 30, 2020 2019 Net cash provided by (used in): Operating activities $ (32,395 ) $ (23,466 ) Investing activities — (103 ) Financing activities 102,352 9,939 Net increase (decrease) in cash, cash equivalents and restricted cash $ 69,957 $ (13,630 ) Operating Activities Our cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support the business. We have historically experienced negative cash flows from operating activities as we have invested in developing our portfolio, drug discovery efforts and related infrastructure. The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital, which are primarily the result of increased expenses and timing of vendor payments. During the nine months ended September 30, 2020, net cash used in operating activities of $32.4 million was primarily due to our $36.1 million net loss, partially offset by $1.9 million of non-cash charges and $1.8 million in changes in operating assets and liabilities. During the nine months ended September 30, 2019, net cash used in operating activities of $23.5 million was primarily due to our $28.1 million net loss, partially offset by $1.0 million of non-cash charges and $3.6 million in changes in operating assets and liabilities. Investing Activities There were no cash flows from investing activities during the nine months ended September 30, 2020. During the nine months ended September 30, 2019, net cash used in investing activities related to the purchase of property and equipment. Financing Activities During the nine months ended September 30, 2020, net cash provided by financing activities of $102.4 million consisted of net proceeds from the issuance of our Series C redeemable convertible preferred stock and Series C-1 redeemable convertible preferred stock and exercise of stock options, offset by the cash paid for the repurchase of our Series C redeemable convertible preferred stock and cash paid for initial public offering costs incurred. During the nine months ended September 30, 2019, net cash provided by financing activities of $9.9 million consisted of net proceeds from the issuance of our Series B-1 redeemable convertible preferred stock. Plan of Operation and Future Funding Requirements We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. In addition, we expect to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future. We anticipate that our expenses will increase substantially if and as we: • advance the clinical development of our PRAX-114, PRAX-944 and PRAX-562 product candidates; • advance the development of any additional product candidates; • conduct research and continue preclinical development of potential product candidates; • make strategic investments in manufacturing capabilities; 24 Table of Contents • maintain our current intellectual property portfolio and opportunistically acquire complementary intellectual property; • seek to obtain regulatory approvals for our product candidates; • potentially establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any products for which we may obtain regulatory approval; • add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our product development and potential future commercialization efforts and to support our transition to a public company; and • experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues or other regulatory challenges. We are unable to estimate the exact amount of our working capital requirements, but based on our current operating plan, we believe that our existing cash and cash equivalents, combined with the cash proceeds from our IPO, will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2022. However, we have based this estimate on assumptions that may prove to be wrong and we could exhaust our capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may enter into collaborations with third parties for the development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including, but not limited to: • the scope, progress, results and costs of preclinical studies and clinical trials for our programs and product candidates; • the number and characteristics of programs and technologies that we develop or may in-license; • the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; • the costs necessary to obtain regulatory approvals, if any, for products in the United States and other jurisdictions, and the costs of post-marketing studies that could be required by regulatory authorities in jurisdictions where approval is obtained; • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; • the continuation of our existing licensing arrangements and entry into new collaborations and licensing arrangements; • the costs we incur in maintaining business operations; • the costs associated with being a public company; • the revenue, if any, received from commercial sales of any product candidates for which we receive marketing approval; • the effect of competing technological and market developments; • the impact of any business interruptions to our operations or to those of our manufacturers, suppliers or other vendors resulting from the COVID-19 pandemic or similar public health crisis; and • the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for product candidates, although we currently have no commitments or agreements to complete any such acquisitions or investments in businesses. Identifying potential product candidates and conducting preclinical testing and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives. 25 Table of Contents Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. Market volatility resulting from the COVID-19 pandemic or other factors could also adversely impact our ability to access capital as and when needed. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Additional 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 capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially result in dilution to the holders of our common stock. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product 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 when needed, we may be required to delay, limit or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves. Contractual Obligations There have been no changes to our contractual obligations from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations and Commitments” in our final prospectus filed with the SEC pursuant to Rule 424(b)(4) on October 16, 2020. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these condensed consolidated 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 condensed consolidated 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. There have been no changes to our critical accounting policies from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Significant Judgments and Estimates” included in our final prospectus filed with the SEC pursuant to Rule 424(b)(4) on October 16, 2020. JOBS Act and Emerging Growth Company and Smaller Reporting Company Status In April 2012, the JOBS Act was enacted. As an emerging growth company, or EGC, under the JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation and less extensive disclosure about our executive compensation arrangements. Additionally, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of the extended transition period and, therefore, while we are an EGC we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not EGCs, unless we choose to early adopt a new or revised accounting standard. We will remain classified as an EGC until the earlier of: (i) the last day of our first fiscal year in which we have total annual gross revenues of $1.07 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of completion of our IPO, (iii) the date on which we have issued more than $1.0 billion of non-convertible debt instruments during the previous three fiscal years or (iv) the date on which we are deemed a “large accelerated filer” under the rules of the SEC. 26 Table of Contents We are also a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter, or our annual revenues are less than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. Recently Issued Accounting Pronouncements We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, such standards will not have a material impact on our condensed consolidated financial statements or do not otherwise apply to our current operations.