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Item 7. Management’s Discussion and Analysis

2022-02-28 compared with 2021-03-17 · 153 added, 218 removed, 178 unchanged (68% of the section changed)

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 the “Selected Consolidated Financial Data” section of this Annual Report on Form 10-K and our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and financing needs, 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 Annual Report on Form 10-K, 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.

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 from genetic epilepsies to broader neurological and psychiatric disorders, using our understanding of shared biological targets and circuits in the brain.

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 excitation-inhibition imbalance.

Normal brain function requires a delicate balance of excitation and inhibition in neuronal circuits, which, when dysregulated, can lead to abnormal function and disease.

We are applying insights from genetic epilepsies to both rare and more prevalent neurological and psychiatric disorders, using our understanding of shared biological targets and circuits in the brain.

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 multiple disclosed programs across CNS disorders, including depression, epilepsy, movement disorders and pain syndromes, with three clinical-stage product candidates.

We intend to develop differentiated therapies that can deliver long-term benefits to human health by meaningfully impacting patients and society.

We expect multiple topline clinical trial readouts from all three programs in the next year 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 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 epilepsies and rare adult cephalgias.

In addition to our clinical programs, we have multiple disclosed preclinical product candidates in development for severe genetic epilepsies.

Through this approach, we have established a broad CNS portfolio with multiple programs, including product candidates across psychiatric disorders, movement disorders, epilepsy and other exploratory CNS indications, with three clinical-stage product candidates.

Each of our clinical-stage product candidates is advancing in more than one indication and we anticipate expansion into additional indications.

We expect multiple topline readouts from our clinical-stage programs and anticipate the launch of a fourth clinical development program in 2022.

In addition, we have established a robust pipeline of preclinical stage programs through internal research and in-licensing.

Our broad portfolio of CNS programs is currently structured by therapeutic focus in three primary franchises – Psychiatry, Movement Disorders and Epilepsy.

In addition, we are pursuing development in other exploratory CNS indications such as rare adult cephalgias.

Within our Psychiatry franchise, our most advanced clinical candidate, PRAX-114, is being developed for the treatment of a broad range of patients suffering from major depressive disorder, or MDD, and post-traumatic stress disorder, or PTSD.

We expect to report topline results from the Aria Study, a Phase 2/3, placebo-controlled study evaluating PRAX-114 for monotherapy treatment of MDD, in the second quarter of 2022.

We also expect to report topline results from the Acapella Study, a Phase 2, placebo-controlled, dose-ranging study evaluating PRAX-114 for treatment of MDD, in mid-2022.

In addition, we have initiated a Phase 2, placebo-controlled study evaluating PRAX-114 for the treatment of PTSD and expect to report topline results in the second half of 2022.

Within our Movement Disorders franchise, our second clinical candidate, PRAX-944, is being developed for the treatment of Essential Tremor, or ET, and Parkinson's Disease, or PD.

We anticipate reporting topline results from the second cohort of our ongoing Phase 2a trial evaluating PRAX-944 for the treatment of ET in the second quarter of 2022, including both open-label and placebo-controlled, randomized withdrawal period results.

We have initiated a Phase 2b placebo-controlled, dose-range finding trial, the Essential1 Study, to evaluate the tolerability, safety and efficacy of PRAX-944 in adults with ET and we expect to report topline results in the second half of 2022.

We also expect to initiate a Phase 2, placebo-controlled, crossover study to evaluate the safety, pharmacokinetics, or PK, and efficacy of daytime dosing of PRAX-114 for the treatment of ET in the first quarter of 2022 and expect to report topline results in the second half of 2022.

We expect to initiate a Phase 2, placebo-controlled trial to evaluate the safety, PK and efficacy of PRAX-944 as a non-dopaminergic treatment for the motor symptoms of PD in the second quarter of 2022.

Within our Epilepsy franchise, we expect to initiate a Phase 2 study with our third clinical-stage candidate, PRAX-562, in the second quarter of 2022 in patients with rare pediatric Developmental and Epileptic Encephalopathies.

Our most advanced preclinical stage product candidate within our Epilepsy franchise, PRAX-222, is an antisense oligonucleotide, or ASO, designed to decrease the expression levels of the protein encoded by the gene SCN2A in patients with gain-of-function SCN2A mutations.

We expect to initiate a seamless study of PRAX-222 in the second quarter of 2022, which would be our fourth program to reach clinical stage.

We also expect to initiate a Phase 2 proof-of-concept clinical trial evaluating PRAX-562 in patients with rare adult

cephalgias in the first quarter of 2022.

In addition, our preclinical pipeline consists of a discovery program in development for KCNT1 related epilepsy, PRAX-628, a product candidate nominated in the fourth quarter of 2021 for focal epilepsy, three ASOs targeting SCN2A in patients with loss-of-function mutations, PCDH19 and SYNGAP1, respectively, and three additional discovery programs for undisclosed targets in psychiatry, movement disorders and epilepsy.

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 and 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 $200.3 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 redeemable convertible 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.

Since inception, we have devoted substantially all of our resources to developing our preclinical and clinical product candidates, building our intellectual property, or IP, 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, or CROs, to conduct our preclinical and clinical activities.

Since inception, we have financed our operations primarily with proceeds from the sale and issuance of equity securities.

On May 18, 2021, we completed a follow-on public offering in which we issued and sold 5,750,000 shares of our common stock at a public offering price of $18.25 per share, including 750,000 shares of common stock issued and sold pursuant to the underwriters' exercise, in full, of their option to purchase additional shares of common stock, for aggregate gross proceeds of $104.9 million.

We received approximately $98.4 million in net proceeds after deducting discounts, commissions and offering expenses payable by us.

On November 3, 2021, we entered into an Open Market Sale Agreement, or the sales agreement, with Jefferies LLC, or Jefferies, to provide for the offering, issuance and sale of up to an aggregate amount of $125.0 million of common stock from time to time in at-the-market offerings for which Jefferies acts as sales agent.

As of December 31, 2021, we issued and sold 391,997 shares under the sales agreement for aggregate gross proceeds of $7.6 million.

We received approximately $7.0 million of net proceeds after deducting commissions and offering expenses payable by us.

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.

All of our product candidates 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.

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• advance our PRAX-562 product candidate to Phase 2 clinical trials;

• advance our discovery-stage programs to clinical trials;

• advance our PRAX-222 product candidate to clinical trials;

• advance our preclinical candidates 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;

• seek regulatory approval for our product candidates;

• maintain, expand, protect and defend our IP portfolio;

• acquire or in-license technology;

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• increase our headcount to support our development efforts and to expand our clinical development team.

• incur additional costs and headcount associated with operating as 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.

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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 December 31, 2020, we had cash and cash equivalents of $296.6 million.

We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditures into the fourth quarter of 2022.

As of December 31, 2021, we had cash, cash equivalents, and marketable securities of $275.9 million.

We believe that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditures into the second quarter of 2023.

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.

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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.

In light of the ongoing COVID-19 pandemic, we continue to experience some disruptions and increased risk in our operations and those third parties upon whom we rely.

These include disruptions and risks related to the conduct of our clinical trials and preclinical studies as policies at various clinical sites and federal, state, local and foreign laws, rules and regulations continue to evolve, including quarantines, travel restrictions and redirection of healthcare resources toward pandemic response efforts.

The COVID-19 pandemic has impacted the enrollment of some of our ongoing clinical trials, including slower patient enrollment and treatment in some of our clinical studies, the impact of which has varied by clinical study and program, but none of which have significantly impacted our overall clinical trial timelines.

While we have experienced limited financial impacts to date, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic such as increased inflation, 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.

In addition, while we have taken and are continuing to take steps to mitigate against COVID-19 pandemic-related 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

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Operating Expenses

Research and Development Expense

Research and Development Expenses

The nature of our business and primary focus of our activities generate a significant amount of research and development costs.

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• discovery efforts leading to development candidates;

• clinical development costs for our programs;

• clinical development costs for our product candidates;

• costs to develop our manufacturing technology and infrastructure.

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• 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;

• expenses incurred under agreements with third parties, such as consultants, investigative sites and 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 development and manufacturing organizations, or CDMOs, to acquire, develop and manufacture materials for preclinical and clinical studies;

• costs incurred with third-party contract development and manufacturing organizations to acquire, develop and manufacture materials for preclinical and clinical studies;

• 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.

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.

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.

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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.

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):

PRAX-114 $ 13,071 $ 7,192

PRAX-944 4,158 4,035

PRAX-562 4,566 4,276

Discovery-stage programs 6,093 5,909

We track direct external research and development expenses to specific franchises and product candidates upon commencement.

Due to the number of ongoing studies and our ability to use resources across several projects, indirect or shared operating costs incurred for our research and development franchises, such as personnel, facility costs and certain consulting costs, are not recorded or maintained on a franchise-specific basis.

The following table reflects our research and development expenses, including direct expenses summarized by major franchise and other exploratory CNS indications and indirect or shared operating costs recognized as research and development expenses during each period presented (in thousands):

Year Ended December 31,

$ 29,218 $ 13,077

Movement disorders

Other exploratory CNS indications 9,509 700

Personnel-related (including stock-based compensation) 31,090 13,483

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• 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 U.S.

• the number and scope of our preclinical and clinical product candidates 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 the FDA, or any comparable foreign regulatory authority;

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• 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 ability to obtain and maintain patent, trade secret and other IP protection and regulatory exclusivity for our product candidates, if 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;

• the continued acceptable safety profiles of the product candidates following approval.

• our ability to commercialize products, if approved, whether alone or in collaboration with others;

• the continued acceptable safety profiles of any 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.

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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.

The drug commercialization of any of our product candidates, if ever, will take several years and require significant 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;

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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.

These costs relate to the operation of the business, unrelated to the research and development function, or any individual franchise or product candidate.

Costs to secure and defend our 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.

Total Other Income

Interest Income

Interest income consists of interest earned on our cash and cash equivalents.

Other Income, Net

Other income, net consists of interest income from our cash, cash equivalents and marketable securities and amortization of investment premiums and discounts.

Since our inception, we have not recorded any U.S.

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As of December 31, 2021 and 2020, we had U.S.

federal and state net operating loss carryforwards which may be available to offset future taxable income and which would begin to expire in 2035.

As of December 31, 2020 and 2019, we also had federal and state research and development tax credit carryforwards which may be available to offset future income tax liabilities and which would begin to expire in 2031.

federal and state net operating loss carryforwards which may be available to offset future taxable income and which begin to expire in 2035.

As of December 31, 2021 and 2020, we also had federal and state research and development tax credit carryforwards which may be available to offset future income tax liabilities and which begin to expire in 2031.

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 years ended December 31, 2020 and 2019 related to income tax benefits associated with our operations in Australia.

There was no income tax benefit (provision) recognized for the year ended December 31, 2021.

The income tax benefit recognized for the year ended December 31, 2020 was not material.

Results of Operations

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The following table summarizes our consolidated statements of operations for each period presented (in thousands):

December 31, Change

Year Ended December 31, Change

Operating expenses:

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Loss from operations (167,332) (61,968) (105,364)

Other income:

Other income, net 271 140 131

Total other income 271 140 131

Interest income 140 193 (53)

Total other income, net 140 193 (53)

Loss before benefit from income taxes (61,828) (35,596) (26,232)

Loss before income taxes (167,061) (61,828) (105,233)

Benefit from income taxes — 8 (8)

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The following table summarizes our research and development expenses for each period presented, along with the changes in those items (in thousands):

December 31, Change

PRAX-114 $ 13,071 $ 7,192 $ 5,879

PRAX-944 4,158 4,035 123

PRAX-562 4,566 4,276 290

Discovery-stage programs 6,093 5,909 184

Year Ended December 31, Change

$ 29,218 $ 13,077 $ 16,141

23,122 9,953 13,169

Movement disorders

18,460 4,158 14,302

Other exploratory CNS indications 9,509 700 8,809

Personnel-related (including stock-based compensation) 31,090 13,483 17,607

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Total research and development expenses $ 120,257 $ 44,976 $ 75,281

Research and development expenses increased $15.4 million from $29.6 million for the year ended December 31, 2019 to $45.0 million for the year ended December 31, 2020.

The increase in research and development expenses was primarily attributable to the following:

• $8.1 million increase in personnel-related costs primarily due to increased headcount, including an increase of $0.9 million in stock-based compensation expense;

• $5.9 million increase in expense related to our PRAX-114 program, primarily driven by a $6.4 million increase in clinical-related spend for our ongoing Phase 2a clinical trial for this program, partially offset by a $0.5 million decrease in preclinical spend;

• $0.9 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;

• $0.3 million increase in expense related to our PRAX-562 program, primarily driven by a $2.0 million increase in clinical and manufacturing spend related to our Phase 1 clinical trial for this program, partially offset by a $1.7 million decrease in preclinical spend due to prior year work to nominate our clinical candidate.

The $75.3 million increase in research and development expenses was primarily attributable to the following:

• $17.6 million increase in personnel-related costs due to increased headcount, driven primarily by an increase of $8.0 million in stock-based compensation expense;

• $16.1 million increase in expense related to our psychiatry franchise, driven primarily by an increase in clinical-related and toxicology spend for our PRAX-114 Phase 2/3 Aria and Acapella clinical trials;

• $13.2 million increase in expense related to our epilepsy franchise, driven primarily by an increase in clinical-related and toxicology spend to support the initiation of our PRAX-562 Phase 2 developmental epileptic encephalopathies clinical trial and an increase in preclinical activities for our earlier stage assets;

• $14.3 million increase in expense related to our movement disorders franchise, driven primarily by an increase in toxicology and clinical-related spend for our PRAX-944 Phase 2 Essential1 clinical trial;

• $8.8 million increase in other exploratory CNS indications, driven primarily by an increase in clinical-related expenses for our PRAX-562 Phase 2 trial in Short-lasting Unilateral Neuralgiform headache attacks, Short-lasting Unilateral Neuralgiform headache with Autonomic symptoms and Trigeminal Neuralgia, as well as increased preclinical activities for our earlier stage assets;

• $5.3 million increase in other indirect research and development expenses, driven primarily by an increase in general clinical related spend, as well as increases in facility and other allocated overhead costs and technology spend and related consulting costs to support our clinical and quality operations.

General and Administrative Expense

General and administrative expenses increased $10.8 million from $6.2 million for the year ended December 31, 2019 to $17.0 million for the year ended December 31, 2020.

The increase in general and administrative expenses was primarily attributable to the following:

• $7.0 million increase in personnel-related costs, primarily driven by increased headcount, including an increase of $3.6 million in stock-based compensation expense, of which $2.1 million related to a stock option modification in the fourth quarter of 2020;

• $2.5 million increase in professional fees including legal and consulting services, driven by a $2.1 million increase in consulting costs, including $1.0 million in the accounting function in support of our IPO and $0.9 million of increased corporate development spend, primarily to support commercial assessments of our clinical-stage programs, and a $0.4 million increase in legal fees, primarily related to intellectual property filing and defense matters as we expand our research and development activities and develop our patent portfolio;

• $1.3 million increase in other general and administrative expenses expenses, including a $1.1 million increase in insurance and related costs, primarily due to becoming a public company and a $0.2 million increase in other expenses to support our growing organization.

Total other income

Total other income for the years ended December 31, 2020 and 2019, was comprised of interest income on our cash and cash equivalents.

The $30.1 million increase in general and administrative expenses was primarily attributable to the following:

• $14.6 million increase in personnel-related costs, driven primarily by increased headcount, including an increase of $9.5 million in stock-based compensation expense;

• $9.9 million increase in professional fees, driven primarily by $5.1 million of increased commercial-related spend to support market assessments of our clinical-stage programs, a $2.2 million increase in audit and legal fees and a $1.7 million increase in general and administrative infrastructure-related costs;

• $5.6 million increase in other general and administrative expenses, driven primarily by a $3.5 million increase in insurance and related costs due to our first full year as a public company, a $0.8 million increase in technology spend and a $0.7 million increase in donations and sponsorships.

Other income for the years ended December 31, 2021 and 2020 was comprised of interest income on our cash, cash equivalents and marketable securities and investment premium and discount amortization.

Liquidity and Capital Resources

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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.

Since our inception, we have funded our operations with proceeds from the sales of our redeemable convertible preferred stock, the issuance of convertible promissory notes and proceeds from our IPO.

We raised an aggregate of $206.7 million in proceeds from the sale of our redeemable convertible preferred stock, $4.0 million in proceeds from the issuance of convertible promissory notes, and $200.3 million in net proceeds from our IPO, after deducting underwriting discounts and commissions and offering expenses payable by us.

As of December 31, 2020, we had cash and cash equivalents of $296.6 million.

Historical Cash Flows

To date, we have financed our operations primarily with proceeds from the sale and issuance of equity securities.

From inception through December 31, 2021, we have raised $516.4 million in aggregate cash proceeds from such transactions, net of issuance costs.

As of December 31, 2021, we had cash, cash equivalents and marketable securities of $275.9 million.

The following table provides information regarding our cash flows for each period presented (in thousands):

Net cash provided by (used in):

Year Ended December 31,

Net cash (used in) provided by:

Operating activities $ (124,554) $ (52,623)

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Financing activities 107,586 304,416

Net increase in cash, cash equivalents and restricted cash $ 251,793 $ 26,865

Net (decrease) increase in cash, cash equivalents and restricted cash $ (157,488) $ 251,793

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 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 year ended December 31, 2020, net cash used in operating activities of $52.6 million was primarily due to our $61.8 million net loss, partially offset by $6.0 million of non-cash charges and $3.2 million in changes in operating assets and liabilities.

During the year ended December 31, 2019, net cash used in operating activities of $33.4 million was primarily due to our $35.5 million net loss, partially offset by $1.3 million of non-cash charges and $0.7 million in changes in operating assets and liabilities.

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 operating assets and liabilities, which are primarily the result of increased expenses and timing of vendor payments.

During the year ended December 31, 2021, net cash used in operating activities of $124.6 million was primarily due to our $167.1 million net loss, partially offset by $26.4 million of non-cash charges primarily related to stock-based compensation, amortization of premiums and discounts on marketable securities and non-cash operating lease expense, and $16.1 million in changes in operating assets and liabilities primarily related to increases in accounts payable and accrued expenses.

During the year ended December 31, 2020, net cash used in operating activities of $52.6 million was primarily due to our $61.8 million net loss, partially offset by $6.0 million of non-cash charges primarily related to stock-based compensation and $3.2 million in changes in operating assets and liabilities primarily related to an increase in accrued expenses.

Investing Activities

During the year ended December 31, 2021, net cash used in investing activities of $140.5 million primarily related to the purchase of marketable securities, partially offset by the maturity of marketable securities.

There were no cash flows from investing activities during the year ended December 31, 2020.

During the year ended December 31, 2019, net cash used in investing activities related to the purchase of property and equipment.

Financing Activities

During the year ended December 31, 2021, net cash provided by financing activities of $107.6 million consisted of net proceeds from our follow-on public offering and at-the-market offerings of $105.7 million and net proceeds from the exercise of stock options of $2.4 million partially offset by the payment of issuance costs for our initial public offering, or IPO.

During the year ended December 31, 2020, net cash provided by financing activities of $304.4 million primarily consisted of net proceeds from our IPO and from the issuance of our Series C and Series C-1 redeemable convertible preferred stock, partially offset by our repurchase of Series C redeemable convertible preferred stock.

During the year ended December 31, 2019, net cash provided by financing activities of $60.4 million was primarily from net proceeds from the issuance of our Series B-1 redeemable convertible preferred stock and from the issuance of our Series C 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.

We also expect to continue to incur additional costs associated with operating as a public company.

In addition, we expect to incur additional costs associated with operating as a public company and as we transition from being an emerging growth company and a smaller reporting 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 clinical development of our clinical-stage product candidates within our psychiatry, movement disorders and epilepsy franchises, respectively;

• advance the development of any additional product candidates;

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• make strategic investments in manufacturing capabilities;

• maintain our current intellectual property portfolio and opportunistically acquire complementary intellectual property;

• maintain our IP portfolio and opportunistically acquire complementary IP;

• 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;

• 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 available cash resources, we expect to have sufficient cash and cash equivalents on hand to support current operations into the fourth quarter of 2022.

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.

We are unable to estimate the exact amount of our working capital requirements, but based on our current operating plan, we expect that our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2023.

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 potential collaborations with third parties for the development of our product candidates, 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 scope, progress, results and costs of preclinical studies and clinical trials for our franchises and product candidates;

• the number and characteristics of product candidates 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 costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our IP rights and defending any IP-related claims;

• the continuation of our existing licensing arrangements and entry into new collaborations and licensing arrangements;

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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, your ownership interest will be diluted, and the terms

of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder.

Additional debt financing and 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 dilute your ownership interest.

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.

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Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of December 31, 2020 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods (in thousands):

Payments Due by Period

Total Less Than

1 Year 1 to 3

Operating lease commitments(1) $ 791 $ 791 $ — $ — $ —

Total $ 791 $ 791 $ — $ — $ —

________________________________

(1) We sublease building space in Cambridge, Massachusetts.

Our sublease will expire on December 30, 2021.

The amounts in the table above represent the fixed contractual lease obligations.

We have collaboration and license agreements with Purdue Neuroscience Company, or Purdue, RogCon Inc., or RogCon, and Ionis Pharmaceuticals, Inc., or Ionis, under which we could be obligated to pay certain fees, milestone payments and cost reimbursements.

We have entered into certain agreements under which we have incurred or may in the future incur obligations and commitments that could have a material impact on our capital resources.

We sublease building space in Boston, Massachusetts.

Our sublease will expire on January 31, 2026.

As of December 31, 2021, our operating lease commitments for the remainder of the lease term were $5.2 million.

In addition, we have entered into collaboration and license agreements with Purdue Neuroscience Company, or Purdue, RogCon Inc., or RogCon, and Ionis Pharmaceuticals, Inc., or Ionis, under which we could be obligated to pay certain fees, milestone payments and cost reimbursements.

Under our license agreement with Purdue, we are obligated to make future milestone payments of up to $33.0 million based on the achievement of specified development and sales milestones.

Furthermore, we will pay Purdue royalties of a low-single-digit percentage of annual net sales of licensed products.

Furthermore, we are obligated to pay Purdue royalties of a low-single-digit percentage of annual net sales of licensed products.

Either party may terminate the license agreement for convenience or in the event of a material breach by the other party and failure to cure such breach within a certain period of time.

If the agreement is voluntarily terminated by Purdue, our license rights will survive such termination and such rights will become fully paid, perpetual and irrevocable.

As the agreement may be terminated for convenience, the payments are not included in the table above.

See “Business—License Agreements—License Agreement with Purdue.”

Under our license agreement with RogCon, we will reimburse RogCon for its out-of-pocket costs incurred for activities performed under the license agreement.

Additionally, we may pay RogCon a milestone payment of $3.0 million and profit share payments.

The $3.0 million milestone payment will become due when the first profit share payment has become due and payable and certain contingent payments have become due and payable to Ionis under our collaboration agreement with Ionis.

The profit share payments will be based on a low-double-digit percentage of net profits, depending on sales volume.

Under our license agreement with RogCon, we are obligated to reimburse RogCon for its out-of-pocket costs incurred for activities performed under the license agreement.

Additionally, we may be obligated to pay RogCon a milestone payment of $3.0 million and profit share payments.

The $3.0 million milestone payment is due when the first profit share payment has become due and payable and certain contingent payments have become due and payable to Ionis under our collaboration agreement with Ionis.

The profit share payments are based on a low-double-digit percentage of net profits, depending on sales volume.

Either party may terminate the license agreement for material breach or insolvency of the other party.

Additionally, we may terminate for convenience with prior notice to RogCon.

As such, we do not include variable and contingent payments under our agreement with RogCon in the table above as they are not fixed and estimable.

See “Business—License Agreements—License Agreement with RogCon.”

Under our collaboration agreement with Ionis, we are obligated to reimburse any out-of-pocket costs incurred by Ionis related to research activities, identification of a development candidate and conducting an IND-enabling toxicology study.

We also have an exclusive option to obtain the rights and license related to the development candidate following the completion of the IND-enabling toxicology study.

If we exercise our development candidate option, we may be required to make additional payments to Ionis including a license fee, development milestone payments, additional milestone payments and sales royalties or sublicense fees.

However, we are not obligated to

exercise our development candidate option and are able to terminate our collaboration agreement with Ionis for convenience.

Either party may terminate the collaboration agreement upon material breach or insolvency of the other party or if Ionis is unable to identify a development candidate.

Ionis granted us an exclusive option to obtain the rights and license to further develop and commercialize a development candidate in the field of epilepsy and neurodevelopmental disorders, other than Dravet Syndrome, following the results of the IND-enabling toxicology study.

We exercised this exclusive option in January 2022 and paid a $2.0 million license fee.

We may be required

to make additional payments to Ionis including development milestone payments, additional milestone payments and sales royalties or sublicense fees.

Either party may terminate the collaboration agreement upon material breach or insolvency of the other party.

Ionis may terminate if we fail to achieve a performance milestone.

As such, payments due pursuant to the exercise of our development candidate option are contingent and therefore excluded from the table above as they are not fixed and estimable.

See “Business—License Agreements—Ionis Collaboration Agreement.”

We have also entered into multiple agreements with third parties under which we may be obligated to make future development, regulatory and commercial milestone payments and royalty payments on future sales of specified product candidates.

Payments under these agreements generally become due and payable upon achievement of such milestones and sales.

When the achievement of these milestones or sales have not occurred, such contingencies are not recorded in our financial statements.

We have agreements with certain vendors for various services, including services related to clinical operations and support, for which we are not contractually able to terminate for convenience and avoid any and all future obligations to the vendors.

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The exact amounts of such obligations are dependent on the timing of termination and the exact terms of the relevant agreement and cannot be reasonably estimated.

We do not include these payments in the table above as they are not fixed and estimable.

In addition, we enter into indemnification agreements and agreements containing indemnification provisions in the ordinary course of business.

Pursuant to these agreements, we agree to indemnify, hold harmless and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally our business partners, in connection with any U.S.

patent or any copyright or other intellectual property infringement claim by any third party with respect to our products.

patent or any copyright or other IP infringement claim by any third party with respect to our product candidates.

The term of these indemnification agreements is generally perpetual upon execution of the agreement.

The maximum potential amount of future payments we could be required to make under these indemnification agreements cannot be reasonably estimated and therefore is not included in the table above.

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.

The maximum potential amount of future payments we could be required to make under these indemnification agreements cannot be reasonably estimated.

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 consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP.

The preparation of these 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 consolidated financial statements, as well as the reported expenses incurred during the reporting periods.

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While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.

Research and Development Expenses and Related Accruals

Research and development expenses include costs directly attributable to the conduct of research and development programs, including personnel-related expenses such as salaries, benefits and stock-based compensation expense;

Research and Development Expenses and Related Accruals and Prepaids

Research and development expenses include costs directly attributable to the conduct of research and development activities, including personnel-related expenses such as salaries, benefits and stock-based compensation expense;

manufacturing and external costs related to outside vendors engaged to conduct both preclinical studies and clinical trials;

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All costs associated with research and development activities are expensed as incurred.

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses.

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued and prepaid research and development expenses.

This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs.

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however, some require advance payments.

We make estimates of our accrued expenses as of each balance sheet date in our financial

statements based on facts and circumstances known to us at that time.

When evaluating the adequacy of the accrued liabilities, we analyze progress of the studies or trials, including the phase or completion of events, invoices received and contracted costs.

Examples of estimated accrued research and development expenses include fees paid to:

We make estimates in determining our accrued and prepaid research and development expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us

at that time.

When evaluating the adequacy of the accrued liabilities and prepaid expenses, we analyze progress of the studies or trials related to these services, including the phase or completion of events, invoices received and contracted costs.

Examples of estimated accrued and prepaid research and development expenses include fees paid to:

• CROs in connection with performing research services and preclinical and clinical studies;

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Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of milestones.

In accruing service fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort expended in each period.

If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or amount of prepaid expense accordingly.

Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period.

In expensing service fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort expended in each period.

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

Significant judgments and estimates are made in determining the accrued and prepaid research and development expenses at the end of any reporting period.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.

Stock-Based Compensation

We issue stock-based awards to employees and non-employees, generally in the form of stock options, restricted stock awards and restricted stock units.

We measure all stock-based awards granted to employees and non-employees as stock-based compensation expense at fair value in accordance with FASB ASC Topic 718, Compensation—Stock Compensation, or ASC 718.

For stock-based awards issued to employees, non-employees and members of the board of directors, or the Board, for their services on the Board, we measure the estimated fair value of the stock-based award on the date of the grant.

We recognize compensation expense for those awards granted to employees and members of the Board over the requisite service period, which is generally the vesting period of the respective award.

For non-employee awards, compensation expense is recognized as the services are provided, which is generally ratably over the vesting period.

We issue stock-based awards with service-based vesting conditions and record the expense for these awards on a straight-line basis over the vesting period.

To date, we have not issued any stock-based awards with performance or market-based vesting conditions.

We account for forfeitures as they occur.

We classify stock-based compensation expense in our consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s salary or service payments are classified.

Fair Value of Stock-Based Awards

We determine the fair value of restricted stock based on the fair value of our common stock less purchase price.

We estimate the fair value of our stock options using the Black-Scholes option pricing model, which requires inputs of subjective assumptions, including:

(i) the expected volatility of our stock;

(ii) the expected term of the award;

(iii) the risk-free interest rate;

(iv) expected dividends;

and (v) the fair value of common stock.

Due to the lack of company-specific historical and implied volatility data for our common stock, we determine the volatility for awards granted based on an analysis of reported data for a group of guideline publicly-traded companies that issued options with substantially similar terms.

For this analysis, we select companies with comparable characteristics to ours including enterprise value, risk profiles and with historical share price information sufficient to meet the expected life of the stock-based awards.

We determine expected volatility using a weighted average of the historical volatilities of the guideline group of companies.

We will continue to apply this process until such a time as we have adequate historical data regarding the volatility of our own traded stock price.

As permitted under ASC 718, we have elected to use the contractual term as the expected term for certain non-employee awards, on an award-by-award basis.

For all other awards, we determined the expected term utilizing the “simplified” method whereby the

expected term equals the average of the vesting term and the original contractual term of the option, on a weighted basis based on the vesting of each tranche.

We utilize this method as we have insufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term.

For the determination of the risk-free interest rate, we utilize the U.S.

Treasury yield curve for instruments in effect at the time of measurement with a term commensurate with the expected term assumption.

The expected dividend yield is assumed to be zero as we have never paid dividends, and do not have current plans to pay any dividends on our common stock.

Determination of Fair Value of Common Stock

Prior to our IPO, we determined the estimated fair value of our common stock based on a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector.

We utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation , to estimate the fair value of our common stock.

Each valuation methodology included estimates and assumptions that required our judgment.

These estimates and assumptions included a number of objective and subjective factors in determining the value of our common stock at each grant date, such as the following:

(i) prices paid for our redeemable convertible preferred stock, and the rights, preferences, and privileges of our redeemable convertible preferred stock and common stock;

(ii) our stage of development;

(iii) the fact that the grants of stock-based awards related to illiquid securities in a private company;

and (iv) the likelihood of achieving a liquidity event for the common stock underlying the stock-based awards, such as an IPO or sale of the company, given prevailing market conditions.

Prior to the IPO, the methodologies utilized to estimate the fair value of our common stock were the option-pricing method (“OPM”) and, beginning in the year ended December 31, 2020, the hybrid probability-weighted expected return method (“PWERM”).

The OPM was used to back-solve the estimated value of our equity and corresponding value of our common stock.

The hybrid PWERM determined the fair value of our 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 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 was 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.

The fair value of our common stock was calibrated to contemporaneous transactions in our redeemable convertible preferred stock.

Subsequent to the IPO, the fair value of the common stock underlying our stock-based awards is the closing price of our common stock on the date of grant.

JOBS Act and Emerging Growth 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 initial public offering, (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.

Recently Issued Accounting Pronouncements

We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, such standards will not have a material impact on our financial statements or do not otherwise apply to our current operations.

For a discussion of recent account of recent accounting standards, see Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis