Praxis Precision Medicines, Inc. 10-Q

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 audited financial information and the notes thereto included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the "SEC") on February 7, 2023. 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 our Annual Report on Form 10-K for the year ended December 31, 2022 and set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q for the three months ended March 31, 2023, 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 insights from genetic epilepsies 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 both rare and more prevalent neurological disorders. We are applying genetic insights to the discovery and development of therapies for neurological disorders through two proprietary platforms, using our understanding of shared biological targets and circuits in the brain. Each platform currently has multiple programs, with significant potential for additional program and indication expansion: • Cerebrum ™, our small molecule platform, utilizes deep understanding of neuronal excitability and neuronal networks and applies a series of computational and experimental tools to develop orally available precision therapies • Solidus ™, our antisense oligonucleotide, or ASO, platform, is an efficient, targeted precision medicine discovery and development engine anchored on a proprietary, computational methodology Our platforms utilize a deliberate, pragmatic and patient-guided 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 diversified, multimodal CNS portfolio with four clinical-stage product candidates across movement disorders and epilepsy. For our most advanced product candidate under the Cerebrum™ platform, ulixacaltamide (also known as PRAX-944), topline results from the Phase 2b Essential1 clinical trial in essential tremor, or ET, were announced in the first quarter of 2023. An end-of-Phase 2 meeting is scheduled with the U.S. Food and Drug Administration, or FDA, in June 2023 and we intend to initiate a Phase 3 study in ET in the second half of 2023. We initiated the PRAX-562 Phase 2 EMBOLD study in the first quarter of 2023 and expect to announce topline results in the fourth quarter of 2023. We also announced positive results from our PRAX-628 Phase 1 study in May 2023 and expect to initiate a Phase 2 study in focal epilepsy in the fourth quarter of 2023. For our most advanced product candidate under the Solidus™ platform, PRAX-222, we expect to announce topline results from the first dose cohort of our EMBRAVE study in the second half of 2023. 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, 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, contract development and manufacturing organizations 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. 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 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. We have incurred recurring operating losses since inception, including a net loss of $37.5 million for the three months 13 ended March 31, 2023. As of March 31, 2023, we had an accumulated deficit of $568.1 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 be maintained or increased in connection with our ongoing activities, as we: • advance our lead product candidate, ulixacaltamide, to a late stage clinical trial for the treatment of ET; • advance our PRAX-562 product candidate in the EMBOLD clinical trial; • advance our PRAX-222 product candidate in the EMBRAVE clinical trial; • advance our PRAX-628 product candidate; • advance our preclinical candidates to clinical trials; • further invest in our pipeline; • further invest in our manufacturing capabilities; • seek regulatory approval for our product candidates; • maintain, expand, protect and defend our IP portfolio; • acquire or in-license technology; • establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; and • when needed, increase our headcount to support our development efforts and any future commercialization efforts. 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 March 31, 2023, we had cash, cash equivalents and marketable securities of $85.8 million, which we expect will enable us to fund our operating expenses and capital expenditures into the second quarter of 2024. We have based this analysis on our current cash needs, ongoing research and development plans which are limited to advancing product candidates through, but not beyond their current clinical trial phases and continued operational efficiency. Since our cash, cash equivalents and marketable securities as of March 31, 2023 may not be sufficient to fund our operations for at least the next twelve months from the date of issuance of the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, there is substantial doubt about our ability to continue as a going concern. Our future viability is dependent on our ability to raise additional capital to finance our operations. We expect to finance our operations through potential public or private equity financings, debt financings, collaboration agreements or other capital sources. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our 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 us, or at all. We have based our assessment on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. See “—Liquidity and Capital Resources.” 14 Financial Operations Overview Revenue We have not generated any revenue from the sale of products since inception and do not expect to generate any revenue from the sale of products for several years, if at all. As discussed in Note 7 to our condensed consolidated financial statements, we entered into an Option and License Agreement, or the Collaboration Agreement, with UCB Biopharma SRL, or UCB, in December 2022. During the three months ended March 31, 2023, we recognized $0.7 million of collaboration revenue from the Collaboration Agreement. Operating Expenses Research and Development Expenses 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 IP portfolio; • discovery efforts leading to development candidates; • clinical development costs for our product candidates; 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 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 to acquire, develop and manufacture materials for preclinical and clinical studies; and • depreciation, amortization and other direct and allocated expenses, including rent and other operating costs, such as information technology, 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 condensed consolidated balance sheets as prepaid expenses or accrued 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. As a company operating in a virtual environment, a significant portion of our research and development costs have been external costs. We track direct external research and development expenses to specific platforms and product candidates upon commencement. Due to the number of ongoing studies and our ability to use resources across platforms, indirect or shared operating costs incurred for our research and development platforms, such as personnel, facility costs and certain consulting costs, are not recorded or maintained on a platform-specific basis. The following table reflects our research and development expenses, including direct expenses summarized by platform and indirect or shared operating costs recognized as research and development expenses during each period presented (in thousands): 15 Three Months Ended March 31, 2023 2022 Cerebrum™ $ 11,135 $ 33,955 Solidus™ 3,602 6,042 Personnel-related (including stock-based compensation) 8,126 11,141 Other indirect research and development expenses 2,641 1,514 Total research and development expenses $ 25,504 $ 52,652 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 be maintained or 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 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 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 approved, whether alone or in collaboration with others; and • the continued acceptable safety profiles of our product candidates. 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 16 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 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, commercial 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; commercial-related costs to support market assessments and scenario planning; insurance costs; administrative travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for office rent and other operating costs, such as information technology. Costs to secure and defend our IP are expensed as incurred and are classified as general and administrative expenses. These costs relate to the operation of the business and are unrelated to the research and development function or any individual platform or product candidate. We anticipate that our general and administrative expenses may increase in the future as we increase our headcount, when needed, to support the expected growth in our research and development activities and the potential commercialization of our product candidates. 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 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. 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. There was no income tax provision recognized for the three months ended March 31, 2023 and 2022. Results of Operations Comparison of the Three Months Ended March 31, 2023 and 2022 The following table summarizes our condensed consolidated statements of operations for each period presented (in thousands): Three Months Ended March 31, Change 2023 2022 Collaboration revenue $ 683 $ — $ 683 Operating expenses: Research and development 25,504 52,652 (27,148) General and administrative 13,270 16,197 (2,927) Total operating expenses 38,774 68,849 (30,075) Loss from operations (38,091) (68,849) 30,758 Other income: Other income, net 636 132 504 Total other income 636 132 504 Net loss $ (37,455) $ (68,717) $ 31,262 Collaboration Revenue 17 The $0.7 million increase in collaboration revenue is associated with the revenue recorded as research services are provided and costs are incurred under the Collaboration Agreement with UCB that was executed in December 2022. 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 March 31, Change 2023 2022 Cerebrum™ $ 11,135 $ 33,955 $ (22,820) Solidus™ 3,602 6,042 (2,440) Personnel-related (including stock-based compensation) 8,126 11,141 (3,015) Other indirect research and development expenses 2,641 1,514 1,127 Total research and development expenses $ 25,504 $ 52,652 $ (27,148) The $27.1 million decrease in research and development expenses was primarily attributable to the following: • $22.8 million decrease in expense related to our Cerebrum™ platform, driven primarily by: ◦ a $14.6 million decrease in clinical-related spend for our PRAX-114 program due to our strategic realignment in the second quarter of 2022; ◦ a $6.7 million decrease in spend for our PRAX-562 program, primarily related to the prior year completion of our Phase 1 clinical trial and prior year manufacturing campaign purchases, partially offset by startup costs related to the EMBOLD Phase 2 clinical trial in the first quarter of 2023; ◦ a $2.3 million decrease in activities for our earlier stage assets; ◦ a $1.3 million decrease in spend for our ulixacaltamide program, primarily due to the completion of a manufacturing campaign in the prior year; and ◦ an $2.0 million increase in clinical-related spend for our PRAX-628 Phase 1 clinical trial. • $2.4 million decrease in expense related to our Solidus™ platform, driven primarily by the payment of a $2.0 million license fee to Ionis Pharmaceuticals, Inc. in January of 2022 upon exercise of our exclusive option to obtain the rights and license to further develop and commercialize PRAX-222; • $3.0 million decrease in personnel-related costs due to decreased headcount; and • $1.1 million increase in indirect expenses, none of which were individually significant. General and Administrative Expense The $2.9 million decrease in general and administrative expenses was primarily attributable to the following: • $1.2 million decrease in consulting expenses; and • $1.7 million decrease in other general and administrative expenses, including decreased personnel costs. Other Income Other income for the three months ended March 31, 2023 and 2022 was comprised of interest income on our cash, cash equivalents and marketable securities and investment premium and discount amortization. Liquidity and Capital Resources Sources of Liquidity 18 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 the issuance of redeemable convertible preferred stock and from the sale of common stock through an initial public offering, a follow-on public offering and at-the-market offerings under our shelf registration statement. From inception through March 31, 2023, we have raised $544.1 million in aggregate cash proceeds from such transactions, net of issuance costs. As of March 31, 2023, we had cash, cash equivalents and marketable securities of $85.8 million. 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. During the three months ended March 31, 2023, we issued and sold 8,403,809 shares under the Sales Agreement for aggregate net proceeds of $18.1 million after deducting commissions and offering expenses payable by us. As of March 31, 2023, we have issued and sold a total of 12,391,079 shares under the Sales Agreement for aggregate net proceeds of $34.7 million after deducting commissions and offering expenses payable by us. Cash Flows The following table provides information regarding our cash flows for each period presented (in thousands): Three Months Ended March 31, 2023 2022 Net cash (used in) provided by: Operating activities $ (32,846) $ (54,109) Investing activities 34,000 (8,550) Financing activities 18,070 1,209 Net increase (decrease) in cash, cash equivalents and restricted cash $ 19,224 $ (61,450) 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 our 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 operating assets and liabilities, which are primarily the result of increased expenses and timing of vendor payments. During the three months ended March 31, 2023, net cash used in operating activities of $32.8 million was primarily due to our $37.5 million net loss and $3.3 million in changes in operating assets and liabilities primarily related to a decrease in accrued expenses, partially offset by $7.9 million of non-cash charges primarily related to stock-based compensation. During the three months ended March 31, 2022, net cash used in operating activities of $54.1 million was primarily due to our $68.7 million net loss, partially offset by $8.5 million of non-cash charges primarily related to stock-based compensation, and $6.1 million in changes in operating assets and liabilities primarily related to increases in accounts payable and accrued expenses. Investing Activities During the three months ended March 31, 2023, net cash provided by investing activities of $34.0 million was related to maturities of marketable securities. During the three months ended March 31, 2022, net cash used in investing activities of $8.6 million was primarily related to the purchase of marketable securities, partially offset by the maturity of marketable securities. Financing Activities 19 During the three months ended March 31, 2023, net cash provided by financing activities of $18.1 million consisted of net proceeds from at-the-market offerings. During the three months ended March 31, 2022, net cash provided by financing activities of $1.2 million consisted of net proceeds from at-the-market offerings of $1.4 million and proceeds from the exercise of stock options, partially offset by the payment of issuance costs for our at-the-market offerings and the payment of taxes related to the vesting of restricted stock units. 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. 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 clinical-stage product candidates within our Cerebrum™ and Solidus™ platforms; • advance the development of any additional product candidates; • conduct research and continue preclinical development of potential product candidates; • make strategic investments in manufacturing capabilities; • 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; • when needed, 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 operations as 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. As of March 31, 2023, we had cash, cash equivalents and marketable securities of $85.8 million. We are unable to estimate the exact amount of our working capital requirements, but based on our current operating plan, we believe that our cash, cash equivalents and marketable securities as of March 31, 2023 will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2024. We have incurred recurring losses since our inception, including a net loss of $37.5 million for the three months ended March 31, 2023. In addition, as of March 31, 2023, we had an accumulated deficit of $568.1 million. We expect to continue to generate operating losses for the foreseeable future. We have evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year of the issuance of the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Since we expect that our cash, cash equivalents and marketable securities as of March 31, 2023 may not be sufficient to fund operations for at least the next twelve months from the date of issuance of the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, there is substantial doubt about our ability to continue as a going concern. Our future viability is dependent on our ability to raise additional capital to finance our operations. We expect to finance our operations through potential public or private equity financings, debt financings, collaboration agreements or other capital sources. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our 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 us, or at all. We have based our assessment on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently 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 20 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 platforms 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 IP rights and defending any IP-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; 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. 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 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. 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. 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 21 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 Annual Report on Form 10-K filed with the SEC on February 7, 2023. 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.