Item 2. Management’s Discussion and Analysis
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 the related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the SEC) on March 1, 2022. In addition to historical information, the following discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results, performance or experience could differ materially from what is indicated by any forward-looking statement due to various important factors, risks and uncertainties, including, but not limited to, those set forth under Item 1A of Part II, “Risk Factors” and “Special Note Regarding Forward-Looking Statements” included elsewhere in this Quarterly Report on Form 10-Q or under “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022, as may be updated by “Part II, Item 1A, Risk Factors” of our subsequently filed Quarterly Reports on Form 10-Q.
Overview
We are a life sciences company that has developed next generation, ultra-sensitive digital immunoassay platforms that advance precision health for life sciences research and diagnostics. Our platforms are based on our proprietary digital “Simoa” detection technology. Our Simoa bead-based and planar array platforms enable customers to reliably detect protein biomarkers in extremely low concentrations in blood, serum and other fluids that, in many cases, are undetectable using conventional, analog immunoassay technologies, and also allow researchers to define and validate the function of novel protein biomarkers that are only present in very low concentrations. These capabilities provide our customers with insight into the role of protein biomarkers in human health that has not been possible with other existing technologies and enable researchers to unlock unique insights into the continuum between health and disease. We believe this greater insight will enable the development of novel therapies and diagnostics and facilitate a paradigm shift in healthcare from an emphasis on treatment to a focus on earlier detection, monitoring, prognosis and, ultimately, prevention.
Our instruments are designed to be used either with assays fully developed by us, including all antibodies and supplies required to run the tests, or with “homebrew” kits where we supply some of the components required for testing, and the customer supplies the remaining required elements. Accordingly, our installed instruments generate a recurring revenue stream. As the installed base of the Simoa instruments increases, total consumables revenue overall is expected to increase. We believe that consumables revenue should be subject to less period-to-period fluctuation than our instrument sales revenue and will become an increasingly important contributor to our overall revenue.
We commercially launched our first immunoassay platform, the Simoa HD-1, in January 2014. The HD-1 is based on our bead-based technology, and assays run on the HD-1 are fully automated. We initiated commercial launch of the SR-X instrument in December 2017. The SR-X utilizes the same Simoa bead-based technology and assay kits as the HD-1 in a compact benchtop form with a lower price point, more flexible assay preparation, and a wider range of applications. In July 2019, we launched the Simoa HD-X, an upgraded version of the Simoa HD-1, which replaces the HD-1. The HD-X has been designed to deliver significant productivity and operational efficiency improvements, as well as greater user flexibility. We began shipping and installing HD-X instruments at customer locations in 2019, and by the end of 2021, approximately 68% of the HD instrument installed base was HD-X instruments.
We also provide contract research services for customers through our CLIA-certified Accelerator Laboratory. The Accelerator Laboratory provides customers with access to Simoa technology, and supports multiple projects and services, including sample testing, homebrew assay development and custom assay development. To date, we have completed over 1,800 projects for approximately 430 customers from all over the world using our Simoa platforms.
We sell our instruments, consumables and services to the life science, pharmaceutical and diagnostics industries through a direct sales force and support organizations in North America and Europe, and through distributors or sales agents in other select markets, including Australia, Brazil, China, Czech Republic, India, Hong Kong, Israel, Japan, New
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Zealand, Qatar, Saudi Arabia, Singapore, South Africa, South Korea, Taiwan, and UAE. In addition, Uman sells Nf-L antibodies and Nf-L ELISA kits directly, and in conjunction with us and another distributor worldwide. We have an extensive base of customers in world class academic and governmental research institutions, as well as pharmaceutical, biotechnology and contract research companies.
We are subject to ongoing uncertainty concerning the COVID-19 pandemic, including its length and severity and its effect on our business. In 2020, we saw an impact on instrument revenue due to limitations on our ability to access certain customer sites and complete instrument installations, as well as an impact on consumables revenue from interruptions in certain customer laboratories through the first quarter of 2021. As customers began returning to normal operations in the second quarter of 2021, we have seen less of an impact related to COVID-19 related shutdowns. However, we expect COVID-19 related challenges to continue for the foreseeable future and potentially increase if variants result in new shutdowns.
The COVID-19 situation remains dynamic, and there remains significant uncertainty as to the length and severity of the pandemic, the actions that may be taken by government authorities, the impact to the businesses of our customers and suppliers, the long-term economic implications and other factors identified in “Part I, Item 1A, Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022. We will continue to evaluate the nature and extent of the impact to our business, financial condition, and operating results.
As of June 30, 2022, we had cash and cash equivalents of $361.3 million. Since inception, we have incurred annual net losses. Our net loss were $57.7 million, $31.5 million, and $40.8 million for the years ended December 31, 2021, 2020, and 2019, respectively, and $43.1 million and $22.0 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $348.5 million and stockholders' equity of $405.5 million.
Recent Business Developments
On March 24, 2022, we entered into a contract with the Alzheimer’s Drug Discovery Foundation (ADDF). ADDF is a charitable venture philanthropy entity that has granted us funding in support of certain activities for the development of an in vitro diagnostic (IVD) test for early detection of Alzheimer's disease (ADDF grant). The ADDF grant, which has a total funding value of $2.3 million, restricts our use of the granted funds to be used solely for activities related to the Alzheimer’s diagnostic test development project. Contract funding is subject to achievement of these pre-defined milestones and the contract period runs through June 2024. As of June 30, 2022, we had received $1.3 million out of the full $2.3 million under the ADDF grant. During the three and six months ended June 30, 2022, we recognized $0.1 million in grant revenue and incurred $0.1 million in research and development expense related to the ADDF grant.
During the first quarter of 2022, we entered into a Master Collaboration Agreement with Eli Lilly and Company (Lilly) establishing a framework for future projects focused on the development of Simoa immunoassays (the Lilly Collaboration Agreement). We also entered into a Statement of Work under the Lilly Collaboration Agreement to perform assay research and development services within the field of Alzheimer’s disease. In connection with the Lilly Collaboration Agreement, we received a non-refundable up-front payment of $5.0 million during the first quarter of 2022, and under the Statement of Work receive $1.5 million per calendar quarter during 2022, beginning with the three months ended March 31, 2022. The revenue will be recognized over a one-year period.
Concurrent with the execution of the Lilly Collaboration Agreement, we entered into a Technology License Agreement (the Lilly License) under which Lilly granted to us a non-exclusive license to Lilly’s proprietary P-tau217 antibody technology for potential near-term use in research-use-only products and services and future in vitro diagnostics applications within the field of Alzheimer’s disease. In consideration of the Lilly License, we paid an upfront fee, are required to make milestone payments based on the achievement of predetermined regulatory and commercial events, and will pay a royalty on net sales of licensed products.
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We concluded that the Lilly Collaboration Agreement and the Lilly License represented a single contract with a customer and are accounting for the agreements as service revenue recognized over time as the services are delivered. The transaction price for the Lilly Collaboration Agreement is $10.9 million. Contingent amounts due to Lilly represent variable consideration payable to a customer and will be recognized as reductions to service revenue up to the amount of the transaction price recognized, when probable. We are utilizing an input method to measure the delivery of services by calculating costs incurred at each period end relative to total costs expected to be incurred.
During the three and six months ended June 30, 2022, we recognized approximately $2.7 million and $5.4 million, respectively, of revenue from the Lilly Collaboration Agreement as service revenue.
On September 29, 2020, we entered the Abbott License Agreement with Abbott. Pursuant to the terms of the Abbott License Agreement, we granted Abbott a non-exclusive, worldwide, royalty-bearing license, without the right to sublicense, under our bead-based single molecule detection patents in the field of IVD. Abbott paid an initial license fee of $10.0 million in connection with the execution of the Abbott License Agreement, which was recognized as license revenue for the year ended December 31, 2020. Abbott has also agreed to pay us milestone fees subject to the achievement by Abbott of certain development, regulatory and commercialization milestones and low single digit royalties on net sales of licensed products.
In view of the COVID-19 pandemic, in 2020 we began developing a SARS-CoV-2 antibody test (the Antibody Test) and a SARS-CoV-2 antigen test (the Antigen Test) for our HD-X instrument. The U.S. Food and Drug Administration (FDA) issued Emergency Use Authorizations (EUAs) for the Antibody Test and the Antigen Test in December 2020 and January 2021, respectively. In September 2021, FDA expanded the EUA label for the Antigen Test to include testing with nasal swabs and saliva and for asymptomatic serial testing with nasal swab samples. In May 2022, we voluntarily withdrew the EUA for each of these tests as we no longer intend to market the EUA version of the tests. This decision was made in recognition of the changing testing dynamics of the COVID-19 pandemic. Our tests are optimized for use in central laboratory testing environments that process samples in high volume. As the health crisis transitions from the pandemic to endemic phase, public health policy has shifted to prioritize more routine use of low-cost, rapid antigen tests. Additionally, a substantial majority of revenue from our COVID-19 test portfolio has been from the RUO-labeled versions of these tests, which continue to be utilized in research and clinical settings. We intend to continue to commercialize the RUO-labeled tests.
In September 2020, we entered into workplan 2 (WP2) with the National Institute of Health (NIH) under the RADx program. This contract, which had a total award value of up to $18.2 million, was intended to accelerate the continued development, scale-up and deployment of the Antigen Test, in particular to expand assay kit manufacturing capacity and commercial deployment readiness. Contract funding was subject to the achievement of pre-defined milestones and the contract period ran through September 2021, with one milestone extended to May 31, 2022. As of June 30, 2022, we have received the full $18.2 million under WP2.
Restructuring and Strategic Re-Alignment
Following a strategic review and assessment of our operations, cost structure and growth opportunities, on August 8, 2022, we announced a plan of restructuring and strategic re-alignment. As part of this plan, we have begun an assay redevelopment program with the ultimate objective of improving our ability to manufacture and deliver high-quality assays at scale. The plan aligns our investments to best serve the needs of customers, focus innovation efforts on key platforms and provide the foundation for our entry into translational pharma and clinical markets, which we believe will be required to access new growth categories. The planned restructuring includes the elimination of approximately 130 positions across the Company and other cost-saving measures (the Restructuring). We expect to substantially complete the workforce reduction by the end of the third quarter of 2022. We expect to record a charge in the range of $7 million to $10 million in the third quarter of 2022 as a result of the workforce reduction, consisting of one-time termination benefits for employee severance, benefits and related costs, all of which are expected to result in cash expenditures and substantially all of which will be paid out over the next five months. Overall, we expect to realize estimated annualized operating expense savings of approximately $25 million. We may also implement other cost savings measures as part of the Restructuring and may incur termination and other costs in connection with such measures, which could be material. As part of the Restructuring, we are also reviewing our alternatives with respect to
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additional facility space that we currently lease in Bedford, Massachusetts. These alternatives may include the termination of the lease or the sub-lease of all or a portion of the leased facility. We are currently unable to estimate facility-related charges, which could be material.
Despite the Restructuring, we expect to continue to incur significant expense and operating losses at least through the next 24 months as we :
● execute the Restructuring Plan;
● expand our sales and marketing efforts to further commercialize our products;
● strategically acquire companies or technologies that may be complementary to our business;
● expand our research and development efforts to improve our existing products and develop and launch new products, particularly if any of our products are deemed by FDA to be medical devices or otherwise subject to additional regulation by FDA;
● seek PMA or 510(k) clearance from FDA for our existing products or new products if or when we decide to market products for use in the prevention, diagnosis or treatment of a disease or other condition;
●
enter into additional collaboration arrangements or in-license other products and technologies; and
●
continue to incur costs associated with being a public company and our status as a large accelerated filer.
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Results of Operations
Comparison of the Three Months Ended June 30, 2022 and June 30, 2021 (dollars in thousands):
Three Months Ended June 30,
Increase (Decrease)
2022
% of revenue
2021
% of revenue
Amount
%
Product revenue
$
14,785
63
%
$
18,676
74
%
$
(3,891)
(21)
%
Service and other revenue
8,548
37
%
5,648
22
%
2,900
51
%
Collaboration and license revenue
92
—
%
105
—
%
(13)
(12)
%
Grant revenue
75
—
%
942
4
%
(867)
(92)
%
Total revenue
23,500
100
%
25,371
100
%
(1,871)
(7)
%
Cost of goods sold:
Cost of product revenue
9,921
42
%
8,114
32
%
1,807
22
%
Cost of service revenue
4,868
21
%
3,383
13
%
1,485
44
%
Total costs of goods sold and services
14,789
63
%
11,497
45
%
3,292
29
%
Gross profit
8,711
37
%
13,874
55
%
(5,163)
(37)
%
Operating expenses:
Research and development
6,625
28
%
6,754
27
%
(129)
(2)
%
Selling, general, and administrative
27,045
115
%
20,788
82
%
6,257
30
%
Total operating expenses
33,670
143
%
27,542
109
%
6,128
22
%
Loss from operations
(24,959)
(106)
%
(13,668)
(54)
%
(11,291)
(83)
%
Interest income (expense), net
552
2
%
(165)
(1)
%
717
435
%
Other (expense) income, net
(358)
(1)
%
1,977
8
%
(2,335)
(118)
%
Loss before income taxes
(24,765)
(105)
%
(11,856)
(47)
%
(12,909)
(109)
%
Income tax provision
137
1
%
41
—
%
96
(234)
%
Net loss
$
(24,902)
(104)
%
$
(11,897)
(47)
%
$
(12,813)
(108)
%
Revenue
Total revenue decreased $1.9 million, or 7%, to $23.5 million for the three months ended June 30, 2022, as compared to $25.4 million for the three months ended June 30, 2021. Product revenue consisted of sales of instruments totaling $5.6 million and sales of consumables and other products of $9.2 million for the three months ended June 30, 2022. Product revenue primarily consisted of instrument sales totaling $5.8 million and sales of consumables and other products of $12.8 million for the three months ended June 30, 2021 . The decrease in product revenue of $3.9 million in the second quarter of 2022 was due mainly to the decrease in consumables and instrument sales year over year, including a decrease in consumables sales to one large customer. Consumable sales decreased due to quality challenges, as well as decreased sales of our Antibody Test year over year. The increase in service and other revenue was primarily due to the $2.7 million of revenue recognized from the Lilly Collaboration Agreement during the three months ended June 30, 2022. Our collaboration and license revenue during both periods was mainly related to licensing technology and intellectual property. For the three months ended June 30, 2022, grant revenue of $0.1 million was related to the ADDF grant. For the three months ended June 30, 2021, grant revenue of $0.9 million was related to WP2.
Cost of Goods Sold and Services
Cost of goods sold and services increased $3.3 million, or 29%, to $14.8 million for the three months ended June 30, 2022, as compared to $11.5 million for the three months ended June 30, 2021. We performed an evaluation of our business during the second quarter of 2022, during which we determined that certain functions were spending a higher percentage of their time on quality and other activities associated with cost of goods sold. Our ongoing efforts to address manufacturing and quality challenges resulted in an increase of $1.7 million charged to cost of goods sold with a corresponding $1.7 million reduction in operating expense. We expect these expenses to continue until the quality challenges are resolved. The remainder of the increase in cost of goods sold was primarily due to inefficiencies in our manufacturing process, reducing productivity and resulting in decreased absorption costs benefit during the second quarter of 2022. Overall, cost of goods sold and services as a percentage of revenue increased to 63% of total revenue for
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the three months ended June 30, 2022, as compared to 45% for the three months ended June 30, 2021, for the reasons described above, the impact of decreased consumables sales within our product mix, and the overall decrease in revenue.
Research and Development Expense
Research and development expense decreased $0.1 million, or 2%, for the three months ended June 30, 2022, as compared to the same period in 2021, primarily due to efforts to address manufacturing and quality control challenges, partially offset by additional headcount in research and development.
Selling, General, and Administrative Expense
Selling, general and administrative expense increased $6.3 million, or 30%, for the three months ended June 30, 2022, as compared to the same period in 2021, mainly due to additional headcount driving increased cash compensation expense and stock-based compensation expense. During the three months ended June 30, 2022, we incurred approximately $0.7 million of stock-based compensation expense related to the transition of our former Chief Executive Officer to Executive Chairman. Rent expense increased for the three months ended June 30, 2022 due to the new lease facility in Bedford, Massachusetts that commenced on February 1, 2022 when we gained access to the underlying facilities.
Interest Income (Expense), Net
Interest income (expense), net was income of $0.6 million for the three months ended June 30, 2022, as compared to an expense of $0.2 million in the same period in 2021, due to the maturity of our note payable in the fourth quarter of 2021 and higher interest income on our cash equivalents during the three months ended June 30, 2022.
Other (Expense) Income, Net
Other (expense) income, net was an expense of $0.4 million for the three months ended June 30, 2022, as compared to income of $2.0 million in the same period in 2021. Other expense, net for the three months ended June 30, 2022, mainly consisted of the impact of foreign currency exchange rates. Other income, net for the three months ended June 30, 2021 was mainly due to a $2.1 million employee retention tax credit established under the Coronavirus Aid, Relief, and Economic Securities Act (CARES Act).
Income Tax Provision
Income tax provision was $0.1 million for the three months ended June 30, 2022, and less than $0.1 million for the three months ended June 30, 2021, consisting primarily of provisions recorded on the operating results of our foreign subsidiaries.
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Comparison of the Six Months Ended June 30, 2022 and June 30, 2021 (dollars in thousands):
Six Months Ended June 30,
Increase (Decrease)
2022
% of revenue
2021
% of revenue
Amount
%
Product revenue
$
35,441
67
%
$
36,924
70
%
$
(1,483)
(4)
%
Service and other revenue
17,358
33
%
12,057
23
%
5,301
44
%
Collaboration and license revenue
178
—
%
366
1
%
(188)
(51)
%
Grant revenue
75
—
%
3,233
6
%
(3,158)
(98)
%
Total revenue
53,052
100
%
52,580
100
%
472
1
%
Cost of goods sold:
Cost of product revenue
20,667
39
%
15,594
30
%
5,073
33
%
Cost of service revenue
9,115
17
%
6,763
13
%
2,352
35
%
Total costs of goods sold and services
29,782
56
%
22,357
43
%
7,425
33
%
Gross profit
23,270
44
%
30,223
57
%
(6,953)
(23)
%
Operating expenses:
Research and development
13,659
26
%
13,437
26
%
222
2
%
Selling, general, and administrative
52,757
99
%
40,243
77
%
12,514
31
%
Total operating expenses
66,416
125
%
53,680
102
%
12,736
24
%
Loss from operations
(43,146)
(81)
%
(23,457)
(45)
%
(19,689)
(84)
%
Interest income (expense), net
604
1
%
(328)
(1)
%
932
284
%
Other (expense) income, net
(575)
(1)
%
1,783
3
%
(2,358)
(132)
%
Loss before income taxes
(43,117)
(81)
%
(22,002)
(42)
%
(21,115)
(96)
%
Income tax benefit
(62)
—
%
(1)
—
%
(61)
6,100
%
Net loss
$
(43,055)
(81)
%
$
(22,001)
(42)
%
$
(21,176)
(96)
%
Revenue
Total revenue was $53.1 million for the six months ended June 30, 2022, as compared to $52.6 million for the six months ended June 30, 2021, an increase of $0.5 million, or 1%. Product revenue consisted of sales of instruments totaling $11.8 million and sales of consumables and other products of $23.6 million for the six months ended June 30, 2022. Product revenue primarily consisted of instrument sales totaling $12.8 million and sales of consumables and other products of $24.1 million for the six months ended June 30, 2021 . The decrease in product revenue of $1.5 million in the first half of 2022 was due to decreases in both consumables and instrument sales year over year. The decrease in consumables sales was primarily due to quality challenges, including a decrease in consumables sales to one large customer. The increase in service and other revenue was primarily due to the $5.4 million of revenue recognized from the Lilly Collaboration Agreement during the first half of 2022. Our collaboration and license revenue during both periods was mainly related to licensing technology and intellectual property. For the six months ended June 30, 2022, grant revenue of $0.1 million was related to the ADDF grant. For the six months ended June 30, 2021, grant revenue of $3.2 million was related to WP2.
Cost of Goods Sold and Services
Cost of goods sold and services increased $7.4 million, or 33%, to $29.8 million for the six months ended June 30, 2022, as compared to $22.4 million for the six months ended June 30, 2021. We performed an evaluation of our business during the second quarter of 2022, during which we determined that certain functions were spending a higher percentage of their time on quality and other activities associated with cost of goods sold. Our ongoing efforts to address manufacturing and quality challenges resulted in an increase of $1.7 million charged to cost of goods sold in the three months and six months ended June 30, 2022 with a corresponding $1.7 million reduction in operating expense. We expect these expenses to continue until the quality challenges are resolved. The remainder of the increase of cost of goods sold was primarily due to inefficiencies in our manufacturing and inventory management processes resulting in higher excess and obsolete product during the six months ended June 30, 2022, as well as reduced productivity resulting in decreased absorption costs benefit during the first half of 2022. In response to the inefficiencies in our inventory management processes, we changed our estimate for excess and obsolete product during the three months ended March 31, 2022, increasing our inventory reserve. Overall, cost of goods sold as a percentage of revenue increased to 56% of
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total revenue for the six months ended June 30, 2022, as compared to 43% for the six months ended June 30, 2021, for the reasons described above, as well as the impact of decreased consumables sales within our product mix.
Research and Development Expense
Research and development expense increased $0.2 million, or 2%, for the six months ended June 30, 2022, as compared to the same period in 2021, primarily due to additional headcount in research and development.
Selling, General, and Administrative Expense
Selling, general and administrative expense increased $12.5 million, or 31%, for the six months ended June 30, 2022, as compared to the same period in 2021, mainly due to additional headcount driving increased cash compensation expense, stock-based compensation expense, and other general and administrative expenses. Rent expense increased for the six months ended June 30, 2022 due to the new lease facility in Bedford, Massachusetts that commenced on February 1, 2022 when we gained access to the underlying facilities .
Interest Income (Expense), Net
Interest income (expense), net was income of $0.6 million in the six months ended June 30, 2022, as compared to an expense of $0.3 million in the same period in 2021, due to the maturity of our note payable in the fourth quarter of 2021 and higher interest income on our cash equivalents during the first half of 2022.
Other (Expense) Income, Net
Other (expense) income, net was an expense of $0.6 million in the six months ended June 30, 2022, as compared to income of $1.8 million in the same period in 2021 Other expense, net for the first half of 2022 was mainly due to the impact of foreign currency exchange rates. Other income, net for the first half of 2021 was mainly due to a $2.1 million employee retention tax credit established under the CARES Act.
Income Tax Benefit
Income tax benefit was less than $0.1 million for each of the six months ended June 30, 2022, and 2021.
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Liquidity and Capital Resources
To date, we have financed our operations principally through equity offerings, borrowings from credit facilities and revenue from our commercial operations.
Cash Flows
The following table presents our cash flows (in thousands):
Six Months Ended June 30,
2022
2021
Net cash used in operating activities
$
(29,635)
$
(23,838)
Net cash used in investing activities
(5,934)
(2,129)
Net cash provided by financing activities
1,190
275,706
Net (decrease) increase in cash, cash equivalents and restricted cash
$
(34,379)
$
249,739
Net Cash Used in Operating Activities
We derive cash flows from operations primarily from the sale of our products and services. Our cash flows from operating activities are also significantly influenced by our use of cash for operating expenses to invest in process improvements. We have historically experienced negative cash flows from operating activities as we have developed our technology, expanded our business and built our infrastructure and this may continue in the future.
Net cash used in operating activities was $29.6 million during the six months ended June 30, 2022. The net cash used in operating activities primarily consisted of the net loss of $43.1 million offset by non-cash charges of $9.0 million of stock-based compensation expense, $2.8 million of depreciation and amortization expense, and $1.4 million received on the tenant improvement allowance associated with our new lease facility in Bedford, Massachusetts.
Net cash used in operating activities was $23.8 million during the six months ended June 30, 2021. The net cash used in operating activities primarily consisted of the net loss of $22.0 million offset by non-cash charges of $7.0 million of stock-based compensation expense and $2.3 million of depreciation and amortization expense. Cash used as a result of changes in operating assets and liabilities of $11.8 million was primarily due to an increase in inventory of $6.8 million, a decrease in accrued compensation and benefits, other accrued expenses and other current liabilities of $3.9 million, and an increase in prepaid expenses and other assets of $3.0 million, offset by a decrease in accounts receivable of $1.7 million.
Net Cash Used in Investing Activities
Historically, our primary investing activities have consisted of capital expenditures for the purchase of capital equipment to support our expanding infrastructure and work force. We expect to continue to incur additional costs for capital expenditures related to these efforts in future periods.
Investing activities used $5.9 million of cash during the six months ended June 30, 2022 primarily related to purchases of property and equipment for the new leased facility in Bedford, Massachusetts.
Investing activities used $2.1 million of cash during the six months ended June 30, 2021, primarily related to $7.3 million in purchases of property and equipment, offset by $5.2 million in grant proceeds related to WP2.
Net Cash Provided by Financing Activities
Historically, we have financed our operations principally through sales of our stock, borrowings from credit facilities, and revenues from our commercial operations.
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Financing activities provided $1.2 million of cash during the six months ended June 30, 2022, from proceeds from employee stock purchases and stock option exercises.
Financing activities provided $275.7 million of cash during the six months ended June 30, 2021, primarily from $269.7 million in net proceeds from our underwritten public offering during the first quarter of 2021, and $5.5 million in proceeds from common stock option exercises.
Capital Resources
Since inception, we have incurred annual net losses. Additionally, as a public company, we have incurred and will continue to incur significant audit, legal and other expenses. Our liquidity requirements have historically consisted, and we expect that they will continue to consist, of sales and marketing expenses, research and development expenses, working capital, debt service and general corporate expenses.
We believe cash generated from commercial sales, our current cash and cash equivalents, and interest income we earn on these balances will be sufficient to meet our anticipated operating cash requirements for at least the next 12 months. Our estimates of the period of time through which our financial resources will be adequate to support our operations and the costs to support research and development and our sales and marketing activities are forward-looking statements and involve risks and uncertainties and actual results could vary materially and negatively as a result of a number of factors, including the factors discussed in Part II, Item 1A. “Risk Factors”, of this Quarterly Report on Form 10-Q, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022. We have based our estimates on assumptions that may prove to be wrong and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements will depend on many factors, including:
● our ability to successfully execute and realize the intended benefits of the Restructuring;
● market acceptance of our products;
● the cost and timing of establishing additional sales, marketing and distribution capabilities;
● the cost of our research and development activities;
● our ability to enter into collaborations in the future, and the success of any such collaborations;
● the cost and timing of potential regulatory clearances or approvals that may be required in the future for our products;
● the effects of the COVID-19 pandemic; and
● the effect of competing technological and market developments.
If the conditions for raising capital are favorable, we may seek to finance future cash needs through public or private equity or debt offerings or other financings. On November 6, 2020, we filed an automatically effective shelf registration statement with the SEC. Each issuance of securities under the shelf registration statement will require the filing of a prospectus supplement identifying the amount and terms of securities to be issued. The registration statement does not limit the amount of securities that may be issued thereunder. Our ability to issue securities is subject to market conditions and other factors. This registration statement will expire on November 6, 2023, three years after its date of effectiveness. However, we cannot assure you that we will be able to obtain additional funds on acceptable terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, our stockholders may experience dilution. Future debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or equity financing that we raise may contain terms that are not favorable to us or our stockholders. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish some rights to our technologies or our products, or grant licenses on terms that are not favorable to us. If we do not have or are not able to obtain sufficient funds, we may have to delay development or commercialization of our products. We also may have to reduce marketing, customer support or other resources devoted to our products or cease operations.
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Contractual Obligations and Commitments
As of June 30, 2022, except for the Bedford, Massachusetts lease detailed in Note 10 to our unaudited condensed consolidated financial statements, there have been no material changes to our contractual obligations and commitments from those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 1, 2022.
Critical Accounting Policies, Significant Judgments and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States, or U.S. GAAP, requires management to make estimates and assumptions that impact the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of assets and liabilities in our financial statements and accompanying notes. The most significant assumptions used in the financial statements are the underlying assumptions used in revenue recognition and valuation of inventory. We base estimates and assumptions on historical experience when available and on various factors that we determined to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
Our critical accounting policies and significant estimates that involve a higher degree of judgment and complexity are described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies, Significant Judgments and Estimates” included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 1, 2022.
There have been no material changes to our critical accounting policies and estimates as disclosed therein.
Recent Accounting Pronouncements
Information concerning recently issued accounting pronouncements may be found in Note 2 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.