Replimune Group, 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 unaudited consolidated financial statements and related notes appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, or this Quarterly Report, and with our audited consolidated financial statements and notes thereto for the year ended March 31, 2021, included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2021. In addition to historical information, some of the statements contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report, particularly including those risks identified in Part II, Item 1A “Risk Factors” and our other filings with the Securities Exchange Commission, or SEC. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report. Statements made herein are as of the date of the filing of this Quarterly Report with the SEC and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. Overview General We are a clinical-stage biotechnology company committed to applying our leading expertise in the field of oncolytic immunotherapy to transform the lives of cancer patients through our novel tumor-directed oncolytic immunotherapies. Our proprietary tumor-directed oncolytic immunotherapy product candidates are designed and intended to maximally activate the immune system against cancer. Oncolytic immunotherapy is an emerging drug class, which we intend to establish as the second cornerstone of immune-based cancer treatments, alongside checkpoint blockade. Oncolytic immunotherapy exploits the ability of certain viruses to selectively replicate in and directly kill tumors, as well as induce a potent, patient-specific, anti-tumor immune response. Our product candidates incorporate multiple mechanisms of action into a practical “off-the-shelf” approach that is intended to maximize the immune response against a patient’s cancer and to offer significant advantages over personalized vaccine approaches. We believe that the bundling of multiple approaches for the treatment of cancer into single therapies will simplify the development path of our product candidates, while also improving patient outcomes at a lower cost to the healthcare system than the use of multiple different drugs. Our proprietary RPx platform is based on a proprietary, engineered strain of herpes simplex virus 1, or HSV-1, backbone with payloads added to maximize immunogenic cell death and the induction of a systemic anti-tumor immune response. The RPx platform has a unique dual local and systemic mechanism of action, or MOA, consisting of direct selective virus-mediated killing of the tumor resulting in the release of tumor derived antigens and altering of the tumor microenvironment, or TME, to ignite a strong and durable systemic response. This MOA is expected to be synergistic with most established and experimental cancer treatment modalities, and, with an attractive safety profile the RPx platform is expected to have the versatility to be developed alone or combined with a variety of other treatment options. We currently have three RPx product candidates in our development pipeline, RP1 (vusolimogene oderparepvec), our lead product candidate, RP2 and RP3. Although our fiscal year runs from April 1 st - March 31 st , our programs and program updates are reported on a calendar year basis. Our current product candidate pipeline is summarized in the table below: 23 Table of Contents We are conducting a number of clinical trials of RP1, both as a monotherapy and in combination with anti-PD-1 therapy, with a focus on immune-responsive tumors, including anti-PD-1 failed patients with these tumor types. We are actively enrolling patients in the CERPASS trial, a global randomized, Phase 2 clinical trial of RP1 in cutaneous squamous cell carcinoma, or CSCC, RP1’s lead indication in collaboration with our partner Regeneron. CERPASS is a registration-directed clinical trial evaluating RP1 in combination with cemiplimab, an anti-PD-1 therapy developed by Regeneron, versus cemiplimab alone. CERPASS includes two independent primary endpoints, complete response (CR) rate and overall response rate (ORR), and a sample size of 180 patients. Regeneron has granted to us a non-exclusive royalty-free license to cemiplimab for use in this trial, is funding one-half of the clinical trial costs, and is supplying cemiplimab at no cost. If this clinical trial generates compelling clinical data demonstrating the benefits of the combined treatment, we believe the data could support a filing with regulatory authorities seeking marketing approval. We currently expect to complete enrollment in mid-year 2022 and for the primary data analysis to be triggered six months thereafter. We continue our collaboration with BMS under which it has granted us a non-exclusive, royalty-free license to, and is supplying at no cost, its anti-PD-1 therapy, nivolumab, for use in combination with RP1 in our multi-cohort Phase 1/2 IGNYTE clinical trial. This trial includes a registration directed Phase 2 cohort enrolling 125 patients with anti-PD-1 failed cutaneous melanoma who are being treated with RP1 in combination with nivolumab. We initiated this cohort after completing enrollment in a prior Phase 2 cohort in the same clinical trial of approximately 30 patients with melanoma, which demonstrated the safety and clinical activity of the combination of RP1 and nivolumab in patients with melanoma who failed prior anti-PD-1 when given alone or in combination with CTLA-4 blockade. In March 2021 we held a Type B meeting with the United States Federal Drug Administration, or FDA, to discuss the design of this cohort in the IGNYTE trial. In this meeting, the FDA expressed its view that while a randomized controlled clinical trial would always be preferred for registration purposes, in this patient population with no clear standard of care, if the clinical data is sufficiently compelling then the data could be considered for submission by the FDA under the accelerated approval pathway. The FDA also indicated that as is required under the FDA's accelerated approval pathway, we would need to conduct a randomized confirmatory trial. We intend to discuss the design of the confirmatory trial with the FDA prior to a BLA submission. We expect to release initial directional data from this cohort in late 2022. In order to document sufficient durability of response, an important secondary endpoint of the study, the primary analysis upon which a filing is intended to be made, is expected to be triggered 12 months following the last patient being enrolled. In connection with a presentation at SITC in October 2020 we announced updated clinical data from the IGNYTE Phase 1/2 clinical trial evaluating RP1 in combination with nivolumab from the cohorts of patients with melanoma and non-melanoma skin cancers. As reported, RP1 in combination with nivolumab has continued to be well tolerated, and we believe demonstrates continued promising anti-tumor activity in patients with skin cancers, including in patients with anti-PD-1 failed melanoma, and in patients with CSCC. In June 2021 we presented a data update from these cohorts of RP1 in combination with nivolumab that showed compelling depth and durability of response and which we believe strongly supports these ongoing studies in CSCC and anti-PD-1 failed melanoma. 24 Table of Contents We continue to enroll patients in other IGNYTE Phase 2 cohorts under our collaboration with BMS in which we are evaluating RP1 in combination with nivolumab. Currently, enrollment is ongoing in a 60 patient cohort with non-melanoma skin cancer, or NMSC, (including the recent addition of 30 patients who have failed prior anti-PD-1 therapy); a 30 patient anti-PD-1 failed cohort with MSI-H/dMMR tumors and a 30 patient cohort with anti-PD(L)-1 failed non-small cell lung cancer, or NSCLC. We have completed enrollment in the original 30 NMSC patient cohort (anti-PD-1 naïve) of RP1 in combination with nivolumab and continue to enroll patients with anti-PD-1 failed NMSC. We expect to provide updated data from the NMSC anti-PD-1 naïve patients and initial data from the NMSC anti-PD-1 failed patients late in the first quarter of 2022. Due to development challenges in the anti-PD-1 naïve setting for our cohort with MSI-H/dMMR tumors we have decided to not pursue RP1 in combination with nivolumab for this cohort but instead enroll patients with anti-PD-1 failed disease, for which a protocol amendment was made in the third quarter of 2021. As previously reported, enrollment is open in our 30 patient cohort of RP1 in combination with nivolumab in anti-PD(L)-1 failed NSCLC. A recently filed amendment to the IGNYTE protocol includes modifications to the patient eligibility criteria for this NSCLC cohort which are expected to enhance enrollment into this cohort of the clinical trial. We had expected to provide initial data from our NSCLC cohort of RP1 in combination with nivolumab in the first quarter of 2022, however, the changes we have made to facilitate enrollment are not expected to take effect in time to meet prior guidance and initial data is now expected to be released late in 2022. We also have open for enrollment a Phase 1b/2 clinical trial of single agent RP1 in solid organ transplant recipients with skin cancers, including CSCC, or ARTACUS or the ARTACUS trial, which we believe to be potentially registrational (in its own right or, subject to discussion with regulatory authorities, following enrollment of additional patients, including as a potential label expansion after an initial approval of RP1 in a different indication). We are currently enrolling patients in this clinical trial to assess the safety and efficacy of RP1 in liver and kidney transplant recipients with skin cancers. The protocol has been amended to enroll up to 65 patients with potentially registrational intent. While enrollment in this clinical trial has been impacted by COVID-19, as the patient population is severely immune-compromised and considered very high risk, we expect to present initial data from this clinical trial late in the first quarter of 2022. We are also developing additional product candidates, RP2 and RP3, that have been further engineered to enhance anti-tumor immune responses and are intended to address additional tumor types, including traditionally less immune responsive tumor types. In addition to the expression of GALV-GP R(-) and human GM-CSF as in RP1, RP2 has been engineered to express an antibody-like molecule intended to block the activity of CTLA-4, a protein that inhibits the full activation of an immune response, including to tumors. RP3, which does not include the expression of GM-CSF, has been engineered with the intent to further stimulate an anti-tumor immune response through activation of immune co-stimulatory pathways through expression of the ligands for CD40 and 4-1BBL, in addition to anti-CTLA-4 and GALV-GP R(-). We initiated a Phase 1 clinical trial of RP2 alone and in combination with nivolumab in the second half of 2019. This clinical trial is also being conducted as part of our collaboration with BMS, under which BMS has granted us a non-exclusive, royalty-free license to, and will supply at no cost, nivolumab, for use in combination with RP2. In November 2020, we and BMS agreed to increase the number of patients in the combination part of the clinical trial from 12 to 30 patients. In October 2020, we presented positive data from the single agent RP2 portion of the clinical trial that showed deep and durable responses, including demonstration of tumor response in uninjected lesions and in patients with difficult to treat advanced cancers. We believe that this data supports the hypothesis that anti-CTLA-4 delivered intra-tumorally through oncolytic virus replication, with accompanying antigen release and presentation, can provide potent anti-tumor effects. In June 2021 we presented a data update from both the RP2 single agent and combination portions of this clinical trial that showed compelling activity in patients with immune insensitive tumors and with anti-PD-1 failed disease. We have fully enrolled the initial 30 patient Phase 1 clinical trial evaluating RP2 in combination with nivolumab in difficult to treat cancers and provided updated data from this program in the second half of 2021. Also in the second half of 2021, we filed a protocol amendment to expand this clinical trial with the intent to enroll patients with liver metastases from various prevalent tumor types, including patients with lung cancers, breast and gastrointestinal cancers including colorectal cancer, and also additional patients with uveal melanoma. We expect to release initial data from this expanded clinical trial in late 2022. In November 2021, we presented further updated data from this RP2 clinical trial, with RP2 as single agent and in combination with nivolumab that demonstrated the potential clinical utility of RP2 in patients with hard-to-treat, anti-PD1 failed cancers, including durability of response, together with biomarker data demonstrating the ability of RP2 to turn immunologically ‘cold’ tumors ‘hot'. We have obtained clearance from the Medicines and Healthcare Products Regulatory Agency in the United Kingdom to begin clinical development with RP3 and in December 2020 we initiated dosing in this clinical trial. This Phase 1 clinical trial is designed to evaluate RP3 alone and combined with anti-PD-1 therapy in advanced solid tumor patients. Initial data from the initial six patient RP3 single agent cohort is expected to be presented late in the first quarter of 2022. In addition to this cohort, we plan to open a cohort to evaluate RP3 in combination with nivolumab in solid tumor patients by the end of the first quarter of 2022, with the nivolumab being supplied under agreement with BMS. We plan to include, in this new expansion cohort, patients with various prevalent tumor types such as lung cancer, breast cancer, head and neck cancer and gastrointestinal 25 Table of Contents cancers including colorectal cancer, following the recent determination of the recommended phase 2 dose, or RP2D. We expect to present initial data from these expansion patients in late 2022. We plan to initiate a broad clinical development program with RP2 and/or RP3 intended to include a range of prevalent tumor types around mid-year 2022. Based on the observation of clinical responses in patients with liver metastases from a range of difficult to treat tumor types following treatment with RP1 in combination with nivolumab and/or with RP2 alone or in combination with nivolumab, and the fact that treating liver metastases is a considerable unmet need in patients with advanced cancer, this development plan will have a focus on tumor types where liver metastases are particularly common. We expect to announce the details of this program late in the first quarter of 2022. RP1, RP2 and RP3 are administered by direct injection into solid tumors, guided either visually or by ultrasound, computerized tomography, or CT, or other imaging methods. We believe that direct injection maximizes virus-mediated tumor cell death, provides the most efficient delivery of virus-encoded immune activating proteins into the tumor with the goal of activating systemic immunity, and limits the systemic toxicities that could be associated with intravenous administration. Activation of systemic immunity through local administration is intended to lead to the induction of anti-tumor immune responses leading to clinical response of tumors that have not themselves been injected. Financial Since our inception, we have devoted substantially all of our resources to developing our proprietary RPx platform, building our intellectual property portfolio, conducting research and development of our product candidates, business planning, raising capital and providing general and administrative support for our operations. To date, we have financed our operations primarily with proceeds from the sale of equity securities and to a lesser extent the proceeds from the issuance of debt securities. We do not have any products approved for sale and have not generated any revenue from product sales. Since our initial public offering, or IPO, on July 24, 2018, we have raised an aggregate of approximately $569.0 million in net proceeds to fund our operations, of which $101.2 million was from our IPO, $463.4 million was from three separate follow-on offerings, or the Public Offerings, that we closed in November 2019, June 2020 and October 2020, respectively, and $4.4 million was from at-the-market offerings. We sold 7,407,936 shares of common stock in our IPO, an aggregate of 13,619,822 shares of our common stock and pre-funded warrants to purchase 5,284,238 shares of common stock in the Public Offerings, and 287,559 shares of common stock through our at-the-market facility. Funds affiliated with two separate institutional investors hold all of our outstanding pre-funded warrants. Other than as set forth in Notes 8, 9 and 10 of our condensed consolidated financial statements appearing elsewhere in this Quarterly Report, the shares of our common stock into which our outstanding pre-funded warrants are exercisable are not included in the number of issued and outstanding shares of our common stock set forth in this Quarterly Report. In addition, on August 8, 2019, we entered into a Loan and Security Agreement with Hercules Capital, Inc., or Hercules, which we refer to as the Hercules Loan Agreement, pursuant to which we borrowed $10.0 million under a secured term loan facility in the amount of $30.0 million. The Hercules Loan Agreement was subsequently amended on June 1, 2020, in order to, among other things, increase the secured term loan facility from $30.0 million to $40.0 million. On December 15, 2020, we paid a total of $10.8 million, representing the outstanding principal, accrued and unpaid interest, fees, costs and expenses due and owing under the Hercules Loan Agreement and related loan documents, in repayment of all of our outstanding obligations thereunder, and thereby terminated the Hercules Loan Agreement and the related loan documents. Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our product candidates. Our net losses were $29.7 million and $21.8 million for the three months ended December 31, 2021 and 2020, respectively, and $86.3 million and $59.4 million for the nine months ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $279.5 million. These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We anticipate that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates, and if and as we: • conduct our current and future clinical trials with RP1, RP2 and RP3; • further preclinical development of our platform; 26 Table of Contents • operate our own in-house manufacturing facility; • seek to identify and develop additional product candidates; • seek marketing approvals for any of our product candidates that successfully complete clinical trials, if any; • establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; • until our manufacturing facility is fully validated, continued limited manufacturing by third parties for clinical development; • maintain, expand and protect our intellectual property portfolio; • hire and retain additional clinical, quality control, scientific and general and administration personnel; • acquire or in-license other drugs and technologies; and • add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and operations as a public company. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for RP1 or our other product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership in any jurisdiction, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing, and distribution. As a result, we will need 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 a combination of equity offerings, debt financings, lines of credit, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. 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. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately 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 December 31, 2021, we had cash and cash equivalents and short-term investments of $420.2 million. We believe that our existing cash and cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements through at least 12 months from the issuance of the consolidated financial statements included in this Quarterly Report. See “—Liquidity and capital resources” and “Risk factors—Risks related to our financial position and need for additional capital.” The COVID-19 pandemic We are continuing to monitor the global outbreak and spread of COVID-19, including evolving COVID-19 variants, most notably to date being the Delta variant and the Omicron variant, and have taken steps to identify and mitigate the adverse impacts on, and risks to, our business posed by its spread and actions taken by governmental and health authorities to address the COVID-19 pandemic. For example, we have implemented a global work-from-home policy for certain employees who are able to perform their duties remotely. For those employees working from our facilities, including certain essential employees in our laboratory and who perform manufacturing functions, and certain other employees who we may deem essential from time to time, we have implemented stringent safety measures designed to comply with applicable federal, state and local guidelines instituted in response to the COVID-19 pandemic. We continue to evolve our work-from-home policies toward return-to-office policies, as applicable under the circumstances while following local, state and federal guidelines and safety practices. The 27 Table of Contents COVID-19 pandemic is affecting the United States and global economies and has affected and may continue to affect our operations and those of third parties on which we rely, including by causing disruptions in our raw material and anti-PD-1 supply, the manufacturing of our product candidates and our commercialization processes. In addition, timing of patient enrollment and treatment in certain of our ongoing clinical studies has been, and may continue to be, impacted by the pandemic, which in turn has caused a delay to our development times for certain of our clinical trials. For example, the enrollment of our clinical trial of RP1 in liver and kidney transplant patients with CSCC, representing highly immunocompromised patient populations, has been slower than expected for reasons we attribute to the COVID-19 pandemic. Many of the clinical investigators with whom we work have encountered resource constraints, including limited labor resources, scheduling difficulties, and reduced access to equipment and supplies, which has impacted and may continue to impact the timely execution of their clinical studies, including our clinical studies being conducted at these sites. We continue to evolve our business to be reactive and supportive to our clinical investigation site needs and work collaboratively to continue to advance our clinical trials. However, the extent of these delays is currently unknown and has and will likely continue to vary by clinical study. In addition, we may incur unforeseen costs as a result of disruptions in clinical supply or preclinical study or clinical trial delays. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, including new viral strains of COVID-19, the actions taken in an effort to contain it or to potentially treat or continue to vaccinate against COVID-19 and the economic impact on local, regional, national and international markets. We continue to actively monitor this situation and the possible effects on our financial condition, liquidity, operations, suppliers, industry and workforce. For additional information, see “Risk Factors—Our financial condition and results of operations could be adversely affected by the coronavirus disease-2019, or COVID-19, outbreak.” in Part II, Item 1A of this Quarterly Report. Components of our results of operations Revenue To date, we have not generated any revenue from product sales as we do not have any approved products and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for RP1 or any other product candidates that we may develop in the future are successful and result in regulatory approval, or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from those collaborations or license agreements. Operating expenses Our expenses since inception have consisted solely of research and development costs and general and administrative costs. Research and development expenses Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates, and include: • expenses incurred under agreements with third parties, including clinical research organizations, or CROs, that conduct research, preclinical activities and clinical trials on our behalf as well as contract manufacturing organizations, or CMOs, that manufacture our product candidates for use in our preclinical and clinical trials; • salaries, benefits and other related costs, including stock-based compensation expense, for personnel engaged in research and development functions; • costs of outside consultants engaged in research and development functions, including their fees, stock-based compensation and related travel expenses; • the costs of laboratory supplies and acquiring, developing and manufacturing preclinical study and clinical trial materials; • costs related to compliance with regulatory requirements in connection with the development of our product candidates; and 28 Table of Contents • facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. These costs will be partially offset by our agreement with Regeneron related to our CERPASS trial. 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 service providers. 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 financial statements as prepaid or accrued research and development expenses. Our direct external research and development expenses are tracked on a program-by-program basis and consist of costs, such as fees paid to consultants, contractors, CMOs, and CROs in connection with our preclinical and clinical development activities. We do not allocate personnel costs, costs associated with our discovery efforts, laboratory supplies, and facilities, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple product development programs and, as such, are not separately classified. All non-employee costs associated with our manufacturing facility have been fully burdened to our RP1 program. The table below summarizes our research and development expenses by product candidate or development program for each of the periods presented: Three months ended December 31, Nine months ended December 31, 2021 2020 2021 2020 (Amounts in thousands) Direct research and development expenses by program: RP1 $ 4,025 $ 6,737 $ 11,976 $ 20,185 RP2 3,639 1,263 10,426 2,143 RP3 362 — 877 — Unallocated research and development expenses: Personnel related (including stock-based compensation) 9,143 5,664 27,380 15,889 Other 2,184 658 7,150 2,312 Total research and development expenses $ 19,353 $ 14,322 $ 57,809 $ 40,529 Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase for the foreseeable future as we continue enrollment and initiate additional clinical trials and continue to discover and develop additional product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following: • the scope, rate of progress, expense and results of our ongoing clinical trials, as well as future clinical trials or other product candidates and other research and development activities that we may conduct; • the number and scope of preclinical and clinical programs we decide to pursue; • our ability to maintain our current research and development programs and to establish new ones; • uncertainties in clinical trial design; • the rate of enrollment in clinical trials; • the successful completion of clinical trials with safety, tolerability, and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority; 29 Table of Contents • the receipt of regulatory approvals from applicable regulatory authorities; • our success in operating our manufacturing facility, or securing manufacturing supply through relationships with third parties; • our ability to obtain and maintain patents, trade secret protection, and regulatory exclusivity, both in the United States and internationally; • our ability to maintain, expand and protect our rights in our intellectual property portfolio; • the commercialization of our product candidates, if and when approved; • the acceptance of our product candidates, if approved, by patients, the medical community, and third-party payors; • our ability to successfully develop our product candidates for use in combination with third-party products or product candidates; • negative developments in the field of immuno-oncology; • competition with other products; and • significant and changing government regulation and regulatory guidance. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we anticipate will be required for the completion of clinical development of a product candidate, or if we experience significant trial delays due to patient enrollment or other reasons, we could be required to expend significant additional financial resources and time on the completion of clinical development. We may never succeed in obtaining regulatory approval for any of our product candidates. General and administrative expenses General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include professional fees for legal, patent, accounting, auditing, tax and consulting services; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. We expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount to support our continued research and development and potential commercialization of our product candidates. We also expect to continue to incur increased expenses, including 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. Other income (expense), net Research and development incentives Research and development incentives consists of reimbursements of research and development expenditures. We participate, through our subsidiary in the United Kingdom, in the research and development program provided by the United Kingdom tax relief program, such that a percentage of up to 14.5% of our qualifying research and development expenditures are reimbursed by the United Kingdom government, and such incentives are reflected as other income. Investment income Investment income consists of income earned on our cash and cash equivalents and short-term investments. Interest expense on finance lease liability 30 Table of Contents Interest expense on finance lease liability consists of amortization of finance charges under our financing lease. Interest expense on debt obligations Interest expense on debt obligations consists of the amortization of debt discount and cash paid for interest under the term loan facility with Hercules. Loss on extinguishment of debt Loss on extinguishment of debt consists of the loss from extinguishment of debt obligations under the term loan facility with Hercules. Other income (expense), net Other income (expense), net consists primarily of realized and unrealized foreign currency transaction gains and losses. Income taxes Since our inception and through December 31, 2021, we have not recorded any income tax benefits for the net losses we incurred in each jurisdiction in which we operate, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards will not be realized. Results of operations Comparison of the three months ended December 31, 2021 and 2020 The following chart summarizes our results of operations for the three months ended December 31, 2021 and 2020: Three Months Ended December 31, 2021 2020 Change (Amounts in thousands) Operating expenses: Research and development $ 19,353 $ 14,322 $ 5,031 General and administrative 10,345 5,953 4,392 Total operating expenses 29,698 20,275 9,423 Loss from operations (29,698) (20,275) (9,423) Other income (expense): Research and development incentives 733 550 183 Investment income 87 116 (29) Interest expense on finance lease liability (555) (560) 5 Loss on extinguishment of debt — (913) 913 Interest expense on debt obligations — (247) 247 Other (expense) income (241) (454) 213 Total other income (expense), net 24 (1,508) 1,532 Net loss $ (29,674) $ (21,783) $ (7,891) Research and development expenses 31 Table of Contents Three Months Ended December 31, 2021 2020 Change Direct research and development expenses by program: RP1 4,025 6,737 (2,712) RP2 3,639 1,263 2,376 RP3 362 — 362 Unallocated research and development expenses: — Personnel related (including stock-based compensation) 9,143 5,664 3,479 Other 2,184 658 1,526 Total research and development expenses $ 19,353 $ 14,322 $ 5,031 Research and development expenses for the three months ended December 31, 2021 were $19.4 million, compared to $14.3 million for the three months ended December 31, 2020. The change in our direct research and development expense between our product candidates is associated with technology transfer and process development underway in readiness for bringing our manufacturing facility online to support our clinical development and prepare for commercial launch. Manufacturing continued to focus on RP2 and RP3 technology transfers during the three months ended December 31, 2021, as well as continued clinical trial development of these product candidates. Furthermore, the increase of $5.0 million in our unallocated expenses was due primarily to a $3.5 million increase in personnel-related costs, including a $3.0 million increase in payroll and fringe benefits and a stock-based compensation increase of $0.4 million. The increase in personnel-related costs largely reflected the hiring of additional personnel in our research and development functions as we expand the development plan in multiple indications. Personnel related costs for the three months ended December 31, 2021 and 2020 included stock-based compensation expense of $1.8 million and $1.5 million, respectively. General and administrative expenses General and administrative expenses were $10.3 million for the three months ended December 31, 2021, compared to $6.0 million for the three months ended December 31, 2020. The increase of $4.4 million is primarily the result of an increase of $3.4 million in personnel related costs, including a stock-based compensation increase of $2.5 million, and an increase of $0.8 million in payroll and fringe benefits. The increase in personnel related costs was driven by the continued hiring of additional personnel in our general and administrative functions, including the addition of commercial personnel associated with pre-launch commercial planning and initial build of the Company's commercial infrastructure, which accounts for approximately $0.5 million of the increase compared to prior year, as we expand our operations. Total other income (expense), net Other income (expense) was $24 thousand for the three months ended December 31, 2021, compared to $(1.5) million for the three months ended December 31, 2020. The net change of $1.5 million is primarily attributable to a decrease in expense of $0.9 million as a result of a loss related to the extinguishment of debt in the prior year which did not recur in the current year, as well as a decrease in expense of $0.2 million as a result of interest expense on the aforementioned debt obligations in the prior year which did not recur during the current year. Furthermore, there is a decrease in expense of $0.2 million in the current year compared to the prior year due to the changes in foreign exchange rates of the Great British Pound to United States Dollar. Comparison of the nine months ended December 31, 2021 and 2020 The following chart summarizes our results of operations for the nine months ended December 31, 2021 and 2020: 32 Table of Contents Nine Months Ended December 30, 2021 2020 Change (Amounts in thousands) Operating expenses: Research and development $ 57,809 $ 40,529 $ 17,280 General and administrative 28,517 17,242 11,275 Total operating expenses 86,326 57,771 28,555 Loss from operations (86,326) (57,771) (28,555) Other income (expense): Research and development incentives 2,246 1,991 255 Investment income 259 821 (562) Interest expense on finance lease liability (1,670) (1,683) 13 Loss on extinguishment of debt — (913) 913 Interest expense on debt obligations — (817) 817 Other (expense) income (849) (999) 150 Total other income (expense), net (14) (1,600) 1,586 Net loss $ (86,340) $ (59,371) $ (26,969) Research and development expenses Nine Months Ended December 31, 2021 2020 Change Direct research and development expenses by program: RP1 11,976 20,185 (8,209) RP2 10,426 2,143 8,283 RP3 877 — 877 Unallocated research and development expenses: — Personnel related (including stock-based compensation) 27,380 15,889 11,491 Other 7,150 2,312 4,838 Total research and development expenses $ 57,809 $ 40,529 $ 17,280 Research and development expenses for the nine months ended December 31, 2021 were $57.8 million, compared to $40.5 million for the nine months ended December 31, 2020. The increase of $17.3 million was due primarily to an increase of approximately 16.3 million in unallocated research and development costs, as well as a net increase of approximately $1.0 million in direct research costs related to our ongoing clinical trials for RP1, RP2 and RP3. The change in our research and development expense between our product candidates is associated with technology transfer and process development underway in readiness for bringing our manufacturing facility online to support our clinical development and prepare for commercial launch. Manufacturing continued to focus on the RP2 and RP3 technology transfer during the nine months ended December 31, 2021, as well as continued clinical trial development of these product candidates. The increase in unallocated research and development costs is mainly attributable to a $11.5 million in personnel-related costs, including a $8.6 million increase in payroll and fringe benefits and a stock-based compensation increase of $2.8 million. The increase in personnel-related costs largely reflected the hiring of additional personnel in our research and development functions as we expanded the development plan in multiple indications. Personnel related costs for the nine months ended December 31, 2021 and 2020 included stock-based compensation expense of $6.5 million and $3.8 million, respectively. General and administrative expenses 33 Table of Contents General and administrative expenses were $28.5 million for the nine months ended December 31, 2021, compared to $17.2 million for the nine months ended December 31, 2020. The increase of $11.3 million is primarily the result of an increase of $10.0 million in personnel related costs, including a stock-based compensation increase of $7.4 million, and an increase of $2.6 million in payroll and fringe benefits. The increase in personnel related costs was driven by the hiring of additional personnel, including the initial expenses related to commercial personnel associated with pre-launch commercial planning and initial build of our commercial infrastructure. Personnel related costs for the nine months ended December 31, 2021 and 2020 included stock-based compensation expense of $12.0 million and $4.6 million, respectively. Total other income (expense), net Other income (expense) was $(14) thousand for the nine months ended December 31, 2021, compared to $(1.6) million for the nine months ended December 31, 2020. The net change of $1.6 million is primarily attributable to a decrease in expense of $0.9 million as a result of a loss related to the extinguishment of debt in the prior year which did not recur in the current year, as well as a decrease in expense of $0.8 million as a result of interest expense on the aforementioned debt obligations in the prior year which did not recur during the current year. Additionally, there is an increase in income of $0.3 million in the current year compared to the prior year due to an increase in research and development incentives. These were partially offset by a $0.6 million decrease in investment income as a result of declining market conditions, which have decreased the rate of return on investments during the first nine months of the year as compared to the prior year. Liquidity and capital resources Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses and negative cash flows from our operations. 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 the foreseeable future, if at all. Sources of liquidity To date, we have financed our operations primarily with proceeds from the sale of equity securities and, to a lesser extent, proceeds from the incurrence of debt. Through December 31, 2021, we had received net proceeds of $655.8 million from our sales of equity instruments and $10.0 million from our incurrence of debt under the term loan facility with Hercules, which was repaid in full in December 2020. As of December 31, 2021, we had cash and cash equivalents and short-term investments of $420.2 million. In July 2018, we completed our IPO and issued and sold 7,407,936 shares of our common stock at a public offering price of $15.00 per share, resulting in net proceeds of $101.2 million after deducting underwriting discounts, commissions and other offering expenses of approximately $9.9 million. In the fourth calendar quarter of 2019, we closed a registered public offering for the issuance and sale of 4,516,561 shares of our common stock at a public offering price of $13.61 per share and pre-funded warrants to purchase 2,200,000 shares of our common stock at a purchase price of $13.6099 per pre-funded warrant, which was equal to the public offering price per share of the common stock less the $0.0001 per share exercise price of each pre-funded warrant. We received aggregate net proceeds from the offering of approximately $85.6 million after deducting underwriting discounts, commissions and other offering expenses of approximately $5.8 million. In June 2020, we closed a second registered public offering for the issuance and sale of 3,478,261 shares of our common stock at a public offering price of $23.00 per share and pre-funded warrants to purchase 1,521,738 shares of our common stock at a purchase price of $22.9999 per pre-funded warrant, which was equal to the public offering price per share of the common stock less the $0.0001 per share exercise price of each pre-funded warrant. We received aggregate net proceeds from the offering of approximately $107.8 million after deducting underwriting discounts, commissions and other offering expenses of approximately $7.2 million. In October 2020, we closed a third registered public offering for the issuance and sale of 5,625,000 shares of our common stock at a public offering price of $40.00 per share and pre-funded warrants to purchase 1,562,500 shares of our common stock at a purchase price of $39.9999 per pre-funded warrant, which was equal to the public offering price per share of common stock less the $0.0001 per share exercise price of each pre-funded warrant. We received aggregate net proceeds from the offering of approximately $270.0 million after deducting underwriting discounts, commissions and other offering expenses of approximately $17.5 million. In addition to registered public equity offerings, we also established an at-the-market offering program pursuant to a sales agreement that we entered into with SVB Leerink LLC, or the Agent, on August 8, 2019, or the 2019 Sales Agreement. Under the 2019 Sales Agreement, and prior to its amendment in June 2020, we could sell from time to time, at our option, up to an aggregate of $75.0 million of shares of our common stock. In June 2020, we amended the 2019 Sales Agreement to reduce 34 Table of Contents the aggregate offering amount thereunder from $75.0 million to $30.0 million. We sold 287,559 shares of our common stock under the 2019 Sales Agreement for net proceeds of approximately $4.4 million. On August 11, 2020, in connection with our entry into a separate sales agreement with the Agent, or the 2020 Sales Agreement, we and the Agent mutually agreed to terminate the 2019 Sales Agreement. Under the 2020 Sales Agreement, and prior to its amendment in October 2020, we could sell from time to time, at our option, up to an aggregate of $75.0 million of shares of our common stock. In October 2020, we amended the 2020 Sales Agreement to reduce the aggregate offering amount thereunder from $75.0 million to $62.5 million. We have not sold any shares of our common stock under the 2020 Sales Agreement. Our incurrence of debt was conducted entirely under the Hercules Loan Agreement, as amended, pursuant to which we borrowed $10.0 million of a maximum of $40.0 million. On December 15, 2020, we entered into a Payoff Letter with Hercules and paid a total of $10.8 million to Hercules in connection therewith, representing the outstanding principal, accrued and unpaid interest, fees, costs and expense due and owed to Hercules, thereby terminating the Hercules Loan Agreement and the related loan documents. Cash flows The following table summarizes our cash flows for each of the periods presented: Nine Months Ended December 31, 2021 2021 2020 (Amounts in thousands) Net cash used in operating activities $ (59,623) $ (45,261) Net cash provided by (used in) investing activities 2,520 (62,503) Net cash provided by financing activities 6,239 371,677 Effect of exchange rate changes on cash and cash equivalents 621 1,062 Net decrease in cash and cash equivalents $ (50,243) $ 264,975 Operating activities During the nine months ended December 31, 2021, net cash used in operating activities was $59.6 million, primarily resulting from our net loss of $86.3 million, partially offset by non-cash charges of $21.9 million, primarily consisting of stock-based compensation expense of $18.5 million, and an increase in cash of $4.8 million related to changes in our operating assets and liabilities. Changes in our operating assets and liabilities for the nine months ended December 31, 2021 consisted primarily of a $2.0 million increase in accrued expenses and other current liabilities, a net $1.8 million change in operating and financing right-of-use assets and lease liabilities, a $1.2 million increase in accounts payable and a $0.7 million decrease in research and development incentives receivable from the United Kingdom government due to the timing of vendor invoicing and payments, as well as a $0.9 million increase in prepaid expenses and other current assets. During the nine months ended December 31, 2020, net cash used in operating activities was $45.3 million, primarily resulting from our net loss of $59.4 million and net cash used by changes in our operating assets and liabilities of $2.6 million, partially offset by non-cash charges of $11.5 million. Changes in our operating assets and liabilities for the nine months ended December 31, 2020 consisted primarily of a $1.1 million decrease in research and development incentive receivables, partially from the United Kingdom government due to the timing and amount of our qualifying expenditures, $1.2 million increase in prepaid expenses and other current assets and $1.0 million decrease in accounts payable, partially offset by $1.9 million increase in accrued expenses and other current liabilities and $1.9 million net decrease related to ASC 842 (including changes in operating lease liabilities, operating lease, right-of-use asset and financing lease, right-of-use asset). The changes in accounts payable were primarily due to the timing of vendor invoicing and payments. Investing activities During the nine months ended December 31, 2021, net cash provided by investing activities was $2.5 million, consisting of $196.3 million in proceeds from sales and maturities of short-term investments, partially offset by $192.5 million in purchases of available for sale securities and $1.2 million in purchases of property, plant and equipment. During the nine months ended December 31, 2020, net cash used in investing activities was $62.5 million, consisting of $225.0 million in purchases of available for sale securities and $1.6 million in purchases of property, plant and equipment, partially offset by $164.1 million in proceeds from sales and maturities of short-term investments. 35 Table of Contents Financing Activities During the nine months ended December 31, 2021, net cash provided by financing activities was $6.2 million, consisting primarily of $6.4 million in proceeds from the exercise of stock options. During the nine months ended December 31, 2020, net cash provided by financing activities was $371.7 million, consisting of $286.1 million from the issuance of common stock, $91.7 million from the issuance of pre-funded warrants to purchase common stock, $4.9 million in proceeds from the exercise of stock options, partially offset by $10.0 million in debt payments under the Hercules Loan Agreement and $0.8 million of fees associated with the extinguishment of the obligations under the Hercules Loan Agreement. Hercules Loan Agreement On August 8, 2019 and as amended on June 1, 2020, we and certain of our affiliates entered into the Hercules Loan Agreement with Hercules, which provided for aggregate borrowings of up to $40.0 million in the form of term loans. We borrowed $10.0 million at closing under the Hercules Loan Agreement in August 2019 and subject to the achievement of certain milestones, had the ability to borrow the unused $30.0 million available in three separate $10.0 million advances between October 1, 2020 and December 15, 2020, July 1, 2020 and June 30, 2021, and July 1, 2021 and December 15, 2021, respectively. On December 15, 2020, we entered into a Payoff Letter with respect to the Hercules Loan Agreement. Pursuant to the Payoff Letter, we paid a total of $10.8 million to Hercules, representing the outstanding principal, accrued and unpaid interest, fees, costs and expenses due and owed to Hercules under the Hercules Loan Agreement. Upon the execution of the Payoff Letter, in repayment of all of our outstanding obligations thereunder, the Hercules Loan Agreement and the related loan documents were terminated. Borrowings under the Hercules Loan Agreement bore interest at a rate per annum equal to 8.75%. Under the Hercules Loan Agreement, we were required to make monthly interest-only payments through September 1, 2022. As of December 31, 2021, there was no amount of outstanding principal under the Hercules Loan Agreement due and owing. The term loan facility with Hercules was secured by substantially all of our assets, excluding our intellectual property, and subject to certain exceptions and exclusions. All liens on our assets held by Hercules were released in connection with the execution of the Payoff Letter. Funding requirements Our plan of operation is to continue implementing our business strategy, continue research and development of RP1 and our other product candidates and continue to expand our research pipeline and our internal research and development capabilities. We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and clinical trials of our product candidates and if and as we: • conduct our current and future clinical trials with RP1, RP2 and RP3; • further preclinical development of our platform; • operate our own in-house manufacturing facility; • seek to identify and develop additional product candidates; • seek marketing approvals for any of our product candidates that successfully complete clinical trials, if any; • establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; • until our planned manufacturing facility is fully validated, continued limited manufacturing by third parties for clinical development. • maintain, expand and protect our intellectual property portfolio; 36 Table of Contents • hire and retain additional clinical, quality control, scientific and general and administration personnel; • acquire or in-license other drugs and technologies; and • add operational, financial and management information systems and personnel, including personnel to support our research and development programs, any future commercialization efforts and operations as a public company. As of December 31, 2021, we had cash and cash equivalents and short-term investments of $420.2 million. We believe that our existing cash, cash equivalents and short-term investments as of December 31, 2021, will enable us to fund our operations into the second half of 2024, excluding any confirmatory trial required by the FDA or other regulatory body. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with the development of RP1 and other product candidates and programs, and because the extent to which we may enter into collaborations with third parties for development of our product candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our future capital requirements will depend on many factors, including those described in this section and above under “—Operating expenses—Research and development expenses.” Developing novel biopharmaceutical products, including conducting preclinical studies 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 for any product candidates or generate revenue from the sale of any products for which we may obtain marketing approval. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of therapies 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. To the extent that we raise additional capital through the sale of our equity or convertible debt securities, our shareholders’ interest may be diluted, and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect the rights of our common stockholder. Additional debt or preferred equity financing, if available, may involve agreements that include restrictive covenants that may limit our ability to take specific actions, such as incurring debt adversely impact our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute your ownership interest. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technology, 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 or collaborations, strategic alliances or licensing arrangements with third parties when needed, we may be required to delay, limit, reduce and/or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Contractual obligations and commitments During the nine months ended December 31, 2021, there were no material changes to our contractual obligations and commitments from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations and Commitments” in our Annual Report on Form 10-K for the year ended March 31, 2021, which was filed with the SEC on May 20, 2021. Collaborations BMS In February 2018, we entered into a Clinical Trial Collaboration and Supply Agreement with Bristol-Myers Squibb Company, or BMS. Pursuant to the agreement, BMS is providing to us, at no cost, nivolumab, its anti-PD-1 therapy, for use in combination with RP1 in our ongoing Phase 1/2 clinical trial. Under the agreement, we will sponsor, fund and conduct the clinical trial in accordance with an agreed-upon protocol. BMS granted us a non-exclusive, non-transferrable, royalty-free license (with a right to sublicense) under its intellectual property to use nivolumab in the clinical trial and has agreed to supply 37 Table of Contents nivolumab, at no cost to us, for use in the clinical trial. Both parties will own the study data produced in the clinical trial, other than study data related solely to nivolumab, which will belong solely to BMS, or study data related solely to RP1, which will belong solely to us. In January 2020, this agreement was expanded to cover an additional cohort of 125 patients with anti-PD-1 failed melanoma. Unless earlier terminated, the agreement will remain in effect until (i) the completion of the clinical trial, (ii) all related clinical trial data have been delivered to both parties and (iii) the completion of any statistical analyses and bioanalyses contemplated by the clinical trial protocol or any analysis otherwise agreed upon by the parties. The agreement may be terminated by either party (x) in the event of an uncured material breach by the other party, (y) in the event the other party is insolvent or in bankruptcy proceedings or (z) for safety reasons. Upon termination, the licenses granted to us to use nivolumab in the clinical trial will terminate. The agreement contains representations, warranties, undertakings and indemnities customary for a transaction of this nature. In April 2019, we entered into a separate agreement with BMS on terms similar to the terms set forth in the agreement described above, pursuant to which BMS will provide, at no cost to us, nivolumab for use in our Phase 1 clinical trial of RP2 in combination with nivolumab. Regeneron In May 2018, we entered into a Master Clinical Trial Collaboration and Supply Agreement with Regeneron Pharmaceuticals, Inc., or Regeneron. Pursuant to the agreement we agreed to undertake one or more clinical trials with Regeneron for the administration of our product candidates in combination with cemiplimab, an anti-PD-1 therapy developed by Regeneron, across multiple solid tumor types, the first of which is our ongoing Phase 2 clinical trial testing RP1 in combination with cemiplimab versus cemiplimab alone in patients with CSCC. Each clinical trial will be conducted pursuant to an agreed study plan which, among other things, will identify the name of the sponsor and which party will manage the particular study, and include the protocol, the budget and a schedule of clinical obligations. The first study plan related to the Phase 2 clinical trial in CSCC has been agreed. Pursuant to the terms of the agreement, each party granted the other party a non-exclusive license of their respective intellectual property and agreed to contribute the necessary resources needed to fulfill their respective obligations, in each case, under the terms of agreed study plans. Development costs of a particular clinical trial will be split equally. The agreement contains representations, warranties, undertakings and indemnities customary for a transaction of this nature. The agreement also contains certain time-based covenants that restrict us from entering into a third-party arrangement with respect to the use of our product candidates in combination with an anti-PD-1 therapy and that restrict Regeneron from entering into a third-party arrangement with respect to the use of cemiplimab in combination with an HSV-1 virus, in each case, for the treatment of a tumor type that is the subject of a clinical trial to which the covenants apply. Unless otherwise mutually agreed in a future study plan, these covenants are only applicable to our ongoing Phase 2 clinical trial in CSCC, and expire upon the one-year anniversary of the commencement of the applicable study plan. The agreement may be terminated by either party if (i) there is no active study plan for which a final study report has not been completed and the parties have not entered into a study plan for an additional clinical trial within a period of time after the delivery of the most recent final study report or (ii) in the event of a material breach. Critical accounting policies and significant judgments and estimates Our management’s discussion and analysis of 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. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in greater detail in Note 2 to our consolidated financial statements appearing elsewhere in this Quarterly Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements. 38 Table of Contents Accrued research and development expenses As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued 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 cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to: • CROs in connection with performing research activities and conducting preclinical studies and clinical trials on our behalf; • CMOs in connection with the production of preclinical and clinical trial materials; • investigative sites or other service providers in connection with clinical trials; • vendors in connection with preclinical and clinical development activities; and • vendors related to product manufacturing and development and distribution of preclinical and clinical supplies. We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. 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 reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses. Stock-based compensation We issue stock-based awards to employees, directors, consultants and non-employees in the form of stock options and restricted stock units. We measure such stock-based awards in accordance with ASC 718, Compensation — Stock Compensation, which requires all stock-based awards to be recognized in the consolidated statements of operations and comprehensive loss based on their fair value on the date of the grant and the related compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. We have, to date, only issued stock-based awards with service-based vesting conditions and record the expense for these awards using the straight-line method. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and our expected dividend yield. See Note 9 to our consolidated financial statements appearing elsewhere in this Quarterly Report for more information. Forfeitures are accounted for as they occur. The fair value of each stock-based award is estimated on the date of grant based on the fair value of our common stock on that same date. We classify stock-based compensation expense in our consolidated statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipient’s service payments are classified. Off-balance sheet arrangements We did not have any off-balance sheet arrangements 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. Recently issued accounting pronouncements 39 Table of Contents A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Quarterly Report. Emerging growth company status As an “emerging growth company,” the Jumpstart Our Business Startups Act of 2012 permits us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies. Item 3. Quantitative and Qualitative Disclosures about Market Risks. Not applicable.