REPLIMUNE GROUP, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. We discuss factors that we believe could cause or contribute to these differences below and elsewhere in this report, including those set forth under Item 1A. "Risk factors" and under "Cautionary note regarding forward-looking statements" in this Annual Report on Form 10-K.
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Discussion and analysis of fiscal year ended
Overview
Oncolytic immunotherapy, which we intend to establish as the second cornerstone of immune-based cancer treatment, is an emerging class of immuno-oncology therapy, alongside checkpoint blockade, that 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. Such oncolytic, or "cancer killing," viruses have the potential to generate an immune response targeted to an individual patient's particular set of tumor antigens, including neo-antigens that are uniquely present in tumors. 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.
The foundation of our Immulytic platform consists of a proprietary,
engineered strain of herpes simplex virus 1, or HSV-1, that has been "armed"
with a fusogenic glycoprotein intended to substantially increase anti-tumor
activity. Our Immulytic platform enables us to incorporate various genes into
HSV-1 that are intended to further augment the inherent properties of HSV-1 in
order to both directly destroy tumor cells and induce an anti-tumor immune
response. We currently have three product candidates in our development
pipeline,
We are currently conducting a number of clinical trials of
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BMS. Due in part to COVID-19 related disruptions, we expect that the non-melanoma skin cancer cohort to be fully accrued by the end of 2020. Similarly, it is likely that accumulating sufficient data to inform a decision as to whether to pursue MSI-H/dMMR tumors into registration-directed development will be delayed into 2021.
In addition, as a result of the recently altered competitive landscape, we recently announced our intention to replace a 30-patient bladder cancer cohort with a cohort of patients with anti-PD-1 refractory non-small cell lung cancer, or NSCLC. We intend to file a protocol amendment with the applicable regulatory authorities in the near term in order to reflect this change.
We are also developing additional product candidates,
We initiated the Phase 1 clinical trial of
We began operations as
In addition, the holders of warrants to purchase shares of series seed
preferred stock and stock options to acquire
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Financial overview
Since our inception, we have devoted substantially all of our resources to
developing our Immulytic platform and our lead product candidate,
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
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. In addition, we expect to continue to incur additional costs associated with operating as a public company. We expect that our expenses and capital requirements will increase substantially if and as we:
º •
º conduct our current and future clinical trials with RP1 ;
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º •
º progress the clinical development of RP2 and preclinical development
of RP3 ;
º •
º operate our own in-house manufacturing facility;
º •
º seek to identify and develop additional product candidates;
º •
º seek marketing approvals for any of our product candidates that
successfully complete clinical trials, if any;
º •
º establish a sales, marketing and distribution infrastructure to
commercialize any products for which we may obtain marketing approval;
º •
º maintain, expand and protect our intellectual property portfolio;
º •
º hire and retain additional clinical, quality control, scientific and
general and administration personnel;
º •
º acquire or in-license other drugs and technologies; and
º •
º add operational, financial and management information systems and
personnel, including personnel to support our research and development
programs, any future commercialization efforts and operating 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
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, 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
See "-Liquidity and capital resources" and "Risk factors-Risks related to our financial position and need for additional capital."
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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
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:
º •
º 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;
º •
º salaries, benefits and other related costs, including stock-based
compensation expense, for personnel engaged in research and
development functions;
º •
º costs of outside consultants, including their fees, stock-based
compensation and related travel expenses;
º •
º the costs of laboratory supplies and acquiring, developing and
manufacturing preclinical study and clinical trial materials;
º •
º costs related to compliance with regulatory requirements in connection
with the development of our product candidates; and
º •
º 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 Phase 2 clinical trial of
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. To date, we have not allocated expenses to our
earlier-stage programs for
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The table below summarizes our research and development expenses by product candidate or development program for each of the periods presented:
Year Ended March 31,
2020 2019
(Amounts in thousands)
RP1 $ 14,474 $ 9,685 Unallocated research and development expenses:
Personnel-related (including stock-based compensation) 14,646 7,534
Other 9,641 4,954 Total research and development expenses$ 38,761 $ 22,173
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 of
º •
º the scope, rate of progress, expense and results of our ongoing
clinical trials , as well future clinical trials or other product
candidates and other research and development activities that we may
conduct;
º •
º the number and scope of preclinical and clinical programs we decide to
pursue;
º •
º our ability to maintain our current research and development programs
and to establish new ones;
º •
º uncertainties in clinical trial design and patient enrollment rates;
º •
º the successful completion of clinical trials with safety,
tolerability, and efficacy profiles that are satisfactory to the FDA
or any comparable foreign regulatory authority;
º •
º the receipt of regulatory approvals from applicable regulatory
authorities;
º •
º our success in operating a manufacturing facility, or securing
manufacturing supply through relationships with third parties;
º •
º our ability to obtain and maintain patents, trade secret protection,
and regulatory exclusivity, both in the United States and
internationally;
º •
º our ability to protect our rights in our intellectual property
portfolio;
º •
º the commercialization of our product candidates, if and when approved;
º •
º the acceptance of our product candidates, if approved, by patients,
the medical community, and third-party payors;
º •
º our ability to successfully develop our product candidates for use in
combination with third-party products or product candidates;
º •
º negative developments in the field of immuno-oncology;
º •
º competition with other products; and
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º •
º 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 would 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
associated with being a public company, including costs of accounting, audit,
legal, regulatory and tax-related services associated with maintaining
compliance with exchange listing and
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
Change in fair value of warrant liability
In connection with the issuance of the series seed preferred stock, we issued to the series seed preferred stockholders warrants to purchase shares of series seed preferred stock. Prior to the completion of our IPO, we classified the warrants as a liability on our consolidated balance sheets. We remeasured the warrant liability to fair value at each reporting date and recognized changes in the fair value of the warrant liability as a component of other income (expense), net in our consolidated statements of operations.
Effective upon the completion of our IPO, the warrants to purchase shares of series seed preferred stock became exercisable for shares of common stock instead of shares of preferred stock, and the warrant liability was reclassified to additional paid-in capital. As a result, effective upon the completion of our IPO, we no longer recognize changes in the fair value of the warrant liability as other income (expense), net in our consolidated statements of operations.
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Investment income
Investment income consists of income earned on our cash and cash equivalents and short-term investments.
Interest expense on finance lease liability
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.
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
On
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Results of operations
Comparison of the years ended
The following table summarizes our results of operations for the years ended
March 31, 2020 and 2019:
Year Ended March 31,
2020 2019 Change
(Amounts in thousands)
Operating expenses:
Research and development $ 38,761 $ 22,173 $ 16,588
General and administrative 17,437 8,773 8,664
Total operating expenses 56,198 30,946 25,252
Loss from operations (56,198 ) (30,946 ) (25,252 )
Other income (expense):
Research and development incentives 3,084 2,528 556
Investment income 2,424 2,585 (161 )
Interest expense on finance lease liability (1,185 ) - (1,185 )
Interest expense on debt obligations (734 ) - (734 )
Change in fair value of warrant liability - (5,452 ) 5,452
Other income (expense), net (16 ) 451 (467 )
Total other income, net 3,573 112 3,461
Net loss $ (52,625 ) $ (30,834 ) $ (21,791 ) Research and development expenses
Year Ended
March 31,
2020 2019 Change
(Amounts in thousands)
Direct research and development expenses by program:
$ 14,474 $ 9,685 $ 4,789
Unallocated research and development expenses: Personnel-related (including stock-based compensation) 14,646 7,534 7,112 Other
9,641 4,954 4,687
Total research and development expenses $ 38,761 $ 22,173 $ 16,588 Research and development expenses for the year ended
The increase in unallocated research and development expenses reflected an
increase of
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increased primarily due to potential registrational studies associated with our
General and administrative expenses
General and administrative expenses were
Total other income, net
Other income (expense) was
The COVID-19 Pandemic
In
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global economy, and the effectiveness of actions taken in
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 issuance of
debt securities. Through
On
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Cash flows
The following table summarizes our cash flows for each of the periods
presented:
Year Ended March 31,
2020 2019
(in thousands)
Net cash used in operating activities $ (60,552 ) $ (25,378 )
Net cash used in investing activities (5,233 ) (65,944 )
Net cash provided by financing activities 100,166 101,390
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(135 ) (839 )
Net increase in cash, cash equivalents and restricted cash
Operating activities
During the year ended
During the year ended
Investing activities
During the year ended
During the year ended
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Financing Activities
During the year ended
During the year ended
Hercules Loan Agreement
On
Borrowings under the Hercules Loan Agreement bear interest at a rate per
annum equal the greater of either (i) the prime rate as reported in The Wall
Street Journal plus 2.75%, or (ii) 8.75%. Under the Hercules Loan Agreement, we
were required to make monthly interest-only payments through
We may voluntarily prepay all, but not less than all, of the outstanding principal at any time prior to the maturity date, subject to a prepayment fee, which ranges from 1% to 3% of the outstanding principal. A final payment of 4.95% of the aggregate amount of any advances made under the Hercules Loan Agreement.
The Term Loan Facility is secured by substantially all of our assets, excluding our intellectual property, and subject to certain exceptions and exclusions. The Hercules Loan Agreement contains customary affirmative and negative covenants, including restrictions on our ability to pay dividends, incur debt, grant liens, make acquisitions, make loans, dissolving, and entering into leases and asset sales, but does not contain any financial covenants.
Funding requirements
Our plan of operation is to continue implementing our business strategy,
continue research and development of
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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. In addition, we expect to continue to incur additional costs associated with operating as a public company. We expect that our expenses will increase substantially if and as we:
º •
º conduct our current and future clinical trials of RP1 ;
º •
º progress the preclinical and clinical development of RP2 and RP3 ;
º •
º operate our own in-house manufacturing facility;
º •
º seek to identify and develop additional product candidates;
º •
º seek marketing approvals for any of our product candidates that
successfully complete clinical trials, if any;
º •
º establish a sales, marketing and distribution infrastructure to
commercialize any products for which we may obtain marketing approval;
º •
º until our planned manufacturing facility is fully validated ,
continued manufacturing by third parties of larger quantities of our
product candidates for clinical development.
º •
º maintain, expand and protect our intellectual property portfolio;
º •
º acquire or in-license other drugs and technologies; and
º •
º 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
Because of the numerous risks and uncertainties associated with the
development of
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
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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
The following table summarizes our contractual obligations as of
Payments due by period
Less than More than
Total 1 year 1 to 3 years 4 to 5 years 5 years
(Amounts in thousands)
Manufacturing
commitments(1) $ 3,569 $ 3,569 $ - $ - $ -
Lease commitments(2) 62,550 3,284 6,223 6,567 46,476
Total $ 66,119 $ 6,853 $ 6,223 $ 6,567 $ 46,476 --------------------------------------------------------------------------------
º (1)
º Amounts in the table reflect commitments for costs associated with our
external CMO, which we engaged to manufacture clinical trial materials.
º (2)
º Amounts in the table reflect minimum payments due under (i) our two
operating leases of laboratory and office space in Woburn, Massachusetts
and Oxfordshire, United Kingdom , at a monthly commitment of $7 and $31 ,
respectively, and (ii) our financing lease of approximately 63,000 square
feet of office, manufacturing and laboratory space in Framingham,
Massachusetts . Our lease in Oxfordshire expires in April 2026 and is
terminable by us in April 2021 . The lease in Woburn, Massachusetts was
terminated by the Company in March 2020 , prior to the expiration of the
lease term. The lease term for our Framingham lease commenced in December
2018 . The rent commencement commenced in August 2019 . The initial lease
term is ten years from the rent commencement date and includes two optional
five-year extensions. Annual lease payments during the first year of the
lease in Framingham are $2,373 with increases of 3.0% each year. In June
2019 , we entered into an agreement to lease approximately 18,700 square
feet of office space in Woburn, Massachusetts . Pursuant to the lease
agreement, the lease term commenced in August 2019 and the rent commenced
in September 2019 . The initial lease term is ten years from the rent
commencement date and includes an optional five-year extension. Annual
lease payments during the first year are $488 with increases of
approximately 1.6% each year.
We enter into contracts in the normal course of business with CROs, CMOs and other third parties for clinical trials and preclinical research studies and testing. Manufacturing and research commitments in the preceding table include agreements that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. For obligations with cancellation provisions, the amounts included in the preceding table are limited to the non-cancelable portion of the agreement terms or the minimum cancellation fee.
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Collaborations
BMS
On
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 (i) in the event of an uncured material breach by the other party, (ii) in the event the other party is insolvent or in bankruptcy proceedings or (iii) 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.
On
Regeneron
On
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 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.
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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, (ii) 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 (iii) 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
While our significant accounting policies are described in greater detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, 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.
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:
º •
º CROs in connection with performing research activities and conducting
preclinical studies and clinical trials on our behalf;
º •
º CMOs in connection with the production of preclinical and clinical
trial materials;
º •
º investigative sites or other service providers in connection with
clinical trials;
º •
º vendors in connection with preclinical and clinical development
activities; and
º •
º 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
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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 measure stock-based awards granted to employees and directors based on their fair value on the date of the grant and recognize compensation expense for those awards 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 Annual Report on Form 10-K 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.
Prior to the adoption of ASC 2018-07 on
After the adoption of ASC 2018-07, for stock-based awards granted to consultants and non-employees, we measure stock-based these awards based on their fair value on the date of the grant and recognizes compensation expense for those awards 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.
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
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Recently issued accounting pronouncements
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 Annual Report on Form 10-K.
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.
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