The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes and Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC onMarch 11, 2021 . As discussed in the section titled "Special Note Regarding Forward-Looking Statements," the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year endedDecember 31, 2020 .
Business overview
We are a clinical-stage biopharmaceutical company focused on harnessing the body's natural regulation of protein levels to develop novel therapeutic candidates to target and destroy disease-causing proteins for the treatment of cancer and other diseases. We leverage our proprietary technology platform, TORPEDO™ (Target ORiented ProtEin Degrader Optimizer), to synthesize a new class of small molecule medicines that are designed to destroy disease-causing proteins selectively and efficiently, including targets previously considered to be undruggable. We are using our TORPEDO™ platform to build a robust pipeline of oral protein degradation drug candidates, with our lead product candidates focused on oncology indications. Our most advanced product candidate, CFT7455, is an orally bioavailable degrader of a protein target called IKZF1/3, for multiple myeloma, or MM, and non-Hodgkin lymphomas, or NHLs, including peripheral T-cell lymphoma, or PTCL, and mantle cell lymphoma, or MCL. We initiated a first-in-human Phase 1/2 clinical trial for this product candidate in June of 2021. InAugust 2021 , the FDA granted orphan drug designation to CFT7455 for the treatment of multiple myeloma. We are also developing CFT8634, an orally bioavailable degrader of a protein target called BRD9, for synovial sarcoma and SMARCB1-deleted solid tumors and we expect to submit an investigational new drug, or IND, application for this product candidate to the FDA in the second half of 2021 and begin a first-in-human Phase 1/2 clinical trial for this product candidate in 2022. We are also developing CFT8919, an orally bioavailable, allosteric, mutant-selective degrader of epidermal growth factor receptor, or EGFR, L858R in non-small cell lung cancer, or NSCLC, and we expect to submit an IND for this product candidate to the FDA by mid-2022 and begin a first-in-human Phase 1/2 clinical trial for this product candidate by year-end 2022. In addition to our lead product candidates, we are also developing degraders specifically targeting V600E mutant BRAF to treat melanoma, non-small cell lung cancer, colorectal cancer and other solid malignancies that harbor this mutation, as well as degraders of a protein target called RET to treat lung cancer, sporadic medullary thyroid cancers and other solid malignancies that harbor oncogenic RET lesions. We expect to have product candidates from these two programs in the clinic by the end of 2022. Beyond these initial product candidates, we are further diversifying our pipeline by developing new degraders against targets where we believe degradation offers potential advantages over existing therapeutic modalities. We have engineered degraders that have successfully achieved blood-brain barrier penetration in preclinical studies, which is a key step in developing medicines with the potential to treat brain metastases in oncology, as well as therapeutic areas such as neurodegenerative diseases. We also believe there are many other therapeutic areas and indications where leveraging our TORPEDO™ platform to develop novel degraders may be advantageous.
Financial operations overview
Revenues
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products for the foreseeable future. Our revenues to date have been generated through research collaboration and license agreements. We recognize revenue over our expected performance period under each agreement. We expect that our revenue for the next several years will be derived primarily from our current collaboration agreements and any additional collaborations that we may enter into in the future. To date, we have not received any royalties under any of our existing collaboration agreements.
Roche Collaboration and License Agreement
InMarch 2016 , we entered into a license agreement, or the Original Roche Agreement, withF. Hoffmann-La Roche Ltd andHoffmann-La Roche Inc. , or Roche, whereby Roche provided us with a non-refundable upfront payment of$15.0 million , which was creditable against our target initiation fees of either$1.0 million or$4.0 million , depending on the compound selected. Pursuant to the terms of the Original Roche Agreement, we collaborated on research activities to develop novel treatments in the field of targeted protein degradation using our degrader technology. We initially developed therapeutics that utilize degrader technology for up to ten target proteins. On a target-by-target basis, after successful completion of a defined preclinical development phase, Roche had an exclusive option to pursue a license from us for further clinical development and commercialization. 18 -------------------------------------------------------------------------------- OnDecember 22, 2018 , we amended and restated the Original Roche Agreement, or the Roche Agreement. Under the Roche Agreement, we have a more active role in the manufacturing and commercialization of the targets included in the collaboration, whereby if we elect to opt into certain co-development rights, we will receive an increased royalty rate on future product sales from commercialization of the relevant target. If we opt into certain co-detailing rights, we are entitled to reimbursement of certain commercialization costs. The target structure was revised to six potential targets, three of which had been nominated as of the execution of the Roche Agreement and represent continuations of the initial preclinical research and development efforts begun under the Original Roche Agreement, and three additional targets that were not nominated as of the date of execution of the Roche Agreement. At the time of entry into the Roche Agreement, Roche maintained its option rights to license and commercialize these six targets. Under the Roche Agreement, we received additional upfront consideration of$40.0 million from Roche. Roche will make annual research plan payments of$1.0 million for each active research plan. Finally, adjustments were made to the option exercise fees, whereby targets that have progressed through standard good laboratory practice, or GLP, toxicology studies at the time of exercise now have option exercise fees of$7.0 million to$12.0 million and those progressed through Phase 1 trials have option exercise fees of$20.0 million . For certain targets, Roche is required to pay us fees of$2.0 million and$3.0 million upon the identification of a lead series and the commencement of GLP toxicology studies, respectively. For each target option exercised by Roche, we are eligible to receive up to$275 million in research, development and commercial milestone payments per target. Roche is also required to pay us up to$150 million per target in one-time sales-based payments if the target achieves certain levels of net sales. Roche is also required to pay us royalties, at percentages from the mid-single digits to the low double-digits, on a licensed product-by licensed product basis, on worldwide net product sales. InNovember 2020 , we signed a further amendment to the Roche Agreement that provides a mechanism through which we and Roche can mutually agree to terminate the Roche Agreement on a target-by-target basis by the entry into a mutual target termination agreement. Upon a termination of this nature, the Roche Agreement, as amended, provides that all rights in know-how and intellectual property in support of products that use inhibition as their mode of action, referred to as the Roche Field, will revert to Roche and all rights in respect of know-how and intellectual property in support of products that use degradation as their mode of action, referred to as the C4T Field, will revert to us. Further, this amendment states that, following the entry into a mutual target termination agreement, Roche will have rights in and responsibility for any know-how and intellectual property generated as a result of the collaboration that fits within the Roche Field and we will have rights in and responsibility for any know-how and intellectual property generated as a result of the collaboration that fits within the C4T Field. In support of this allocation of rights, under the amendment, Roche provided us, and we provided Roche, with a perpetual, irrevocable, fully paid up, exclusive (even as to party granting the license), sublicensable (including in multiple tiers) license to the patents that are allocated to a party under the mutual target termination agreement and a perpetual, irrevocable fully paid up, non-exclusive, sublicensable (including in multiple tiers) license to the know-how that is allocable to a party under the mutual termination agreement. Finally, through the entry into this amendment, we and Roche mutually agreed to terminate the Roche Agreement as to the target EGFR. As a result, Roche is now free to pursue the target EGFR in the Roche Field and we are free to pursue the target EGFR in the C4T Field and all rights in and responsibility for know-how and intellectual property related to EGFR in the Roche Field reverted to the Roche parties and all rights in and responsibility for know-how and intellectual property related to EGFR in the C4T Field reverted to us, with Roche assigning the relevant patents in the C4T Field to us.
OnDecember 28, 2018 , we entered into a collaborative research and license agreement, or the Biogen Agreement, withBiogen MA, Inc. , or Biogen, whereby we agreed to collaborate on research and development efforts for up to five targets to discover and develop potential new treatments for neurological conditions, such as Alzheimer's disease and Parkinson's disease. The Biogen Agreement also has an option for Biogen to nominate additional targets and extend the Biogen Agreement. InFebruary 2020 , we entered into an amendment to the Biogen Agreement that provided further clarity around Biogen's ownership of target binding moieties, which are portions of molecules, and any related intellectual property that are directed at or bind to collaboration targets. This amendment further provides that Biogen licenses to us rights to use these Biogen target binding moieties and any related intellectual property as needed in order to conduct the research and development activities contemplated under the Biogen Agreement. We granted Biogen a non-exclusive research license under our intellectual property to perform research activities, select and optimize degraders and develop products including the degraders, as well as a commercial license to manufacture and commercialize the targets once the initial research and development work is complete. The research under the Biogen Agreement will take place over a 54-month research term, ending inJune 2023 , with Biogen having an option to extend the Biogen Agreement for up to four additional years. If Biogen elects to extend the term of the Biogen Agreement, Biogen would be required to make an additional payment of$62.5 million and would be entitled to nominate up to five additional targets. The Biogen Agreement provides for three initial targets, with Biogen having the right to initiate up to an additional two targets and to control all post-discovery activities. Biogen paid us a nonrefundable upfront payment of$45.0 million for access to our technology and research services through the discovery research phase. The nonrefundable upfront cash payment of$45.0 million is not creditable against any of the target development milestone fees. 19
-------------------------------------------------------------------------------- Following the achievement of development candidate criteria, prior to any IND-enabling study, for any target, Biogen will bear all costs and expenses of and will have sole discretion and decision-making authority with respect to the performance of further activities with respect to any degrader under development under the Biogen Agreement and all products that incorporate that degrader. Biogen is also required to pay us up to$35.0 million per target in development milestones and$26.0 million per target in one-time sales-based payments for the first product to achieve certain levels of net sales. In addition, Biogen is required to pay us royalties on a licensed product-by-licensed product basis, on worldwide net product sales, at percentages in the mid-single digits. All milestone and sales-based payments are made after we have met the defined criteria in the joint research plan for that target, at which time Biogen will have control of the targets for commercialization; the receipt of these payments is contingent on the further development of the targets to commercialization by Biogen, without any additional research and development efforts from us. Biogen also has the option to fund additional discovery activities, whereby we will perform discovery-type research at Biogen's election to develop other potential targets that may be used as replacement targets for the initially nominated targets or two additional targets under the Biogen Agreement. Revenues earned under this option, if initiated, will be recognized as services are performed and are not included in the transaction price at the outset of the arrangement. These research activities will be reimbursed on a full-time equivalent, or FTE, basis at specified market rates. These additional discovery activities can be purchased up to a maximum amount by Biogen on an à la carte basis at an amount consistent with standalone selling price. If Biogen were to exercise these options, we would recognize revenue as those options are exercised.
Calico Collaboration and License Agreement
In
We provided Calico with a non-exclusive research license under our intellectual property to perform research activities and select and optimize degraders and develop products including the degraders. We also granted Calico a commercial license for any licensed products resulting from the development candidates supplied by us. We are required to perform research and development activities for the nominated targets over the research term, with the intent to provide a development candidate for each target to Calico once the agreed-upon research is complete. Calico is obligated to reimburse our research and development activities for each target at specified levels through the identification of a development candidate, after which Calico shall assume full responsibility for candidate development. After the initiation of each target, the Calico Agreement does not contain any options for Calico to license the individual targets; once we complete the initial research and development activities required, Calico controls and directs the targets with no additional work required to be performed by us. There is no exercise price or incremental fee payable to us to progress the research further, though Calico is required to pay an initiation fee with the commencement of each research plan. Once Calico nominates a target and pays the applicable target initiation fee, we will commence research and development activities for that target. The Calico Agreement provides for up to five initial targets. Research activities performed are reimbursed at specified levels for the five-year term of the Calico Agreement. Under this agreement, Calico paid us a nonrefundable upfront amount of$5.0 million and certain annual payments of$5.0 million throughDecember 31, 2020 . Upon our completion of the required discovery research and development services on any target, Calico is entitled to pursue commercial development of that target. For each target, we are eligible to receive potential research, development and commercial milestone payments aggregating up to$132.0 million . Calico is also required to pay one-time sales-based payments aggregating up to$65.0 million for the first product to achieve certain levels of net sales. In addition, Calico is required to pay us royalties, on a licensed product-by-licensed product basis, on worldwide net product sales, at percentages in the mid-single digits. All milestone and sales-based payments are made after we have met the defined criteria in the joint research plan for that target, at which time Calico will have control of the targets for commercialization; the receipt of these payments by us is contingent on the further development of the targets to commercialization by Calico, without any additional research and development efforts required by us.
Research and development expense
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:
• salaries, benefits and other related costs, including stock-based
compensation expense, for personnel engaged in research and development
functions;
• expenses incurred under agreements with third parties, including contract
research organizations and other third parties that conduct research,
preclinical, and clinical activities on our behalf as well as third parties
that manufacture our product candidates for use in our preclinical and clinical trials;
• costs of outside consultants, including their fees, unit-based compensation
and related travel expenses;
• the costs of laboratory supplies and acquiring materials for preclinical
studies and clinical trials; 20
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• facility-related expenses, which include direct depreciation costs of
equipment and allocated expenses for rent and maintenance of facilities and
other operating costs; and • third-party licensing fees. We expense research and development costs as incurred. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our condensed consolidated financial statements as prepaid or accrued research and development expenses. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.
We expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities.
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, legal, business development and administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; 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 to support our growing operations, including additional personnel to support our operations as a publicly traded company. We also expect to continue to incur additional expenses associated with being a public company, including higher costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq andSEC requirements, director and officer insurance costs and investor and public relations costs.
Other (expense) income, net
Other (expense) income, net primarily consists of the following:
• interest expense and amortization of our long-term debt, which is discussed
in greater detail in Note 9, Long-term debt and warrant - related party; and
• interest income earned on our cash, cash equivalents, and marketable
securities and accretion of discount on marketable securities.
Results of operations
Comparison of the three and six months ended
Revenue
Revenue from our collaboration and license agreements consisted of the following
for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenue from collaboration agreements: Roche Agreement$ 2,893 $ 3,760 $ 5,086 $ 6,029 Biogen Agreement 2,940 2,306 4,820 3,302 Calico Agreement 3,948 3,604 7,301 7,155
Total revenue from collaboration agreements
The
• a
resulting from increased effort made on the nominated targets;
• a
resulting from increased effort made on the nominated targets and additional
revenue recognized from the Biogen milestone earned in Q2 2021; and •$1.0 million milestone revenue recognized under the Calico Agreement These were offset by: 21
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•
obligation being satisfied in full in Q2 2020, which resulted in increased
revenue in Q2 2020; and
•
Agreement; and
•
The
• a
resulting from increased effort made on the nominated targets
• a
resulting from increased effort made on the nominated targets and additional
revenue recognized from the Biogen milestone earned in Q2 2021; and
• the
These were offset by:
•
obligation being satisfied in full in Q2 2020, which resulted in increased
revenue in Q2 2020;
•
Agreement; and
•
Research and development expense
The following table summarizes our research and development expense for the
three and six months ended
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Research and development expenses: Preclinical and development expenses$ 10,983 $ 9,517 $ 20,372 $ 17,771 Personnel expenses 7,348 4,598 14,282 9,170 Facilities and supplies 2,240 2,259 4,537 4,501 Professional fees 1,330 1,064 2,501 1,840 Clinical expenses 966 - 1,184 - Intellectual property 340 292 763 644 Other expenses 79 30 173 146
Total research and development expenses
The
• a
primarily of increased departmental costs in preclinical development of our
various programs, including the addition of EGFR in Q2 2021;
• a
benefit costs, including a
expense driven primarily by the increase in the fair value of our stock,
primarily due to the buildout of our clinical development team; and
• a
initiation for the phase 1/2 clinical trial of CFT7455 in
The
• a
primarily of increased departmental costs in preclinical development of our
various programs, including the addition of EGFR in Q2 2021;
• a
benefit costs, including a
expense driven primarily by the increase in the fair value of our stock,
primarily due to the buildout of our clinical development team; and
• a
phase 1/2 clinical trial of CFT7455 inJune 2021 . 22
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General and administrative expense
The following table summarizes our general and administrative expense for the
three and six months ended
Three Months EndedJune 30 ,
Six Months Ended
2021 2020 2021 2020 General and administrative expenses: Personnel expenses$ 5,943 $ 1,170 $ 10,583 $ 3,100 Professional fees 2,335 1,369 4,766 1,973 Other expenses 333 230 671 538
Total general and administrative expenses
The$5.8 million increase in general and administrative expense in the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 is primarily driven by:
• a
benefit costs, which includes a
compensation expenses driven primarily by the increase in the fair market
value of our stock, and expenses resulting from additional G&A personnel
hired during the year; and
• a
increase in insurance costs, and higher legal and audit fees, resulting from
our transition to a public company.
The
• a
benefit costs, which includes a
compensation expenses driven primarily by the increase in the fair market
value of our stock, and expenses resulting from additional G&A personnel
hired during the year, partially offset by lower severance expense in the
current period compared to severance expense recognized in the three months
ended
• a
increase in insurance costs, a
higher legal and audit, resulting from our transition to a public company.
Other (expense) income, net
The following table summarizes our other (expense) income for the three and six
months ended
Three Months EndedJune 30 ,
Six Months Ended
2021 2020 2021 2020 Other (expense) income, net: Interest expense and amortization of long-term debt - related party$ (533 ) $ (127 ) $ (1,067 ) $ (127 ) Interest and other income, net 69 25 141 284
Total other (expense) income, net
The
• a
related to our long-term debt, the agreement for which we entered into in
The$1.1 million change in other (expenses) income, net in the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 is driven by the following:
• a
related to our long-term debt, the agreement for which we entered into in
Liquidity and capital resources
Sources of liquidity
Since inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and, if successful, the clinical development of our programs. We do not currently have any approved products and have never generated any revenue from product sales. To date, we have financed our operations 23
-------------------------------------------------------------------------------- primarily through the sale of preferred stock, public offerings of our common stock, and through payments from collaboration partners. As ofJune 30, 2021 , we had cash, cash equivalents and marketable securities of approximately$498.7 million . InJune 2020 andJuly 2020 , we closed our Series B Financing with both existing and new investors. As part of the Series B Financing, we issued 142,857,142 shares of redeemable convertible Series B preferred stock at a purchase price of$1.05 per share, for aggregate net proceeds of$145.5 million . Upon completion of the IPO, all of our redeemable convertible preferred stock was automatically converted into shares of our common stock at a rate of 8.4335 shares of redeemable convertible preferred stock to one share of common stock. In addition, inJune 2020 , we secured a$20.0 million credit arrangement withPerceptive Credit Holdings III, LP , or Perceptive Credit, an affiliate of one of the Series B Financing investors, whereby we borrowed$12.5 million at closing, bearing a variable interest rate of 11.25%, and can draw down another$7.5 million . Our ability to draw down on this second tranche expired onJune 30, 2021 . InOctober 2020 , we completed our IPO in which we issued and sold 11,040,000 shares of common stock at a price to the public of$19.00 per share. The net proceeds from our IPO, including the full exercise of the underwriter's overallotment option, were approximately$191.2 million . InJune 2021 , the Company completed a follow-on offering, at which time the Company issued 4,887,500 shares of its common stock, including 637,500 shares of common stock that were issued to the underwriters when they exercised in full their overallotment option. Net proceeds from the follow-on offering, including the exercise in full of the underwriters' option to purchase additional shares, were$169.5 million , after deducting underwriting discounts and commissions, and estimated expenses of$11.3 million .
Cash flows
The following table summarizes our sources and uses of cash for the period presented (in thousands): Six Months EndedJune 30, 2021 2020
Net change in cash, cash equivalents and restricted cash: Net cash used in operating activities
$ (42,936 ) $ (31,260 ) Net cash used in investing activities (29,296 ) (104,017 ) Net cash provided by financing activities 170,350
152,380
Total net change in cash, cash equivalents and restricted cash$ 98,118 $ 17,103 Operating activities
Net cash used in operating activities for the six months ended
• our net loss of
• a
under our collaboration agreements;
• a
agreements; • a$1.3 million change in accounts payable; and • a$1.2 million change in prepaid expense and other assets.
These were offset by non-cash expenses of
Net cash used in operating activities for the six months ended
• our net loss of
• a
under our collaboration agreements;
• a$3.9 million change in accounts receivable related to our collaboration agreements; and 24
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• a
These were offset by non-cash expenses of
Investing activities
Net cash used in investing activities for the six months endedJune 30, 2021 was primarily attributable to$28.1 million of purchases of marketable securities, net of maturities, in addition to purchases of property and equipment of$1.2 million .
Net cash used in investing activities for the six months ended
Financing activities
The
The
Funding requirements
Since our inception, we have incurred significant operating losses. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future as we advance the preclinical and clinical development of our product candidates. In addition, we expect to continue to incur additional costs associated with operating as a public company.
Specifically, we anticipate that our expenses will increase substantially in the future, if and as we:
• continue our ongoing first-in-human Phase 1/2 trials of CFT7455 and initiate
and conduct planned first-in-human Phase 1/2 trials for our other lead product candidates, including CFT8634 and CFT8919; • advance additional product candidates into preclinical and clinical development; • continue to invest in our proprietary TORPEDO™ platform; • expand, maintain and protect our intellectual property portfolio; • hire additional clinical, regulatory and scientific personnel;
• add operational, financial and management information systems and personnel
to support our ongoing research, product development, potential future
commercialization efforts, operations as a public company and general and administrative roles;
• seek marketing approvals for any product candidates that successfully
complete clinical trials; and
• ultimately establish a sales, marketing and distribution infrastructure and
scale up external manufacturing capabilities to commercialize any products
for which we may obtain marketing approval.
Because of the numerous risks and uncertainties associated with development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital and operating costs associated with our current and anticipated preclinical and clinical development. Our future capital requirements will depend on many factors, including:
• the progress, costs and results of ongoing and planned first-in-human Phase
1/2 trials for our lead product candidates and any future clinical development of those lead product candidates; • the scope, progress, costs and results of preclinical and clinical
development for our other product candidates and development programs;
• the number and development requirements of other product candidates that we
pursue;
• the success of our collaborations with Roche, Biogen and Calico, including
whether or not we receive additional research support or milestone payments
from our collaboration partners upon the achievement of milestones;
• the costs, timing and outcome of regulatory review of our product candidates;
• the costs and timing of preparing, filing and prosecuting patent
applications, maintaining and enforcing our intellectual property rights and
defending any intellectual property-related claims; • our willingness and ability to establish additional collaboration arrangements with other biotechnology or pharmaceutical companies on favorable terms, if at all, for the development or commercialization of current or additional future product candidates; 25
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• the costs and timing of future commercialization activities, including
product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval; and • the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval. As a result of the anticipated expenditures described above, we will need to obtain substantial additional financing to support our continuing operations and pursue our long-term business plan. Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of equity offerings, debt offerings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. Although we may receive potential future milestone and royalty payments under our collaborations with Roche, Biogen and Calico, we do not have any committed external source of funds as ofJune 30, 2021 . Adequate additional funds may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. If we raise additional capital through the sale of equity securities, each investor's ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. Contractual obligations We enter into contracts in the normal course of business with contract manufacturing organizations, contract research organizations and other vendors to assist in the performance of our research and development activities and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments. During the six months endedJune 30, 2021 , except for the minimum rental commitments disclosed in Note 6, Leases, and Note 9, Long-term debt and warrant - related party, to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q, there were no significant changes to our contractual obligations and commitments described under Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year endedDecember 31, 2019 .
Critical accounting policies and use of estimates
Our critical accounting policies are those policies that require the most significant judgments and estimates in the preparation of our condensed consolidated financial statements. We have determined that our most critical accounting policies are those relating to revenue recognition from collaborations, research and development expense recognition, and stock-based compensation. There have been no significant changes to our existing critical accounting policies discussed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 filed with theSEC onMarch 11, 2021 .
Off-balance sheet arrangements
We have not entered into any off-balance sheet arrangements, as defined under
the applicable regulations of the
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