CAPRICOR THERAPEUTICS, INC. The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the condensed consolidated notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results may differ materially from those anticipated in these forward-looking statements.
As used in this Quarterly Report on Form 10-Q, references to "
Overview
CAP-1002 - Duchenne Muscular Dystrophy Program
Our core cell therapy technology, CAP-1002, is based on cardiosphere-derived
cells ("CDCs"), which has been shown in pre-clinical and clinical studies to
exert potential immunomodulatory activity and is being investigated for its
potential to modify the immune system's activity to encourage cellular
regeneration. We have completed HOPE-2, a Phase II clinical trial in
CAP-1002 - COVID-19 Program
In 2020, under an Expanded Access (or Compassionate Use) program, seven patients hospitalized with severe COVID-19 (also referred to sometimes as SARS-CoV-2) symptoms, six of whom were ventilated, were treated with CAP-1002. Four of the seven patients were fully discharged and three died between one- and two-months post-treatment. Previously published data has shown that COVID-19 patients on ventilators experience higher mortality rates. While we are unable to definitively ascertain whether CAP-1002 improved patient outcomes, by analyzing blood samples and other tests, it was determined that CAP-1002 was associated with identifiable improvements in certain patients such as a decrease in white blood cell count, a decrease in IL-6, a decrease in C-reactive protein, and/or reduced reliance on supplemental oxygen. However, the efficacy of CAP-1002 in treating COVID-19 was not demonstrated due to the small sample size, the fact that seven patients were contemporaneously on other experimental medications, and the lack of an established control group, among other factors.
In
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Exosomes Program
Exosomes-Based Vaccine
We are currently engaged in the development of a vaccine candidate for the
potential prevention of COVID-19. The vaccine candidate is a multivalent
exosome-mRNA vaccine which is designed to elicit a protective, long-lasting
immune response to SARS-CoV-2 by targeting multiple structural proteins of the
virus. In
Exosome-Based Therapeutics
We are also developing our exosomes platform technology as a next-generation therapeutic platform. Our current focus is on the development of exosomes loaded with nucleic acids, including mRNA, to treat a variety of diseases. mRNA medicines are not small molecules, like traditional pharmaceutical drugs and they are not traditional biologics (such as recombinant proteins and monoclonal antibodies), which were the origins of the biotech industry. Instead, mRNA medicines are sets of instructions, and these instructions direct cells in the body to make all the proteins required for life as well as to prevent or fight disease.
Our platform builds on advances in fundamental RNA science, targeting technology
and manufacturing, providing us the opportunity to potentially build a broad
pipeline of new therapeutic candidates. At this time, we are developing
therapeutics and vaccines for infectious diseases, monogenic diseases and other
indications. We recently entered into an Exclusive License Agreement (the "JHU
Exosomes License Agreement") with
In
Additionally, in
Aspects of our exosomes pipeline have been supported through collaborations and
alliances. We have entered into a Sponsored Research Agreement (the "SRA") with
JHU, pursuant to which researchers in the lab of Dr.
Our executive offices are located at
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Our Technologies
Cardiosphere-Derived Cells (CAP-1002)
Our core cell therapy technology is based on cardiosphere-derived cells
("CDCs"), a cardiac-derived cell therapy that was first identified in the
academic laboratory of
In a variety of preclinical experimental models of heart injury, CDCs have been
shown to stimulate cell proliferation and blood vessel growth and to inhibit
programmed cell death and scar formation. Published data by
CDCs are derived from cardiospheres ("CSps"), which are self-adherent
multicellular clusters derived from the heart. CDCs are sufficiently small that,
within acceptable dose limits, they can be infused into a coronary artery or
into the peripheral vasculature.
While CDCs originate from either a deceased human donor (allogeneic source) or from heart tissue taken directly from recipient patients themselves (autologous source), the methods for manufacturing CDCs from either source are similar.
Exosomes
Extracellular vesicles, including exosomes and microvesicles, are nano-scale, membrane-enclosed vesicles which are secreted by most cells and contain characteristic lipids, proteins and nucleic acids such as mRNA and microRNAs. They can signal through the binding and activation of membrane receptors or through the delivery of their cargo into the cytosol of target cells. Our preclinical data has shown that CDCs mediate most of their therapeutic activities through the secretion of extracellular vesicles.
Exosomes act as messengers to regulate the functions of neighboring or distant cells and have been shown to regulate functions such as cell survival, proliferation, inflammation and tissue regeneration. Furthermore, preclinical research has shown that exogenously-administered exosomes can modify cellular activities, thereby supporting their therapeutic potential. Their size, low or null immunogenicity and ability to communicate in native cellular language potentially makes them an exciting new class of therapeutic agents with the potential to expand our ability to address complex biological responses. Because exosomes are a cell-free substance, they can be stored, handled, reconstituted and administered in similar fashion to common biopharmaceutical products such as antibodies.
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Background on Duchenne Muscular Dystrophy
DMD is a rare form of muscular dystrophy which results in muscle degeneration
and premature death. DMD affects approximately 1 in 3,600 male infants
worldwide, and it is estimated that approximately 15,000 to 20,000 boys and
young men are living with the disease in
Patients with DMD experience progressive muscle weakness and degeneration starting at an early age. Generally, a loss of ambulation occurs after the first decade of life and eventually the patients suffer respiratory and cardiac failure. Their lifespan is abbreviated and averages less than three decades. The annual cost of care for patients with DMD is very high and increases with disease progression. We therefore believe that DMD represents a significant market opportunity for our product candidate, CAP-1002.
Phase II HOPE-2 Clinical Trial
HOPE-2 was a randomized, double-blind, placebo-controlled clinical trial which
was conducted at multiple sites located in
While there are many clinical initiatives in DMD, HOPE-2 was one of the very few
to focus on non-ambulant patients. These boys and young men are looking to
maintain what function they have in their arms and hands, and
The primary efficacy endpoint of the HOPE-2 trial was the relative change in patients' abilities to perform manual tasks that relate to activities of daily living and are important to their quality of life. These abilities were measured through the Performance of the Upper Limb ("PUL"), test. In the HOPE-2 study, we have evaluated these through both the PUL 1.2 and 2.0 versions. Although the PUL 1.2 version for the mid-level was the primary endpoint established for the trial, we also conducted an analysis using the PUL 2.0 version as the FDA suggested the use of the updated PUL 2.0 version as the primary efficacy endpoint in support of a Biologics License Application ("BLA"). HOPE-2 assessed the mid-level dimension of the PUL which evaluates one's ability to use muscles extending from the elbow to the hand, which muscles are essential for operating wheelchairs and performing other daily functions. In HOPE-2, additional secondary and exploratory endpoints such as cardiac function, pulmonary function, quality of life and additional measures were included.
In
In
Additionally, the final data showed global improvements in cardiac function as measured by ejection fraction and indexed volumes (LVESV, LVEDV). These are surrogate measures of cardiac function and are considered significant in terms of relevance to long term outcomes. Furthermore, there was also a reduction in the biomarker CK-MB, an enzyme that is only released when there is cardiac muscle cell damage. In normal human subjects, there is typically no CK-MB measurable in the blood. It is well accepted that continuous muscle cell damage in DMD leads to pathologically high
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enzyme levels associated with cardiac muscle cell loss. In HOPE-2, treatment with CAP-1002 was associated with a reduction in CK-MB levels as compared to placebo. This is the first ever study in DMD that correlates cardiac functional stabilization with reduction of a biomarker of cell damage.
Study Results
12-Month Final Efficacy Data:
12-Month Difference in Change from Baseline†
?, CAP-1002 vs. Placebo
(n=8, n=12) p-value
Skeletal-Muscle (Upper Limb Function)
Mid-level PUL (version 1.2) 2.6 0.01
Shoulder + Mid + Distal PUL (version 1.2) 3.2 0.02
Shoulder + Mid + Distal PUL (version 2.0) 1.8 0.04
Cardiac Function
LV Ejection Fraction % 4.0 0.002
LV End-Diastolic Volume, Indexed mL/m2 -12.4‡ 0.03
LV End-Systolic Volume, Indexed mL/m2 -4.2‡ 0.01
Creatine Kinase-MB (% of total CK) -2.2‡ 0.02
†Non-parametric mixed model repeated measures analysis with percentile ranked baseline, treatment, visit, visit-by-treatment interaction, PUL entry-item score at stratification, and site as model effects. Percentile ranked change from baseline converted back to original scale
‡Negative value favors CAP-1002
ITT (intent to treat) population shown
Safety
CAP-1002 was generally safe and well tolerated throughout the study. With the exception of hypersensitivity reactions which were mitigated with a common pre-medication regimen, no safety signals were identified in the HOPE-2 trial.
Phase I/II HOPE-Duchenne Clinical Trial
We have completed the randomized, controlled, multi-center Phase I/II
HOPE-Duchenne clinical trial which was designed to evaluate the safety and
exploratory efficacy of CAP-1002 in patients with cardiomyopathy associated with
DMD. Twenty-five patients were randomized in a 1:1 ratio to receive either
CAP-1002 on top of usual care or usual care only. In patients receiving
CAP-1002, 25 million cells were infused into each of their three main coronary
arteries for a total dose of 75 million cells. It was a one-time treatment, and
the last patient was infused in
We reported our 12-month data from the HOPE-Duchenne trial at a Late-Breaking Science session of the American Heart Association Scientific Sessions 2017. As shoulder function had already been lost in most of the HOPE-Duchenne participants, investigators used the combined mid-distal PUL subscales to assess changes in skeletal muscle function and found significant improvement in those treated with CAP-1002 in a defined post-hoc analysis. Among the lower-functioning patients, defined as patients with a baseline mid-distal PUL score < 55 out of 58, investigators reported sustained or improved motor function at 12 months in 8 of 9 (89%) patients treated with CAP-1002 as compared to none (0%) of the usual care participants (p=0.007). Additionally, we reported significant improvements in systolic thickening of the left ventricular wall as well as reduction in scarring of the heart muscle among those treated with CAP-1002 decreased relative to the control group.
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CAP-1002 was generally safe and well-tolerated in the HOPE-Duchenne trial. There was no significant difference in the incidences of treatment-emergent adverse events in either group. There were no early study discontinuations due to adverse events.
Regulatory Designations for CAP-1002 for the treatment of DMD
In
In
In
CAP-1002 for the Treatment of SARS-CoV-2
Within the framework of SARS-CoV-2 pathogenesis, multiple pathways known to be CAP-1002 sensitive may serve as therapeutic targets. These targets include pro-inflammatory pathways (TNF-?, interferon ?, IL-1, and IL-6) and anti-inflammatory pathways (regulatory T cells and IL-10) that have been explored with CAP-1002 in preclinical models of myocardial ischemia, myocarditis, heart failure, Duchenne muscular dystrophy and pulmonary hypertension. Given that CAP-1002 polarizes macrophages to an anti-inflammatory (healing) immunomodulatory phenotype, CAP-1002 may subsequently attenuate cytokine storm associated with SARS-CoV-2. Furthermore, as CAP-1002 directly targets cardiac dysfunction, CAP-1002 potentially may also be an important tool in the treatment of the cardiac complications of SARS-CoV-2. We have recently completed enrollment in the INSPIRE Phase II clinical trial in patients with a diagnosis of SARS-CoV-2.
CAP-1002 for the Treatment of Cardiac Conditions:
In previous years, we completed several trials investigating the use of CAP-1002 for the treatment of various cardiac conditions, including heart failure (the DYNAMIC Trial) and post myocardial infarction (MI) with cardiac dysfunction (the ALLSTAR trial). Because of our decision to focus our efforts on DMD, we have decided not to pursue
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those indications at this time, nor do we have any plans to continue with the development of these programs. We expect no further material expenses in connection with these programs.
CAP-1002 - Investigator Sponsored Clinical Trials:
Exosomes Program
Our exosomes program consists of exosome-based vaccines, engineered exosomes and
exosomes derived from CDCs (CAP-2003), all of which are in various stages of
development. We have explored the use of our
We are now focused on developing a precision-engineered exosome platform technology that has the ability to deliver defined sets of effector molecules which exert their effects through defined mechanisms of action. We have begun work on our planned expansion of our exosome platform technology that potentially may be used for vaccine development, vesicle mediated protein therapies and treatment of monogenic diseases.
In conjunction with these expansion efforts, we have entered into the SRA with
JHU pursuant to which researchers in the lab of Dr.
Exosomes-Based Vaccine Platform
We are now working on developing exosome-based vaccines for COVID-19. The exosome-based vaccine platform technology will aim to combine the improved protection that comes from immunizing individuals with multiple antigens in a manner that mimics the advantages of conventional virus vaccines, with the superior safety profile of virus-free vaccines. We are currently designing exosome-based vaccines to elicit strong humoral and cellular immune responses due to the simultaneous expression of antigens.
We are currently engaged in the development of a vaccine candidate for the
potential prevention of COVID-19. The vaccine candidate is a multivalent
exosome-mRNA vaccine which is designed to elicit a protective, long-lasting
immune response to SARS-CoV-2 by targeting multiple structural proteins of the
virus. In
Furthermore, we recently entered into the JHU Exosome License Agreement with JHU for its co-owned interest in certain intellectual property rights related to exosome-mRNA vaccines and therapeutics as well as a non-exclusive license to intellectual property, know-how and data with JHU related to a new imaging-based serology test platform for COVID-19.
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Engineered Exosomes Platform
Building upon the natural ability of exosomes for intercellular communication, we are focused on engineering exosomes to load them with different macromolecules. We are actively developing an engineered exosomes platform for the delivery of nucleic acids, including mRNA, for a variety of different diseases. In collaboration with researchers at JHU, we recently published data demonstrating exosome-mediated delivery of mRNAs with enhanced expression and lower toxicity compared to lipid nanoparticles. Additionally, we showed functional enzyme expression and real-time imaging of mRNA expression in live animals. Building on this platform, we have promising data for enhanced targeting of exosomes. Our plan is to actively develop this platform for a broad spectrum of diseases.
We have promising preclinical data in several indications from studies done
utilizing CAP-2003 in our labs as well as in collaboration with other companies
and academic institutions. CAP-2003 is the name of our exosomes product
candidate which are derived from our CDCs. Additionally, in
In
These programs represent our core technology and products.
Financial Operations Overview
We have no commercial product sales to date and will not have the ability to generate any commercial product revenue until after we have received approval from the FDA or equivalent foreign regulatory bodies to begin selling our pharmaceutical product candidates. Developing pharmaceutical products is a lengthy and very expensive process. Even if we obtain the capital necessary to continue the development of our product candidates, whether through a strategic transaction or otherwise, we do not expect to complete the development of a product candidate for several years, if ever. To date, most of our development expenses have related to our product candidates, consisting of CAP-1002 and our exosome technologies. As we proceed with the clinical development of CAP-1002, and as we further develop our exosome technologies, our expenses will further increase. Accordingly, our success depends not only on the safety and efficacy of our product candidates, but also on our ability to finance the development of our products and our clinical programs. Our recent major sources of working capital have been primarily proceeds from private and public equity sales of securities. While we pursue our preclinical and clinical programs, we continue to explore potential partnerships for the development of one or more of our product candidates.
Research and development ("R&D") expenses consist primarily of salaries and related personnel costs, supplies, clinical trial costs, patient treatment costs, rent for laboratories and manufacturing facilities, consulting fees, costs of personnel and supplies for manufacturing, costs of service providers for preclinical, clinical and manufacturing, and certain legal expenses resulting from intellectual property prosecution, stock compensation expense and other expenses relating to the design, development, testing and enhancement of our product candidates. Except for certain capitalized intangible assets, R&D costs are expensed as incurred.
General and administrative ("G&A") expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, stock compensation expense, accounting, legal and other professional fees, consulting expenses, rent for corporate offices, business insurance and other corporate expenses.
Our results have included non-cash compensation expense due to the issuance of stock options and warrants, as applicable. We expense the fair value of stock options and warrants over their vesting period as applicable. When more precise pricing data is unavailable, we determine the fair value of stock options using the Black-Scholes option-pricing
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model. The terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee. Generally, the awards vest based upon time-based or performance-based conditions. Performance-based conditions generally include the attainment of goals related to our financial performance and product development. Stock-based compensation expense is included in the consolidated statements of operations under G&A or R&D expenses, as applicable. We expect to record additional non-cash compensation expense in the future, which may be significant.
Results of Operations Revenue
Grant Income. Grant income for the three months ended
Grant income for the nine months ended
Miscellaneous Income. Miscellaneous income for each of the three months ended
Miscellaneous income for the nine months ended
Other Income. Other income for the three and nine months ended
Operating Expenses
General and Administrative Expenses. G&A expenses for the three months ended
G&A expenses for the nine months ended
Research and Development Expenses. R&D expenses for the three months ended
R&D expenses for the nine months ended
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and COVID-19 clinical trials). These activities resulted in a net increase of
approximately
CAP-1002 - CAP-1002 is in its developmental stages. We expect to spend
approximately
Exosome Technologies - We expect to spend approximately
Our expenditures on current and future clinical development programs, particularly our CAP-1002 and exosomes programs, cannot be predicted with any significant degree of certainty as they are dependent on the results of our current trials and our ability to secure additional funding and a strategic partner. Further, we cannot predict with any significant degree of certainty the amount of time which will be required to complete our clinical trials, the costs of completing research and development projects or whether, when and to what extent we will generate revenues from the commercialization and sale of any of our product candidates. The duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during manufacturing and clinical development and as a result of a variety of other factors, including:
? the number of trials and studies in a clinical program;
? the number of patients who participate in the trials;
? the number of sites included in the trials;
? the rates of patient recruitment and enrollment;
? the duration of patient treatment and follow-up;
? the costs of manufacturing our product candidates;
? the availability of necessary materials required to make our product
candidates;
? the costs, requirements and timing of, and the ability to secure, regulatory
approvals; and
? additional delays caused by the COVID-19 pandemic.
Liquidity and Capital Resources
The following table summarizes our liquidity and capital resources as of
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Liquidity and capital resources September 30, 2021 December 31, 2020
Cash and cash equivalents $ 40,839 $ 32,666
Working capital $ 38,310 $ 30,706
Stockholders' equity $ 36,736 $ 28,200
Nine months ended September 30,
Cash flow data 2021 2020
Cash provided by (used in):
Operating activities $ (11,182) $ (6,212)
Investing activities (828) 5,727
Financing activities 20,183 31,886
Net increase in cash and cash equivalents $ 8,173 $ 31,401 Our total cash and cash equivalents as of
Cash used in operating activities was approximately
We had cash flow used in investing activities of approximately
We had cash flow provided by financing activities of approximately
From inception through
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Our estimates regarding the sufficiency of our financial resources are based on assumptions that may prove to be wrong. We may need to obtain additional funds sooner than planned or in greater amounts than we currently anticipate. At this time, we believe our cash resources are sufficient to fund our operations for at least the next twelve months. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:
? the progress of our research activities;
? the number and scope of our research programs;
? the progress and success of our preclinical and clinical development
activities;
? the progress of the development efforts of parties with whom we have entered
into research and development agreements;
? the availability of materials necessary to manufacture our product candidates;
? the costs of manufacturing our product candidates, and the progress of efforts
with parties with whom we may enter into commercial manufacturing agreements;
? our ability to maintain current research and development programs and to
establish new research and development and licensing arrangements;
? additional costs associated with maintaining licenses and insurance;
? the costs involved in prosecuting and enforcing patent claims and other
intellectual property rights; and
? the costs and timing of regulatory approvals.
As a result of the spread of the COVID-19 coronavirus, uncertainties have arisen that have impacted enrollment of clinical trials, deliverables related to contract performance, payments from trial sponsors, workforce stability, supply chain disruptions or delays, timing of grant disbursements as well as other potential business operations. While the disruption is currently expected to be temporary, there is considerable uncertainty around its expected duration. In addition to potential impact on grant disbursements, there may be risks to the Company's ability to obtain financing from other sources, due to the impact of the coronavirus. There could be other financial impacts on our business from the coronavirus, the specifics of which are unknown at this time.
Financing Activities by the Company
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commissions on the gross proceeds, plus reimbursement of expenses to Wainwright,
as well as legal and accounting fees in the aggregate amount of approximately
The New Warrants and the shares of Common Stock issuable upon the exercise of the New Warrants were not registered under the Securities Act of 1933, as amended (the "Securities Act"), and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities Act or Rule 506(b) promulgated thereunder. The New Warrants are exercisable immediately upon issuance, and have a term of exercise of 5 1/2 years.
The Company received aggregate gross proceeds of approximately
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to our shelf registration statement on Form S-3 (File No. 333-227955), which was
initially filed with the
Financing Activities by
CIRM Grant Award
On
After completing the CIRM funded research project and at any time after the
award period end date (but no later than the ten-year anniversary of the date of
the award),
In
In
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Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis, including research and development and clinical trial accruals, and stock-based compensation estimates. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our financial statements and accompanying notes.
Leases
ASC 842, as adopted in the first quarter of 2019, requires lessees to recognize most leases on the balance sheet with a corresponding right-to-use asset, or ROU asset. ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. The assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of fixed lease payments over the lease term. ROU assets are evaluated for impairment using the long-lived assets impairment guidance.
Leases will be classified as financing or operating, which will drive the expense recognition pattern. The Company elects to exclude short-term leases if and when the Company has them.
The Company leases office and laboratory space, all of which are operating leases. Most leases include the option to renew and the exercise of the renewal options is at the Company's sole discretion. Options to renew a lease are not included in the Company's assessment unless there is reasonable certainty that the Company will renew. In addition, the Company's lease agreements generally do not contain any residual value guarantees or restrictive covenants.
The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.
For real estate leases, the Company has elected the practical expedient under ASC 842 to account for the lease and non-lease components together for existing classes of underlying assets and allocates the contract consideration to the lease component only. This practical expedient is not elected for manufacturing facilities and equipment embedded in product supply arrangements.
Revenue Recognition
The Company applies ASU 606, Revenue from Contracts with Customers, for all contracts.
Grant Income
The determination as to when income is earned is dependent on the language in each specific grant. Generally, we recognize grant income in the period in which the expense is incurred for those expenses that are deemed reimbursable
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under the terms of the grant. Grant income is due upon submission of reimbursement request. The transaction price varies for grant income based on the expenses incurred under the awards.
Miscellaneous Income
Revenue is recognized in connection with the delivery of doses which were developed as part of our past R&D efforts. Income is recorded when the Company has satisfied the obligations as identified in the contracts with the customer. Miscellaneous income is due upon billing. Miscellaneous income is based on contracts with fixed transaction prices.
CIRM Grant Award
Capricor accounts for the disbursements under its CIRM Award as long-term
liabilities.
Research and Development Expenses and Accruals
R&D expenses consist primarily of salaries and related personnel costs, supplies, clinical trial costs, patient treatment costs, rent for laboratories and manufacturing facilities, consulting fees, costs of personnel and supplies for manufacturing, costs of service providers for preclinical, clinical and manufacturing, and certain legal expenses resulting from intellectual property prosecution, stock compensation expense and other expenses relating to the design, development, testing and enhancement of our product candidates. Except for certain capitalized intangible assets, R&D costs are expensed as incurred.
Our cost accruals for clinical trials and other R&D activities are based on estimates of the services received and efforts expended pursuant to contracts with numerous clinical trial centers and contract research organizations ("CROs"), clinical study sites, laboratories, consultants or other clinical trial vendors that perform activities in connection with a trial. Related contracts vary significantly in length and may be for a fixed amount, a variable amount based on actual costs incurred, capped at a certain limit, or for a combination of fixed, variable and capped amounts. Activity levels are monitored through close communication with the CROs and other clinical trial vendors, including detailed invoice and task completion review, analysis of expenses against budgeted amounts, analysis of work performed against approved contract budgets and payment schedules, and recognition of any changes in scope of the services to be performed. Certain CRO and significant clinical trial vendors provide an estimate of costs incurred but not invoiced at the end of each quarter for each individual trial. These estimates are reviewed and discussed with the CRO or vendor as necessary, and are included in R&D expenses for the related period. For clinical study sites which are paid periodically on a per-subject basis to the institutions performing the clinical study, we accrue an estimated amount based on subject screening and enrollment in each quarter. All estimates may differ significantly from the actual amount subsequently invoiced, which may occur several months after the related services were performed.
In the normal course of business, we contract with third parties to perform various R&D activities in the on-going development of our product candidates. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, and the completion of portions of the clinical trial or similar conditions. The objective of the accrual policy is to match the recording of expenses in the financial statements to the actual services received and efforts expended. As such, expense accruals related to clinical trials and other R&D activities are recognized based on our estimates of the degree of completion of the event or events specified in the applicable contract.
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No adjustments for material changes in estimates have been recognized in any period presented.
Stock-Based Compensation
Our results include non-cash compensation expense as a result of the issuance of stock, stock options and warrants, as applicable. We have issued stock options to employees, directors and consultants under our five stock option plans: (i) the 2006 Stock Option Plan, (ii) the 2012 Restated Equity Incentive Plan (which superseded the 2006 Stock Option Plan), (iii) the 2012 Non-Employee Director Stock Option Plan, (iv) the 2020 Equity Incentive Plan, or the 2020 Plan, and (v) the 2021 Equity Incentive Plan.
We expense the fair value of stock-based compensation over the vesting period. When more precise pricing data is unavailable, we determine the fair value of stock options using the Black-Scholes option-pricing model. This valuation model requires us to make assumptions and judgments about the variables used in the calculation. These variables and assumptions include the weighted-average period of time that the options granted are expected to be outstanding, the volatility of our common stock, and the risk-free interest rate. We account for forfeitures upon occurrence.
Stock options or other equity instruments to non-employees (including consultants) issued as consideration for goods or services received by us are accounted for based on the fair value of the equity instruments issued. The fair value of stock options is determined using the Black-Scholes option-pricing model. The Company calculates the fair value for non-qualified options as of the date of grant and expenses over the applicable vesting periods.
The terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee. Generally, the awards vest based upon time-based or performance-based conditions. Performance-based conditions generally include the attainment of goals related to our financial and development performance. Stock-based compensation expense is included in general and administrative expense or research and development expense, as applicable, in the Statements of Operations and Comprehensive Income (Loss). We expect to record additional non-cash compensation expense in the future, which may be significant.
Clinical Trial Expense
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses. Our clinical trial accrual process is designed to account for expenses resulting from our obligations under contracts with vendors, consultants, and CROs and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. Our objective is to reflect the appropriate clinical trial expenses in our consolidated financial statements by matching the appropriate expenses with the period in which services are provided and efforts are expended. We account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. We determine accrual estimates through financial models that take into account discussion with applicable personnel and outside service providers as to the progress or state of completion of trials, or the services completed. During the course of a clinical trial, we adjust our clinical expense recognition if actual results differ from our estimates. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on the facts and circumstances known to us at that time. Our clinical trial accrual and prepaid assets are dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. 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 us reporting amounts that are too high or too low for any particular period.
Recently Issued or Newly Adopted Accounting Pronouncements
In
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fiscal years, beginning after
Other recent accounting pronouncements issued by the FASB, including its
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