You should read the following discussion and analysis of our financial condition
and results of operations together with our condensed consolidated financial
statements and related notes thereto appearing elsewhere in this Quarterly
Report on Form 10-Q, or Quarterly Report, and our audited financial statements
and related notes for the year ended
Overview
We are a clinical-stage biotechnology company dedicated to discovering and developing transformative treatments for hearing and balance disorders, one of the largest areas of unmet need in medicine. We aim to restore and improve hearing and balance through the restoration and regeneration of functional hair cells and non-sensory support cells within the inner ear. We have built a proprietary platform that integrates single-cell genomics and bioinformatics analyses, precision gene therapy technologies and our expertise in inner ear biology. We are leveraging our platform to advance our pipeline of preclinical gene therapy programs that are designed to selectively replace genes for the treatment of congenital, monogenic hearing loss and to regenerate inner ear hair cells for the treatment of acquired hearing and balance disorders. We are developing our lead gene therapy product candidate, DB-OTO, to provide hearing to individuals born with profound hearing loss due to mutation of the otoferlin, or OTOF, gene. In addition to DB-OTO, we are advancing AAV.103 to restore hearing in individuals with mutations in the gap junction beta-2, or GJB2, gene and AAV.104 to restore hearing in individuals with mutations in the stereocilin, or STRC, gene. We also have gene therapy programs to convert supporting cells, the cells adjacent to hair cells, into either cochlear or vestibular hair cells in order to restore hearing or balance function. In addition to our gene therapy programs, we are developing DB-020 for the prevention of cisplatin-induced hearing loss, which we are currently evaluating in patients in a Phase 1b clinical trial.
We are developing our lead gene therapy product candidate, DB-OTO, to provide
hearing to individuals born with profound hearing loss due to an OTOF
deficiency. OTOF is a protein expressed in the inner hair cells of the cochlea
that enables communication between sensory cells of the inner ear and the
auditory nerve by regulating synaptic transmission. We have designed DB-OTO
utilizing a proprietary, cell-selective promoter to provide expression of OTOF
that is limited to hair cells. In our preclinical studies, the hair
cell-selective expression of OTOF provided by DB-OTO enabled restoration of
hearing in mice that was more durable than when OTOF was expressed under the
control of a ubiquitous promoter, which is designed to drive expression in all
cells. In addition to the loss of durability, we observed that use of a
ubiquitous promoter in mice resulted in the loss of inner hair cells throughout
the cochlea. DB-OTO is an adeno-associated virus, or AAV, based gene therapy
intended to be delivered to patients using the surgical approach employed by
neurotologists and pediatric otolaryngologists during a standard cochlear
implantation procedure. We believe the cell-selective expression of DB-OTO and
its delivery by this established surgical procedure will provide a core
competitive advantage important to the success of DB-OTO. Based on feedback from
the
We are also using our platform to design and develop a pipeline of gene therapies for hair cell regeneration within the inner ear. We are engineering gene therapies to convert supporting cells, the cells adjacent to hair cells, into either cochlear or vestibular hair cells in order to restore hearing or balance function. These gene therapy programs are designed to express the developmental or reprogramming factors that regulate cell fate and use our proprietary, cell-selective promoters to control expression spatially and temporally.
Our DB-ATO and AAV.201 programs aim to restore balance by promoting regeneration of hair cells in the vestibular system, the sensory system responsible for balance. In these programs, we are focused on the development of a treatment for bilateral vestibulopathy, or BVP, a debilitating, acquired condition that significantly impairs balance, mobility and stability of vision.
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DB-ATO is an AAV-based gene therapy that utilizes a proprietary, supporting cell-selective promoter to express ATOH1, a transcription factor required for hair cell differentiation. We are also developing AAV.201, which combines ATOH1 with another reprogramming factor to promote further differentiation of the regenerated cells. In addition, we are advancing our cochlear hair cell regeneration program to treat acquired hearing loss by regenerating cochlear outer hair cells. We plan to announce the targets for AAV.201 and our cochlear hair cell regeneration program in 2022.
In addition to our gene therapy product candidate and programs, we are developing a clinical-stage product candidate, DB-020, for the prevention of cisplatin-induced hearing loss. DB-020 is a novel formulation of sodium thiosulfate, or STS, that we have optimized for local delivery to the ear. STS inactivates cisplatin, a widely used chemotherapy that often leads to hearing loss and related complications in patients being treated for cancer. We are developing DB-020 to prevent cisplatin-induced hearing loss without impacting the beneficial, anti-tumor effect of cisplatin. In 2019, we completed a randomized, double-blind, placebo-controlled Phase 1 clinical trial of DB-020 in healthy volunteers, in which DB-020 was well tolerated. Following the Phase 1 clinical trial, we initiated a randomized, double-blind, placebo-controlled, multicenter Phase 1b clinical trial in 2020 to evaluate the safety and efficacy of DB-020 for the prevention of cisplatin-induced hearing loss. We expect to report results from an interim analysis of the ongoing Phase 1b clinical trial of DB-020 in the second quarter of 2022. The FDA has granted fast track designation for DB-020 for the prevention of cisplatin-related ototoxicity.
Since inception, we have devoted substantially all of our resources on
organizing and staffing, business planning, raising capital, establishing our
intellectual property portfolio and performing research and development of our
product candidates, programs and platform. On
We have not generated any revenue from product sales, and do not expect to
generate any revenue from product sales for at least the next several years. All
of our programs are still in preclinical and early-stage clinical development.
Our ability to generate product revenue sufficient to achieve profitability will
depend heavily on the successful development and eventual commercialization of
one or more of our product candidates, if approved. Since inception, we have
incurred significant operating losses. Our net losses were
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submit an IND or CTA, and initiate a planned Phase 1/2 clinical trial of DB-OTO for the treatment of profound hearing loss due to mutation of the OTOF gene;
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continue our current research programs and our preclinical development of DB-OTO, AAV.103, AAV.104, AAV.201, DB-ATO and any product candidates that may arise from our current or future research programs;
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continue our clinical development of DB-020, including our ongoing Phase 1b clinical trial;
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advance additional product candidates into preclinical and clinical development;
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expand the capabilities of and invest in our platform;
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seek marketing approvals for any product candidates that successfully complete clinical trials;
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ultimately establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;
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expand, maintain and protect our intellectual property portfolio;
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hire additional clinical, research, development, scientific, regulatory, and quality control personnel;
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establish and maintain agreements with manufacturers for our product candidates; and
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add operational, legal, compliance, financial and management information systems and personnel, including personnel to support our research, product development and future commercialization efforts and support our operations as a public company.
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In addition, as we progress toward marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.
As a result, we will need substantial additional funding to support our continuing operations and pursue our 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 and other sources of capital, which may include collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into other collaborations, strategic alliances or licensing arrangements with third parties when needed or on favorable terms, or at all. If we are unable to raise additional funds through equity or debt financings or enter into such other agreements when needed, we may have to significantly delay, reduce or eliminate some or all of our 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.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve profitability. Even if we are able to generate revenue from 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
Impact of COVID-19 on Our Business
The worldwide COVID-19 pandemic has affected and may affect in the future our ability to initiate and complete preclinical studies, delay the initiation and completion of our current and planned clinical trials, disrupt regulatory activities or have other adverse effects on our business, results of operations, financial condition and prospects. In addition, the pandemic has caused substantial disruption to global supply chains and may adversely impact economies worldwide, both of which could adversely affect our business, operations and ability to raise funds to support our operations.
We are following, and plan to continue to follow recommendations from federal,
state and local governments regarding workplace policies, practices and
procedures. In response to the COVID-19 pandemic and in accordance with
direction from state and local governmental authorities, we previously
restricted access to our facility to those individuals who must perform critical
research, translational medicine and laboratory support activities that must be
completed on site, limited the number of such people that can be present at our
facility at any one time, and required that most of our employees work remotely.
In
We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business. The extent of the impact of COVID-19 on our business will depend on the length and severity of the pandemic, including the extent there is any resurgence of the COVID-19 virus or any variant strains of the virus, the availability and effectiveness of vaccines and the impact of the foregoing on our preclinical studies, current and planned clinical trials, employees and vendors, which is uncertain and cannot be predicted. The pandemic has the potential to adversely affect our business, financial condition, results of operations and prospects.
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License and Collaboration Agreement with Regeneron
In
Pursuant to the Regeneron Agreement, Regeneron paid us an upfront fee of
Under the Regeneron Agreement, we are required to pay Regeneron tiered royalties on the worldwide net sales of collaboration products at percentages which range from mid-single digit to mid-thirties, with the exact royalty rate depending on the extent to which Regeneron shared in the funding of the collaboration product, the level of net sales of the collaboration product, the nature of any intellectual property contributed by Regeneron included in the collaboration product and whether the product is sold inside or outside the field. In the case of collaboration products for which Regeneron does not opt-out, our obligation to pay tiered royalties on the worldwide net sales ranges from percentages in the mid-twenties to mid-thirties. In the case of collaboration products for which Regeneron opts-out, our obligation to pay tiered royalties on the worldwide net sales ranges from percentages in the mid-single digits to mid-twenties. Our obligation to make royalty payments to Regeneron on account of worldwide net sales of collaboration products continues so long as we, our affiliates, licensees or sublicensees sell collaboration products. To date, we have not made any royalty or other payments to Regeneron under the Regeneron Agreement.
Pursuant to the amendment to the Regeneron Agreement, Regeneron agreed to pay us
As of
Because we consider Regeneron a collaborative partner that is subject to the
significant risks and rewards under the Regeneron Agreement, we have accounted
for the Regeneron Agreement under FASB ASC Topic 808, Collaborative
Arrangements, or ASC 808. Under ASC 808, we view all consideration received from
Regeneron as reimbursement of our costs under the Regeneron Agreement. These
costs are accounted for as research and development expenses in our condensed
consolidated statements of operations and comprehensive income (loss). As such,
we are recognizing total consideration of
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milestone payments will be included in the measurement of contra-research and
development expense if and when achieved. We recognized
Financial Operations Overview
Revenue
We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products for at least the next several years. If our development efforts for our current or future product candidates are successful and result in marketing approval or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from product sales or payments from third-party collaborators or licensors.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities and development of our programs and product candidates. These expenses include:
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personnel-related expenses, including salaries, benefits and stock-based compensation expense for employees engaged in research and development functions;
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expenses incurred under agreements with third parties, such as consultants and investigative sites that conduct our preclinical studies and clinical trials and in-licensing arrangements;
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costs incurred to maintain compliance with regulatory requirements;
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costs incurred with third-party CDMOs to acquire, develop and manufacture materials for preclinical and clinical studies;
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costs associated with our technology and our intellectual property portfolio;
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expenses incurred for the procurement of materials, laboratory supplies and non-capital equipment used in the research and development process; and
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depreciation, amortization and other direct and allocated expenses, including rent, insurance and other operating costs, incurred as a result of our research and development activities.
We use our employee and infrastructure resources for the advancement of our platform and for discovering and developing programs and product candidates. We track direct research and development costs, consisting primarily of external costs, such as fees paid to CDMOs, CROs, and consultants in connection with our preclinical studies, clinical trials and experiments by program after a development candidate has been identified. Due to the number of ongoing programs and our ability to use resources across several projects, personnel-related expenses and indirect or shared operating costs incurred for our research and development programs are not recorded or maintained on a program-by-program basis, nor are our external program costs incurred for our programs prior to the identification of a development candidate for such program.
The following table sets forth our research and development expense, including direct program-specific expense summarized by program, personnel-related expenses and indirect or shared operating costs recognized during each period presented (in thousands): Three Months Ended March 31, 2022 2021 DB-OTO$ 4,171 $ 3,038 DB-020 598 $ 295 Personnel-related (including stock-based compensation) 3,232 2,103 Other indirect research and development expenses (535 ) 584 Total research and development expenses$ 7,466 $ 6,020
Consideration we receive under the Regeneron Agreement is being recognized as a reduction to research and development expense (contra-research and development expense) in our condensed consolidated statements of operations and comprehensive income (loss) based on our progress towards completion of our research activities under the research plan for the collaboration. For
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purposes of the table above, recognition of consideration received from
Regeneron is included as a reduction of other indirect research and development
expenses. For the three months ended
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher 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 advance our programs and product candidates into and through the development phase, and as we continue to develop additional product candidates. We also expect our discovery research efforts and our related personnel costs will increase and, as a result, we expect our research and development expenses, including costs associated with stock-based compensation, will increase above historical levels. In addition, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we may enter into license, acquisition and option agreements to acquire the rights to future product candidates.
At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates or programs. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:
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the timing and progress of preclinical and clinical development activities;
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the number and scope of preclinical and clinical programs we decide to pursue;
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our ability to successfully complete clinical trials with safety, potency and purity profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;
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our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our product candidates;
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our ability to hire and retain key research and development personnel;
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our successful enrollment in and completion of clinical trials;
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the costs associated with the development of any additional product candidates we develop or acquire through collaborations;
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our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our product candidates are approved;
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the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder;
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our ability to obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates if and when approved;
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our receipt of marketing approvals from applicable regulatory authorities;
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our ability to commercialize products, if and when approved, whether alone or in collaboration with others;
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the continued acceptable safety profiles of the product candidates following approval; and
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the effects of the COVID-19 pandemic on our research and development employees, contractors and those who may participate in our studies.
A change in any of these variables with respect to the progress of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any product candidate we may develop.
General and Administrative Expense
General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for personnel in our executive, finance, legal, business development, human resources and administrative functions. General and administrative expenses also include legal fees relating to corporate matters and costs to secure and defend our intellectual property; professional fees for accounting, auditing, tax, human resources and administrative consulting services; insurance costs; administrative travel expenses and facility-related expenses, which include direct depreciation costs and allocated expenses for office rent and other operating costs. These costs relate to the operation of the business, unrelated to the research and development function, or any individual program.
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We anticipate that our general and administrative expenses will increase in the
future as we increase our headcount to support the expected growth in our
research and development activities and the potential commercialization of our
product candidates. We also expect to continue to incur increased expenses
associated with being a public company, including increased costs of accounting,
audit, legal, regulatory and tax-related services associated with maintaining
compliance with exchange listing and
Interest Income
Interest income consists of interest income earned from our cash, cash equivalents and available-for-sale securities.
Income Taxes
Since our inception, we have not recorded any
Income taxes are determined at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Our income tax provision may be significantly affected by changes to our estimates.
Results of Operations
Comparison of the three months ended
The following tables summarizes our results of operations for each period presented (in thousands): Three Months Ended March 31, 2022 2021 Operating expenses: Research and development$ 7,466 $ 6,020 General and administrative 6,553 4,883 Total operating expenses 14,019 10,903 Loss from operations (14,019 ) (10,903 ) Other income: Interest income 63 33 Total other income, net 63 33 Net loss before provision for income taxes (13,956 ) (10,870 ) Provision for income taxes (60 ) - Net loss$ (14,016 ) $ (10,870 )
Research and Development Expenses
The following tables summarizes our research and development expenses for each period presented (in thousands):
Three Months Ended March 31, 2022 2021 Change DB-OTO$ 4,171 $ 3,038 $ 1,133 DB-020 598 295 303 Personnel-related (including stock-based compensation) 3,232 2,103 1,129 Other indirect research and development expenses (535 ) 584 (1,119 )
Total research and development expenses
Research and development expenses for the three months ended
•
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•
•
•
General and Administrative Expense
General and administrative expenses for the three months ended
•
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Interest Income
The increase in interest income in the three months ended
Provision for Income Taxes
The provision for income taxes in the three months ended
Liquidity and Capital Resources
Sources of Liquidity and Capital
Since our inception, we have incurred significant operating losses and negative
cash flows from 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 several
years, if at all. Through
In
Cash Flows
The following table provides information regarding our cash flows for each period presented (in thousands):
Three Months Ended March 31, 2022 2021 Net cash provided by (used in): Operating activities$ (22,007 ) $ (16,306 ) Investing activities (3,616 ) (112,443 ) Financing activities (52 ) 153,148 Net increase (decrease) in cash, cash equivalents and restricted cash$ (25,675 ) $ 24,399 31
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Operating Activities
Our cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support the business. We have historically experienced negative cash flows from operating activities as we invested in developing our pipeline, platform, drug discovery efforts and related infrastructure. The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges, which are generally attributable to stock-based compensation, depreciation and amortization and accretion of discounts on available-for-sale securities, as well as changes in components of operating assets and liabilities, which are generally attributable to increased expenses, timing of vendor payments and performance under the Regeneron Agreement.
During the three months ended
During the three months ended
Investing Activities
During the three months ended
During the three months ended
Financing Activities
During the three months ended
During the three months ended
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing research and development 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. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future.
As of
Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may enter into collaborations with third parties for the development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including, but not limited to:
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the progress, costs and results of our ongoing preclinical development, our planned Phase 1/2 clinical trial of DB-OTO and any future clinical development of DB-OTO;
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the progress, costs and results of clinical development of DB-020, including our ongoing Phase 1b clinical trial;
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•
the scope, progress, costs and results of preclinical and clinical development for our other product candidates and programs, including AAV.103, AAV.104, AAV.201 and DB-ATO;
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the number of, and development requirements for, other product candidates that we may identify and develop;
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the scope, costs, timing and outcome of regulatory review of our product candidates;
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the cost and timing of completion of commercial-scale manufacturing activities;
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the success of our collaboration with Regeneron;
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the payment or receipt of milestones and of other collaboration-based revenues, if any;
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our ability to establish and maintain additional strategic collaborations, licensing or other arrangements and the financial terms of such arrangements;
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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;
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the amount and timing of revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;
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the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property-related claims;
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the extent to which we may acquire or in-license other products, product candidates and technologies;
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the impacts of the COVID-19 pandemic;
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the ability to receive additional non-dilutive funding, including grants from organizations and foundations; and
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the costs of operating as a public company.
Identifying potential product candidates and conducting preclinical testing 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 and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for several years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.
Our expectation with respect to our ability to fund current planned operations is based on estimates that are subject to risks and uncertainties. Our operating plan may change as a result of many factors currently unknown to management and there can be no assurance that the current operating plan will be achieved in the time frame anticipated by us, and we may need to seek additional funds sooner than planned.
Adequate additional funds may not be available to us on acceptable terms, or at
all. We do not have any committed external source of funds, other than amounts
we are entitled to under the Regeneron Agreement. As of
We may be unable to raise additional funds or enter into other collaborations, strategic alliances or licensing arrangements with third parties when needed on favorable terms, or at all. If we are unable to raise additional funds through equity or debt financings or enter into such agreements when needed, we may have to significantly delay, reduce or eliminate some or all of our 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 or on terms that may not be favorable to us.
Material Cash Requirements
There have been no material changes to our material cash requirements described in our 2021 Annual Report on Form 10-K.
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Critical Accounting Estimates and Significant Judgments
Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in
There have been no material changes to our critical accounting estimates from those described in our 2021 Annual Report on Form 10-K.
Emerging Growth Company and Smaller Reporting Company Status
We are an "emerging growth company" as defined in the Jumpstart Our Business
Startups Act, or the JOBS Act, enacted in
We are also a "smaller reporting company" as defined in Rule 12b-2 under the
Securities and Exchange Act of 1934, as amended. We may continue to be a smaller
reporting company if either (i) the market value of our shares held by
non-affiliates is less than
Recently Issued Accounting Pronouncements
We have reviewed all recently issued accounting pronouncements and have determined that, other than as disclosed in Note 2 to our consolidated financial statements included in our 2021 Annual Report on Form 10-K, such standards will not have a material impact on our financial statements or do not otherwise apply to our current operations.
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