ELIEM THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year endedDecember 31, 2021 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with theSEC onMarch 7, 2022 . Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to "we," "us" and "our" refer toEliem Therapeutics, Inc. and its wholly owned subsidiaries. Forward-Looking Statements The following discussion of our financial condition and results of operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are "forward-looking statements" for purposes of these provisions, including those relating to future events or our future financial performance and financial guidance. In some cases, you can identify forward-looking statements by terminology such as "may," "might," "will," "should," "expect," "plan," "anticipate," "project," "believe," "estimate," "predict," "potential," "intend" or "continue," the negative of terms like these or other comparable terminology, and other words or terms of similar meaning in connection with any discussion of future operating or financial performance. These statements are only predictions. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Any or all of our forward-looking statements in this document may turn out to be wrong. Actual events or results may differ materially. Our forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks, uncertainties and other factors, including, among other things, impacts on our business due to health pandemics or other contagious outbreaks, such as the current COVID-19 pandemic. In evaluating these statements, you should specifically consider various factors, including the risks outlined under the caption "Risk Factors" set forth in Item 1A of Part II of this Quarterly Report on Form 10-Q, as well as those contained from time to time in our other filings with theSEC . We caution investors that our business and financial performance are subject to substantial risks and uncertainties.
Overview
We are a clinical-stage biotechnology company focused on developing novel therapies for neuronal excitability disorders to address unmet needs in chronic pain, psychiatry, epilepsy and other disorders of the peripheral and central nervous systems. These disorders often occur when neurons are overly excited or inhibited, leading to an imbalance, and our focus is on restoring homeostasis. We are developing a pipeline of clinically differentiated product candidates focused on validated mechanisms of action with broad therapeutic potential to deliver improved therapeutics for patients with these disorders. Our two lead clinical-stage candidates are ETX-810 and ETX-155. ETX-810 is a novel palmitoylethanolamide (PEA) prodrug being developed for the treatment of lumbosacral radicular pain (LSRP, commonly referred to as sciatica). ETX-810 is currently being evaluated in a Phase 2a clinical trial in subjects with LSRP, which was fully enrolled inApril 2022 and is expected to report topline data in the third quarter of 2022. As described under "-Recent Developments," inApril 2022 we announced the results of a Phase 2a clinical trial of ETX-810 in subjects with diabetic peripheral neuropathic pain (DPNP) and based on these results we do not currently plan to further develop ETX-810 in this indication. ETX-155 is a neurosteroid GABAA receptor positive allosteric modulator (PAM) being developed for major depressive disorder (MDD), perimenopausal depression (PMD) and focal onset seizures (FOS), the most common type of seizure in people with epilepsy. InMarch 2022 , we received clearance from theU.S. Food and Drug Administration (FDA) of our investigational new drug application (IND) for two Phase 2a clinical trials for ETX-155 in patients with MDD and PMD. In addition, in 2021, we initiated a Phase 1b proof-of-concept clinical trial in patients with photosensitive epilepsy (PSE). As described under "-Recent Developments," inApril 2022 , we announced that interim results from the first three subjects in the Phase 1b PSE trial were inconclusive, leading us to perform a root cause analysis, and that we elected to delay enrollment of the Phase 2a clinical trials of ETX-155 in MDD and PMD pending investigation of such root cause analysis. 18 --------------------------------------------------------------------------------
Below is a summary of our wholly owned pipeline:
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We have incurred significant operating losses since inception, as we have
devoted substantially all of our resources to organizing and staffing our
company, identifying potential product candidates, business planning, raising
capital, undertaking research, executing preclinical studies and clinical
development trials, and providing general and administrative support for
business activities. We incurred net losses of $13.2 million and $18.6 million
for the three months ended March 31, 2022 and 2021, respectively. We had an
accumulated deficit of $88.8 million and $75.6 million as of March 31, 2022 and
December 31, 2021 , respectively.
Since our inception, we have funded our operations with an aggregate of $208.3
million in net proceeds from the sale and issuance of shares of our redeemable
convertible preferred stock and our initial public offering of our common stock.
We had cash, cash equivalents, and short- and long-term marketable securities of
$149.9 million and $161.4 million as of March 31, 2022 and December 31, 2021 ,
respectively. Based on our current operating plan, we estimate that our cash,
cash equivalents and short- and long-term marketable securities will be
sufficient to fund our operating expenses and capital expenditure requirements
through at least 2023. We have based this estimate on assumptions that may prove
to be wrong, and we could exhaust our available capital resources sooner than we
expect.
We anticipate that our expenses and operating losses will increase substantially
over the foreseeable future. The expected increase in expenses will be largely
driven by our ongoing activities as we:
•
continue to develop and conduct clinical trials, including for ETX-810 and ETX-155 for indications we are currently evaluating and any potential additional indications;
•
initiate and continue research and development, including preclinical, clinical and discovery efforts for any future product candidates;
•
seek regulatory approvals for ETX-810 and ETX-155, or any other product candidates that successfully complete clinical development;
•
add operational, financial and management information systems and personnel, including personnel to support our product candidate development and help us comply with our obligations as a public company;
•
hire and retain additional personnel, such as clinical, manufacturing, quality control, scientific, commercial and administrative personnel;
•
maintain, expand and protect our intellectual property portfolio;
•
establish sales, marketing, distribution, manufacturing, supply chain and other commercial infrastructure in the future to commercialize various products for which we may obtain regulatory approval;
•
add equipment and physical infrastructure to support our research and
development and growing staff; acquire or in-license other product candidates
and technologies; and incur increased costs as a result of operating as a public
company.
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We do not have any products approved for sale and have not generated any revenue
from product sales since our inception. Our ability to generate product revenue
will depend on the successful development, regulatory approval and eventual
commercialization of one or more of our product candidates, if approved. We
cannot assure you that we will ever be profitable or generate positive cash flow
from operating activities.
We will require substantial additional funding to support our continuing
operations and further the development of our product candidates. Until such
time as we can generate significant revenue from product sales, if ever, we
expect to finance our operations through the sale of equity, debt financings or
other capital sources, which could include income from collaborations, strategic
partnerships or other strategic arrangements. To a lesser extent, we also expect
to continue to rely on U.K. research and development tax credits and incentives
for funding. Adequate funding may not be available when needed or on terms
acceptable to us, or at all. If we are unable to raise additional capital as
needed, we may have to significantly delay, scale back or discontinue
development of our product candidates. Our ability to raise additional funds may
be adversely impacted by potential worsening global economic conditions and the
recent disruptions to, and volatility in, the credit and financial markets in
the United States and worldwide, resulting from increased volatility in the
trading prices for shares in the biopharmaceutical industry, the ongoing
pandemic, or otherwise. In addition, our ability to continue to benefit from
research and development tax credits and incentives will depend on our ability
to continue meet the applicable requirements for them. If we fail to obtain
necessary capital when needed on acceptable terms, or at all, it could force us
to delay, limit, reduce or terminate our product development programs,
commercialization efforts or other operations. Insufficient liquidity may also
require us to relinquish rights to product candidates at an earlier stage of
development or on less favorable terms than we would otherwise choose.
Recent Developments
InApril 2022 , we announced that in the Phase 2a clinical trial in DPNP, ETX-810 did not achieve statistically significant separation from placebo on the trial's primary endpoint, which assessed the change from baseline to week 4 in the weekly average of the daily pain score measured with the Pain Intensity Numerical Rating Scale (PI-NRS). The multi-center, randomized, double-blind, placebo-controlled, parallel-group clinical trial evaluated the efficacy and safety of ETX-810 in 159 subjects with DPNP over four weeks of dosing. 78 patients received 1,000 mg of ETX-810 twice daily, and 81 patients received placebo. ETX-810 was well tolerated in the study, with an encouraging safety profile. However, the primary endpoint of the trial was not achieved, and separation from placebo on the PI-NRS was not observed during the 4 weeks of dosing. InApril 2022 , we announced that the Phase 2a proof-of-concept trial evaluating ETX-810 in patients with LSRP was fully enrolled. The LSRP trial has enrolled 149 patients and has a similar design to the Phase 2a DPNP trial. The LSRP trial is expected to report topline data in the third quarter of 2022. InMarch 2022 , we received clearance from the FDA of our IND to progress ETX-155 in Phase 2a clinical trials in depression. InApril 2022 , we announced that based on a review of interim results from the first three subjects in the Phase 1b PSE trial, we elected to delay enrollment of our Phase 2a clinical trials of ETX-155 in MDD and PMD. For the three patients evaluated to date in the Phase 1b PSE trial, the results of ETX-155 on the photoparoxysmal response observed following intermittent photic stimuli were inconclusive. An analysis of the drug exposures in these patients indicated that drug levels were significantly lower than expected based on the pharmacokinetic profile observed in the two Phase 1 trials of ETX-155 in healthy subjects. We are currently investigating potential root causes of the observed difference in exposure from the prior studies, including evaluation of any differences between the drug product used in this study and that used in the prior Phase 1 trials. We will provide an update to timelines for both continuing the Phase 1b PSE trial and beginning enrollment of the Phase 2a MDD and PMD trials after the root cause of the differences in exposure is further investigated. 20 --------------------------------------------------------------------------------
Impact of the COVID-19 Pandemic on Our Operations
We have been carefully monitoring the COVID-19 pandemic as it continues to progress and its potential impact on our business. Many geographic regions have imposed restrictions to control the spread of COVID-19 including theU.K. and theState of Washington , where most of our operations are conducted. As a result of COVID-19, we have taken precautionary measures in order to minimize the risk of the virus to our employees, including the suspension of all non-essential business travel during peak periods of outbreak. In addition, all of our workforce has the ability to work remotely. To date, we have been able to continue our key business activities and advance our clinical programs. We have experienced delays in availability and shipping of preclinical and clinical supplies and delays in vendor services caused by understaffing or illness. However, to date, these delays have not materially impacted our business. However, in the future, it is possible that delays such as these or other disruptions such as delays related to enrolling participants in our clinical trials could impact our clinical development timelines. While the broader implications of the COVID-19 pandemic on our results of operations and overall financial performance remain uncertain, it has, to date, not had a material adverse impact on our results of operations or our ability to raise funds to sustain operations. The economic effects of the pandemic and resulting societal changes are currently not predictable, and the future financial impacts could vary from those foreseen.
Components of Operating Results
Operating Expenses
Our operating expenses consist of (i) research and development expenses, including expenses incurred with related parties, and (ii) general and administrative expenses.
Research and Development
Our research and development expenses consist primarily of direct and indirect costs incurred in connection with our discovery efforts, preclinical studies, and clinical trial activities related to our pipeline, including our lead product candidates, ETX-810 and ETX-155.
Our direct research and development costs include:
•
expenses incurred in connection with research, laboratory consumables and preclinical and clinical trial activities;
•
the cost to manufacture drug products for use in our preclinical and clinical trials; and
•
consulting fees, including services provided by a related party.
Our indirect research and development costs include:
•
personnel-related expenses, such as salaries, bonuses, benefits, and stock-based compensation expense, for our scientific personnel performing research and development activities; and
• facility rent.
Total direct costs and indirect costs are as follows (in thousands):
Three Months Ended March 31,
2022 2021
Direct costs $ 8,615 $ 5,008
Indirect costs 1,845 808
Research and development tax credits (2,200 )
(1,155 )
Total research and development expenses
We expense research and development costs as incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed. Costs to acquire technologies used in research and development that have not yet received regulatory approval and that are not expected to have an alternative future use are expensed when incurred. We categorize costs by stage of development clinical or preclinical. Given our stage of development and the utilization of our resources across our various programs, we have not historically tracked our research and development costs by program. Research and development expenses are presented net of refundable research and development tax credits from theU.K. government. 21 -------------------------------------------------------------------------------- Research and development costs by stage of development are as follows (in thousands): Three Months Ended March 31, 2022 2021 Clinical$ 7,861 $ 3,510 Preclinical 2,599 2,306 Research and development tax credits (2,200 )
(1,155 )
Total research and development expenses
Research and development activities are central to our business model. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to ramp up our clinical development activities and incur expenses associated with hiring additional personnel to support our research and development efforts. Our research and development expenses may vary significantly based on factors such as:
•
the number and scope of clinical studies needed for regulatory approval;
•
the number and scope of preclinical and IND-enabling studies;
•
the phases of development of our product candidates;
•
the progress and results of our research and development activities;
•
the length of time required to enroll eligible subjects and initiate clinical trials;
•
the number of subjects that participate in the clinical trials;
•
potential additional safety monitoring requested by regulatory agencies;
•
the duration of subject participation in the trials and follow-up;
•
the cost and timing of manufacturing of our product candidates;
•
the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
•
the hiring and retention of research and development personnel;
•
the degree to which we obtain, maintain, defend and enforce our intellectual property rights; and
•
the extent to which we establish collaborations, strategic partnerships or other strategic arrangements and the performance of any related third parties.
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate.
Research and development expenses, related party included expenses incurred related to reimbursements to be paid toCarnot, LLC , a related party, of$0.1 million and$0.4 million for the three months endedMarch 31, 2022 and 2021, respectively. General and Administrative Our general and administrative expenses consist primarily of personnel-related expenses, such as salaries, bonuses, benefits, and stock-based compensation, for our personnel in executive, finance and accounting, human resources, business development and other administrative functions. Other significant general and administrative expenses include legal fees relating to intellectual property and corporate matters, professional fees for accounting, tax and consulting services, insurance costs, and travel expenses. We expect that our general and administrative expenses will substantially increase for the foreseeable future as we continue to increase our general and administrative headcount to support our continued research and development activities and, if any product candidates receive marketing approval, commercialization activities, as well as to support our operations generally. We have also incurred and expect to incur increased expenses associated with operating as a public company, including costs related to accounting, audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing, andSEC requirements, director and officer insurance costs, and investor and public relations costs. 22 --------------------------------------------------------------------------------
Other Income (Expense)
Change in Fair Value of Redeemable Convertible Preferred Tranche Liability
Our redeemable convertible preferred stock tranche liability is accounted for at fair value at inception, with changes in the fair value recorded in earnings at each reporting period through settlement. Refer to Note 5 of the interim condensed consolidated financial statements.
Foreign Currency Loss
Our foreign currency loss consists of foreign exchange losses resulting from remeasurement and foreign currency transactions between the British Pound and theU.S. Dollar. Other Income, net
Our other income consists of interest income, accretion and amortization related to our investments.
Results of Operations
The following table sets forth our results of operations (dollars in thousands):
Three Months Ended March 31, Change
2022 2021 $ %
Operating expenses:
Research and development $ 8,111 $ 4,273 $ 3,838 89.8 %
Research and development,
related party 149 388 (239 ) (61.6 )%
General and administrative 4,872 2,218 2,654 119.7 %
Total operating expenses 13,132 6,879 6,253 90.9 %
Loss from operations (13,132 ) (6,879 ) (6,253 ) 90.9 %
Other income (expense):
Change in fair value of
redeemable convertible
preferred stock tranche
liability - (11,718 ) 11,718 (100.0 )%
Foreign currency loss (157 ) (4 ) (153 ) 3,825.0 %
Other income, net 85 - 85 100.0 %
Total other income (expense) (72 ) (11,722 ) 11,650 (99.4 )%
Net loss $ (13,204 ) $ (18,601 ) $ 5,397 (29.0 )%
Comparison of the Three Months Ended
Operating Expenses
The following table sets forth our operating expenses (dollars in thousands):
Three Months Ended March 31, Change
2022 2021 $ %
Research and development $ 8,111 $ 4,273 $ 3,838 89.8 %
Research and development,
related party 149 388 (239 ) (61.6 )%
General and administrative 4,872 2,218 2,654 119.7 %
Total Operating Expenses $ 13,132 $ 6,879 6,253 90.9 %
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Research and Development and Research and Development, related party
Research and development expenses increased 89.8% from$4.3 million for the three months endedMarch 31, 2021 to$8.1 million for the three months endedMarch 31, 2022 . Research and development expenses, related party decreased 61.6% from$0.2 million for the three months endedMarch 31, 2021 to$0.1 million for the three months endedMarch 31, 2022 . In total, research and development expenses increased 77.2% from$4.7 million for the three months endedMarch 31, 2021 to$8.3 million for the three months endedMarch 31, 2022 . This increase was primarily driven by a$3.7 million increase in clinical expenses associated with Phase 1 and Phase 2 clinical trials of ETX-155 and ETX-810 and a$0.9 million increase in personnel-related expenses from increased headcount and stock-based compensation. Direct preclinical expenses were consistent for the periods presented, which primarily consist of costs to manufacture drug products for use in our preclinical and clinical trials. The increase was partially offset by a$1.0 million increase in the refundable research and development tax credits from theU.K. generated from the increased research and development activities. Research and development expenses have increased and are expected to continue to increase due to the further advancement of our programs into later stages of clinical development where clinical studies may have increased numbers of subjects, longer duration and more substantial data collection and analysis. General and Administrative General and administrative expenses increased 119.7% from$2.2 million for the three months endedMarch 31, 2021 to$4.9 million for the three months endedMarch 31, 2022 . The increase in general and administrative expenses is primarily due to a$1.5 million increase in personnel-related expenses from increased headcount and stock-based compensation, a$0.7 million increase in other general and administrative expenses that included consulting and legal fees and human resources costs, and an increase of$0.5 million in insurance costs.
Other Income (Expense)
The following table sets forth our other income (expense) (dollars in
thousands):
Three Months Ended March 31, Change
2022 2021 $ %
Change in fair value of
redeemable convertible
preferred stock tranche liability $ - $ (11,718 ) $ 11,718 (100.0 )%
Foreign currency loss (157 ) (4 ) (153 ) 3,825.0 %
Other income, net 85 - 85 100.0 %
Total other income (expense) $ (72 ) $ (11,722 ) 11,650 (99.4 )%
Change in fair value of redeemable convertible preferred stock tranche liability
For the three months ended
Foreign Currency Loss
Foreign currency loss increased from a$4,000 loss for the three months endedMarch 31, 2021 to a$0.2 million loss for the three months endedMarch 31, 2022 . The increase was due to an unfavorable foreign currency exchange rates between the British Pound and theU.S. Dollar.
Other Income, net
Other income, net increased to$0.1 million for the three months endedMarch 31, 2022 . The increase was due to the interest income, partially offset by amortization of premiums and accretion of discounts recognized on our investments recognized during the quarter. For the three months endedMarch 31, 2021 , we held no investments. 24 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Sources of Liquidity
We primarily generate cash and cash equivalents from the sale of our equity securities, including common stock and redeemable convertible preferred stock, and to a lesser extent from cash received pursuant toU.K. research and development tax credits and incentives. From our inception toMarch 31, 2022 , we raised aggregate proceeds of$208.3 million from the issuance of shares of our redeemable convertible preferred stock and from our initial public offering of our common stock. We have not generated any revenue from product sales or otherwise. We have incurred net losses from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As ofMarch 31, 2022 andDecember 31, 2021 , we had cash, cash equivalents, and short-and long-term marketable securities of$149.9 million and$161.4 million and an accumulated deficit of$88.8 million and$75.6 million , respectively.
Funding Requirements
We have experienced recurring net losses since inception. Our transition to profitability is dependent upon the successful development, approval and commercialization of our product candidates and achieving a level of revenue adequate to support our cost structure. We do not expect to achieve such revenue and expect to continue to incur losses for the foreseeable future. We believe our cash, cash equivalents, and short- and long-term marketable securities of$149.9 million as ofMarch 31, 2022 will be sufficient to meet our working capital and capital expenditure needs for at least the next twelve months. We expect that our research and development and general and administrative expenses will continue to increase for the foreseeable future. As a result, we will need significant additional capital to fund our operations, which we may obtain through one or more equity offerings, debt financings or other third-party funding, including potential strategic alliances and licensing or collaboration arrangements. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amount of increased capital we will need to raise to support our operations and the outlays and operating expenditures necessary to complete the development of our product candidates and build additional manufacturing capacity, and we may use our available capital resources sooner than we currently expect.
Our future capital requirements will depend on many factors, including:
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the progress of our current and future product candidates through preclinical and clinical development;
•
potential delays in our preclinical studies and clinical trials, whether current or planned;
•
continuing our research and discovery activities;
•
initiating and conducting additional preclinical, clinical, or other studies for our product candidates;
•
changing or adding additional contract manufacturers or suppliers;
•
seeking regulatory approvals and marketing authorizations for our product candidates;
•
establishing sales, marketing, and distribution infrastructure to commercialize any products for which we obtain approval;
•
acquiring or in-licensing product candidates, intellectual property and technologies;
•
making milestone, royalty, or other payments due under any current or future collaboration or license agreements;
•
obtaining, maintaining, expanding, protecting, and enforcing our intellectual property portfolio;
•
attracting, hiring and retaining qualified personnel;
•
potential delays or other issues related to our operations;
•
meeting the requirements and demands of being a public company;
•
defending against any product liability claims or other lawsuits related to our products; and
•
the impact of the COVID-19 pandemic, which may exacerbate the magnitude of the factors discussed above.
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We believe that our existing cash, cash equivalents and short- and long-term
marketable securities will enable us to fund our operating expenses and capital
expenditure requirements through at least 2023. We have based our estimates as
to how long we expect we will be able to fund our operations on assumptions that
may prove to be wrong, and we could use our available capital resources sooner
than we currently expect, in which case, we would be required to obtain
additional financing sooner than currently projected, which may not be available
to us on acceptable terms, or at all. Our failure to raise capital as and when
needed would have a negative impact on our financial condition and our ability
to pursue our business strategy.
We will need substantial additional funding to support our continuing operations
and pursue our development strategy. Until such time as we can generate
significant revenue from sales of our product candidates, if ever, we expect to
finance our operations through the sale of equity, debt financings or other
capital sources, including potential collaborations with other companies or
other strategic transactions. Adequate funding may not be available to us on
acceptable terms, or at all. If we are unable to raise capital or enter into
such agreements as, and when, needed, we may have to significantly delay, scale
back, or discontinue the development and commercialization of our product
candidates or delay our efforts to expand our product pipeline. We may also be
required to sell or license to other parties' rights to develop or commercialize
our product candidates that we would prefer to retain.
Cash Flows
The following table summarizes our cash flows (in thousands):
Three Months Ended March 31,
2022 2021
Net cash used in operating activities
(4,035 ) -
Net cash provided by financing activities - 34,083 Operating activities For the three months endedMarch 31, 2022 , net cash used in operating activities was$10.8 million . This consisted primarily of net loss of$13.2 million , which was partially offset by non-cash charges of$2.0 million that included stock-based compensation of$1.5 million , and a net increase in our operating assets and liabilities of$0.4 million , which primarily related to research and development activities. For the three months endedMarch 31, 2021 , net cash used in operating activities was$6.7 million . This consisted primarily of net loss of$18.6 million and an increase in our operating assets and liabilities of$0.1 million , mostly related to research and development activities, which was partially offset by the non-cash charges for changes in the fair value of the redeemable convertible preferred stock tranche liability of$11.7 million and stock-based compensation of$0.3 million . Investing activities For the three months endedMarch 31, 2022 , net cash used in investing activities was$4.0 million . This consisted of purchases of$25.6 million of investments inUnited States government debt securities and corporate bonds, primarily offset by proceeds of$21.6 million received from maturities of investments in commercial paper and corporate bonds.
Financing activities
For the three months ended
Contractual Commitments and Obligations
In the normal course of business, we enter into contracts with contract research organizations (CROs), contract development and manufacturing organizations (CDMOs), and other third parties for preclinical studies and clinical trials, research and development supplies, and other testing and manufacturing services. These contracts do not contain material minimum purchase commitments and generally provide us the option to cancel, reschedule and adjust our requirements based on our business needs, prior to the delivery of goods or performance of services. However, it is not possible to predict the maximum potential amount of future payments under these agreements due to the conditional nature of our obligations and the unique facts and circumstances involved in each agreement.
Off Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of
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--------------------------------------------------------------------------------Critical Accounting Policies and Estimates
This management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of our condensed consolidated financial statements in conformity withU.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and notes to the condensed consolidated financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could differ materially from those estimates under different assumptions and conditions. A summary of our critical accounting policies is presented in our audited financial statements and notes thereto as of and for the year endedDecember 31, 2021 included in our Annual Report on Form 10-K filed with theSEC onMarch 7, 2022 . There were no material changes to our critical accounting policies during the three months endedMarch 31, 2022 .
Recent Accounting Pronouncements
See Note 1 in our interim condensed consolidated financial statements included herein and see Note 2 to our annual consolidated financial statements included in our Annual Report on Form 10-K filed with theSEC onMarch 7, 2022 .
Emerging Growth Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act (JOBS Act). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for emerging growth companies include presentation of only two years audited consolidated financial statements in a registration statement for an IPO, an exemption from the requirement to provide an auditor's report on internal controls over financial reporting pursuant to the Sarbanes-Oxley Act, an exemption from any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements. We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. We will remain an emerging growth company under the JOBS Act until the earliest of (i) the last day of our first fiscal year in which we have total annual gross revenue of$1.07 billion or more, (ii) the date on which we have issued more than$1.0 billion of non-convertible debt instruments during the previous three fiscal years, (iii) the date on which we are deemed a "large accelerated filer" under the rules of theSEC with at least$700.0 million of outstanding equity securities held by non-affiliates, or (iv)December 31, 2026 . 27
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