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 subsidiary. 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 ongoing 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 psychiatry, epilepsy, chronic pain, 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 lead clinical-stage candidate is ETX-155, a neurosteroid GABAA receptor positive allosteric modulator (PAM) being developed for depressive disorders (including major depressive disorder (MDD)) 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. InApril 2022 , we announced that we elected to delay advancing ETX-155 into Phase 2a depression trials in order to determine the root cause of a lower-than-expected exposure observed in a Phase 1b proof-of-concept trial of ETX-155 in photosensitive epilepsy (PSE). Based on an initial review of ongoing analyses, we believe that the reduced exposure levels were most likely related to certain aspects of the chemistry, manufacturing, and controls (CMC) for the different batches of drug product used in the Phase 1 healthy volunteer trials and the Phase 1b PSE trial. Evaluation and potential implementation of CMC process modifications to ensure consistency of drug product manufacturing are currently underway. In parallel, inJuly 2022 , we initiated a Phase 1 pharmacokinetic trial in healthy subjects to identify the dose required to provide a similar exposure to that of the 60-milligram dose used in the previous 14-day repeat dose Phase 1 healthy volunteer trial. Assuming a dose level with appropriate exposure and safety is confirmed, we intend to initiate our previously planned Phase 2a trial of ETX-155 in patients with MDD. Results from the Phase 1 pharmacokinetic trial are expected in the fourth quarter of 2022, and the subsequent randomized, placebo-controlled Phase 2a trial in patients with MDD is expected to initiate in the first quarter of 2023. This Phase 2a trial is anticipated to be a proof-of-concept study with 4-week treatment, with subjects randomized 1:1 to either ETX-155 or placebo, evaluating efficacy endpoints from day 3 through day 42. In the event a dose level with appropriate exposure and safety is not confirmed, we will continue to explore potential CMC process modifications and intend to undertake any necessary additional pharmacokinetic trials to determine appropriate exposure and safety prior to initiating any proof-of-concept trials in patients. 19 -------------------------------------------------------------------------------- Assuming Phase 2a MDD trial initiation in the first quarter of 2023, topline data from this trial would be expected in mid-2024. InJuly 2022 , we also announced that we are postponing the initiation of the planned Phase 2a trial in PMD, which will provide additional investment flexibility for the progression of Eliem's pipeline. As we progress the ETX-155 program in depressive disorders, a study in PMD patients will be considered within the overarching MDD program. We will consider resuming the PSE trial after the expected readout of the Phase 1 pharmacokinetic trial in the fourth quarter of 2022.
Pipeline
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 $14.6 million and $8.7 million
for the three months ended June 30, 2022 and 2021, respectively, and $27.8
million and $27.3 million for the six months ended June 30, 2022 and 2021,
respectively. We had an accumulated deficit of $103.4 million and $75.6 million
as of June 30, 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
$134.7 million and $161.4 million as of June 30, 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
into 2025. 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-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-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; and
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add equipment and physical infrastructure to support our research and development and growing staff; acquire or in-license other product candidates and technologies.
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 onU.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 inthe 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
OnAugust 2, 2022 , we reported results from our Phase 2a clinical trial investigating ETX-810 for the treatment of lumbosacral radicular pain (LSRP). In the Phase 2a clinical trial in LSRP, 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). This result is consistent with the lack of separation from placebo observed in the Phase 2a clinical trial in DPNP, as reported inApril 2022 . Therefore, we have discontinued further development of ETX-810.
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. As a result of COVID-19, we have taken precautionary measures in order to minimize the risk of the virus to our employees, such as allowing our workforce 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 candidate ETX-155 and our discontinued product candidate ETX-810.
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--------------------------------------------------------------------------------Our direct research and development costs include:
•
expenses incurred in connection with research, laboratory consumables and preclinical studies and clinical trial activities;
•
the cost to manufacture drug products for use in our preclinical studies 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 June 30, Six Months Ended June 30,
2022 2021 2022 2021
Direct costs $ 8,909 $ 7,360 $ 17,524 $ 12,368
Indirect costs 2,191 129 4,036 937
Research and development
tax credits (2,331 ) (1,696 ) (4,531 ) (2,851 )
Total research and
development expenses $ 8,769 $ 5,793 $
17,029
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. Research and development costs by stage of development are as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Clinical$ 8,237 $ 4,940 $ 16,098 $ 8,450 Preclinical 2,863 2,549 5,462 4,855 Research and development tax credits (2,331 ) (1,696 ) (4,531 ) (2,851 ) Total research and development expenses$ 8,769 $ 5,793 $ 17,029 $ 10,454 Research and development activities are central to our business model. We expect our research and development expenses generally to increase as we advance our clinical development programs. The amount and timing of 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 discontinuation of any of our programs;
•
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;
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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 expense reimbursements paid toCarnot, LLC , a related party, of$29,000 and$0.3 million for the three months endedJune 30, 2022 and 2021, respectively, and$0.2 million and$0.7 million for the six months endedJune 30, 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.
Other Income (Expense)
Change in Fair Value of Redeemable Convertible Preferred Tranche Liability
Our redeemable convertible preferred stock tranche liability was 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.
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--------------------------------------------------------------------------------Results of Operations
The following table sets forth our results of operations (dollars in thousands):
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Operating expenses:
Research and development $ 8,740 $ 5,478 $ 16,851 $ 9,751
Research and development,
related party 29 315 178 703
General and administrative 4,932 2,914 9,804 5,132
Total operating expenses 13,701 8,707 26,833 15,586
Loss from operations (13,701 ) (8,707 ) (26,833 ) (15,586 )
Other income (expense):
Change in fair value of
redeemable convertible
preferred stock tranche
liability - - - (11,718 )
Foreign currency loss (1,042 ) (12 ) (1,199 ) (16 )
Other income, net 147 - 232 -
Total other income (expense) (895 ) (12 ) (967 ) (11,734 )
Net loss $ (14,596 ) $ (8,719 ) $ (27,800 ) $ (27,320 ) Comparison of the Three Months Ended
Operating Expenses
The following table sets forth our operating expenses (dollars in thousands):
Three Months Ended June 30, Change
2022 2021 $ %
Research and development $ 8,740 $ 5,478 $ 3,262 59.5 %
Research and development,
related party $ 29 $ 315 $ (286 ) (90.8 )%
General and administrative $ 4,932 $ 2,914 $ 2,018 69.3 %
Research and Development and Research and Development, related party
Research and development expenses, increased 59.5% from$5.5 million for the three months endedJune 30, 2021 to$8.7 million for the three months endedJune 30, 2022 . Research and development expenses, related party decreased 90.8% from$0.3 million for the three months endedJune 30, 2021 to$29,000 for the three months endedJune 30, 2022 . In total, research and development expenses increased 51.4% from$5.8 million for the three months endedJune 30, 2021 to$8.8 million for the three months endedJune 30, 2022 . This increase was primarily driven by a$2.7 million increase in clinical expenses associated with Phase 1 and Phase 2 clinical trials of ETX-155 and ETX-810 and a$1.0 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 studies and clinical trials. The increase was partially offset by a$0.6 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 would be expected to increase as our programs advance 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 69.3% from$2.9 million for the three months endedJune 30, 2021 to$4.9 million for the three months endedJune 30, 2022 . The increase in general and administrative expenses is primarily due to a$0.8 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 an increase of$0.5 million in insurance costs. 24 --------------------------------------------------------------------------------
Other Income (Expense)
The following table sets forth our other income (expense) (dollars in
thousands):
Three Months Ended June 30, Change
2022 2021 $ %
Foreign currency loss $ (1,042 ) $ (12 ) $ (1,030 ) 8,583.3 %
Other income, net $ 147 $ - $ 147 100.0 %
Foreign Currency Loss
Foreign currency loss increased from a $12,000 loss for the three months ended
June 30, 2021 to a $1.0 million loss for the three months ended June 30, 2022 .
The decrease was due to an unfavorable foreign currency exchange rates between
the British Pound and the U.S. Dollar, which affects the remeasurement of our
British Pound denominated monetary assets and liabilities, primarily our
recoverable research and development tax credits.
Other Income, net
Other income, net increased to$0.1 million for the three months endedJune 30, 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 endedJune 30, 2021 , we held no investments.
Comparison of the Six Months Ended
Operating Expenses
The following table sets forth our operating expenses (dollars in thousands):
Six Months Ended June 30, Change
2022 2021 $ %
Research and development $ 16,851 $ 9,751 $ 7,100 72.8 %
Research and development,
related party $ 178 $ 703 $ (525 ) (74.7 )%
General and administrative $ 9,804 $ 5,132 $ 4,672 91.0 %
Research and Development and Research and Development, related party
Research and development expenses increased 72.8% from$9.8 million for the six months endedJune 30, 2021 to$16.9 million for the six months endedJune 30, 2022 . Research and development expenses, related party decreased 74.7% from$0.7 million for the six months endedJune 30, 2021 to$0.2 million for the six months endedJune 30, 2022 . In total, research and development expenses increased 62.9% from$10.5 million for the six months endedJune 30, 2021 to$17.0 million the six months endedJune 30, 2022 . This increase was primarily driven by a$6.5 million increase in clinical expenses associated with Phase 1 and Phase 2 clinical trials of ETX-155 and ETX-810 and a$2.0 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 studies and clinical trials. The increase was partially offset by a$1.7 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 would be expected to increase as our programs advance 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 91.0% from$5.1 million for the six months endedJune 30, 2021 to$9.8 million for the six months endedJune 30, 2022 . The increase in general and administrative expenses is primarily due to a$2.3 million increase in personnel-related expenses from increased headcount and stock-based compensation, a$1.4 million increase in other general and administrative expenses that included consulting and legal fees, and an increase of$1.0 million in insurance costs. 25 --------------------------------------------------------------------------------
Other Income (Expense)
The following table sets forth our other income (expense) (dollars in
thousands):
Six Months Ended June 30, Change
2022 2021 $ %
Change in fair value of
redeemable convertible
preferred stock tranche
liability $ - $ (11,718 ) $ 11,718 (100.0 )%
Foreign currency loss $ (1,199 ) $ (16 ) $ (1,183 ) 7,393.8 %
Other income, net $ 232 $ - $ 232 100.0 %
Change in fair value of redeemable convertible preferred stock tranche liability
For the six months ended
Foreign Currency Loss
Foreign currency loss increased from a$16,000 loss for the six months endedJune 30, 2021 to a$1.2 million loss for the six months endedJune 30, 2022 . The loss was due to unfavorable foreign currency exchange rates between the British Pound and theU.S. Dollar, which affects the remeasurement of our British Pound denominated monetary assets and liabilities, primarily our recoverable research and development tax credits. Other Income, net Other income, net increased to$0.2 million for the six months endedJune 30, 2022 . The increase was due to the interest income, partially offset by amortization of premiums and accretion of discounts recognized on our investments during the quarter. For the six months endingJune 30, 2021 , we held no investments.
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 toJune 30, 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 ofJune 30, 2022 andDecember 31, 2021 , we had cash, cash equivalents, and short- and long-term marketable securities of$134.7 million and$161.4 million and an accumulated deficit of$103.4 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$134.7 million as ofJune 30, 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 increase as our clinical development programs advance. 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. 26 --------------------------------------------------------------------------------
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;
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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;
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attracting, hiring and retaining qualified personnel;
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potential delays or other issues related to our operations;
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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.
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 into 2025. 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):
Six Months Ended June 30,
2022 2021
Net cash used in operating activities
-
Net cash provided by financing activities - 94,050
Operating activities
For the six months endedJune 30, 2022 , net cash used in operating activities was$24.7 million . This consisted primarily of net loss of$27.8 million and changes in our operating assets and liabilities that resulted in a net decrease of$2.0 million , primarily related to research and development activities, which was partially offset by non-cash charges of$5.1 million that included stock-based compensation of$3.3 million and a foreign currency loss of$1.2 million resulting from remeasurement. 27 -------------------------------------------------------------------------------- For the six months endedJune 30, 2021 , net cash used in operating activities was$15.2 million . This consisted primarily of a net loss of$27.3 million and an increase in our operating assets and liabilities of$0.8 million , primarily 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$1.3 million .
Investing activities
For the six months ended
Financing activities
For the six months endedJune 30, 2021 , net cash provided by financing activities was$94.1 million , primarily attributable to the proceeds from the issuance of our Series A-1 and Series B redeemable convertible preferred stock, net of issuance costs, and the proceeds from the issuance of our common stock in our initial public offering, net of issuance costs.
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
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 six months endedJune 30, 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 . 28 --------------------------------------------------------------------------------
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 .
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