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, 2020 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our final prospectus datedAugust 9, 2021 and filed with theSecurities and Exchange Commission , orSEC , onAugust 11, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act, for our initial public offering, or IPO. 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 initially being developed for the
treatment of diabetic peripheral neuropathic pain (DPNP) and pain associated
with lumbosacral radiculopathy (lumbosacral radicular pain (LSRP) commonly
referred to as sciatica). ETX-810 is being evaluated in two Phase 2a clinical
trials that are expected to report topline data in the first half of 2022.
ETX-155 is a neurosteroid GABAA receptor positive allosteric modulator (PAM)
initially being developed for the treatment of major depressive disorder (MDD),
perimenopausal depression (PMD) and focal onset seizures (FOS), the most common
type of seizure in people with epilepsy. In the second quarter of 2021, we
initiated a 14-day extension of our multiple ascending dose (MAD) trial of
ETX-155 to further evaluate the safety, tolerability and pharmacokinetics; we
expect to report the results of this study in the fourth quarter of 2021. We
plan to initiate a Phase 1b clinical trial in patients with photosensitive
epilepsy in the second half of 2021 that is expected to report topline data by
the first half of 2022. In addition, we plan to initiate two Phase 2a clinical
trials for ETX-155 in patients with MDD and PMD in the second half of 2021, with
first patient dosed in each of these trials in early 2022 and topline data for
the trials expected in the first half of 2023.
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Below is a summary of our wholly owned pipeline:
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We were incorporated inOctober 2018 . InFebruary 2019 , we acquired 100% of the share capital ofNeoKera, LLC , and we separately acquired in-process research and development (IPR&D) related to the ETX-810 program. InOctober 2020 , we acquired 100% of the share capital ofAthenen Therapeutics, Inc. (the Athenen Acquisition), which included IPR&D related to the ETX-155 program. 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$8.7 million and$1.6 million for the three months endingJune 30, 2021 and 2020, respectively, and$27.3 million and$3.5 million for the six months endingJune 30, 2021 and 2020, respectively. We had an accumulated deficit of$55.5 million and$28.1 million as ofJune 30, 2021 andDecember 31, 2020 , respectively. Since our inception, we have funded our operations with an aggregate of$125.2 million in net proceeds from the sale and issuance of shares of our redeemable convertible preferred stock. We had cash of$99.5 million and$20.5 million as ofJune 30, 2021 andDecember 31, 2020 , respectively. Based on our current operating plan, we estimate that our cash, together with the$83.1 million in estimated net proceeds from our IPO, will be sufficient to fund our operating expenses and capital expenditure requirements into late 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 our initial and any potential additional indication; ? 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; 17 -------------------------------------------------------------------------------- ? 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. 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. 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 the ongoing pandemic and otherwise. 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.
Impact of the COVID-19 Pandemic on Our Operations
InMarch 2020 , theWorld Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. Since then, extraordinary actions have been taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including theUnited Kingdom (U.K. ) and theState of Washington , where most of our operations are conducted. These actions substantially restricted daily activities for individuals and caused many businesses to curtail or cease normal 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, including the suspension of all non-essential business travel. In addition, the majority of our workforce now works remotely. To date, we have been able to continue our key business activities and advance our clinical programs. However, in the future, it is possible that it will become more difficult to enroll participants in our clinical trials, which could delay 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 trials; and
?
consulting fees, including services provided by a related party.
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--------------------------------------------------------------------------------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,
2021 2020 2021 2020
Direct costs $ 7,360 $ 1,511 $ 12,368 $ 3,185
Indirect costs 129 248 937 537
Research and development
tax credits (1,696 ) (399 ) (2,851 ) (739 )
Total research and
development
expenses $ 5,793 $ 1,360 $ 10,454 $ 2,983
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 the U.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,
2021 2020 2021 2020
Clinical $ 4,940 $ 830 $ 8,450 $ 1,401
Preclinical 2,549 929 4,855 2,321
Research and development
tax credits (1,696 ) (399 ) (2,851 ) (739 )
Total research and
development
expenses $ 5,793 $ 1,360 $ 10,454 $ 2,983
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 investigational new drug (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
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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$0.3 million and$0.1 million for the three months endedJune 30, 2021 and 2020, respectively, and$0.7 million and$0.3 million for the six months endedJune 30, 2021 and 2020, 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 also 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 andSecurities and Exchange Commission (SEC) 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 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 4 of the interim condensed consolidated financial statements.
Foreign Currency Gain (Loss)
Our foreign currency gain (loss) primarily consists of foreign exchanges gains
and losses resulting from remeasurement and foreign currency transactions
between the British Pound and the
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,
2021 2020 2021 2020
Operating expenses:
Research and development $ 5,478 $ 1,325 $ 9,751 $ 2,714
Research and development,
related party 315 35 703 269
General and administrative 2,914 248 5,132 576
Total operating expenses 8,707 1,608 15,586 3,559
Loss from operations (8,707 ) (1,608 ) (15,586 ) (3,559 )
Other income (expense):
Change in fair value of
redeemable convertible
preferred stock tranche
liability - - (11,718 ) -
Foreign current gain (loss) (12 ) (23 ) (16 ) 12
Total other income (expense) (12 ) (23 ) (11,734 ) 12
Net loss and comprehensive loss
(27,320 ) $ (3,547 )
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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
2021 2020 $ %
Research and development $ 5,478 $ 1,325 $ 4,153 313.4 %
Research and development,
related
party $ 315 $ 35 $ 280 800.0 %
General and administrative $ 2,914 $ 248 $ 2,666 1,075.0 %
Research and Development and Research and Development, related party
Research and development expenses increased 313.4% from$1.3 million for the three months endedJune 30, 2020 to$5.5 million for the three months endedJune 30, 2021 . Research and development expenses, related party increased 800.0% to$0.3 million for the three months endedJune 30, 2021 . In total, research and development expenses increased 326.8% from$1.4 million for the three months endedJune 30, 2020 to$5.8 million for the three months endedJune 30, 2021 . This increase was primarily driven by a$4.2 million increase in expenses associated with Phase 1 and Phase 2 clinical trials of ETX-155 and ETX-810, respectively, and a$1.6 million increase in expenses associated with our preclinical pipeline. Clinical and preclinical costs 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. The increase was partially offset by a$1.3 million increase in the refundable research and development tax credits from theU.K. driven by increased research and development activities.
General and Administrative
General and administrative expenses increased 1,075.0% from$0.2 million for the three months endedJune 30, 2020 to$2.9 million for the three months endedJune 30, 2021 . The increase in general and administrative expenses is primarily due to an increase of$1.6 million in personnel related expenses from increased headcount and stock-based compensation and a$1.0 million increase in consulting and legal expenses. Other Income (Expense) The following table sets forth our other income (expense) (dollars in thousands): Three Months Ended June 30, Change 2021 2020 $ % Foreign currency gain (loss) $ (12 ) $ (23 )$ 11 (47.8 )% Foreign Currency Gain (Loss) Foreign currency loss decreased from a$23,000 loss for the three months endedJune 30, 2020 to a$12,000 loss for the three months endedJune 30, 2021 . The decrease was due to a more favorable foreign currency exchange rates between the British Pound and theU.S. Dollar. 21
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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
2021 2020 $ %
Research and development $ 9,751 $ 2,714 $ 7,037 259.3 %
Research and development, related
party $ 703 $ 269 $ 434 161.3 %
General and administrative $ 5,132 $ 576 $ 4,556 791.0 %
Research and Development and Research and Development, related party
Research and development expenses increased 259.3% from$2.7 million for the six months endedJune 30, 2020 to$9.8 million for the six months endedJune 30, 2021 . Research and development expenses, related party increased 161.3% to$0.7 million for the six months endedJune 30, 2021 . In total, research and development expenses increased 250.8% from$3.0 million for the six months endedJune 30, 2020 to$10.5 million the six months endedJune 30, 2021 . This increase was primarily driven by a$6.7 million increase in expenses associated with Phase 1 and Phase 2 clinical trials of ETX-155 and ETX-810, respectively, a$2.5 million increase in expenses associated with our preclinical pipeline, and a$0.4 million increase in personnel related expenses from increased headcount and stock-based compensation. Clinical and preclinical costs 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. The increase was partially offset by a$2.1 million increase in the refundable research and development tax credits from theU.K. driven by increased research and development activities.
General and Administrative
General and administrative expenses increased 791.0% from$0.6 million for the six months endedJune 30, 2020 to$5.1 million for the six months endedJune 30, 2021 . The increase in general and administrative expenses is primarily due to an increase of$2.5 million in personnel related expenses from increased headcount and stock-based compensation and a$1.9 million increase in consulting and legal expenses. Other Income (Expense) The following table sets forth our other income (expense) (dollars in thousands): Six Months Ended June 30, Change 2021 2020 $ % Change in fair value of redeemable convertible preferred stock tranche liability $ (11,718 ) $ -$ (11,718 ) (100.0 )% Foreign currency gain (loss) $ (16 ) $ 12$ (28 ) (233.3 )%
Change in fair value of redeemable convertible preferred stock tranche liability
For the six months endedJune 30, 2021 , we recognized an$11.7 million charge from the settlement of our Series A-1 preferred stock tranche liability and in connection with significant valuation changes in our Series A-1 redeemable convertible preferred stock. The valuation changes were driven primarily by the Phase 1 results of ETX-155, as well as an increased likelihood of future financing events.
Foreign Currency Gain (Loss)
Foreign currency gain (loss) decreased from a$12,000 gain for the six months endedJune 30, 2020 to a$16,000 loss for the six months endedJune 30, 2021 . The loss was due to unfavorable foreign currency exchange rates between the British Pound and theU.S. Dollar. 22 --------------------------------------------------------------------------------
Liquidity and Capital Resources
Sources of Liquidity
We primarily generate cash from the sale of our equity securities, including from the redeemable convertible preferred stock, and to a lesser extent from cash received pursuant to refundable research and development tax credits. From our inception toJune 30, 2021 , we raised aggregate proceeds of$125.2 million from the issuance of shares of our redeemable convertible preferred 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, 2021 andDecember 31, 2020 , we had cash of$99.5 million and$20.5 million and an accumulated deficit of$55.5 million and$28.1 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 balance of$99.5 million as ofJune 30, 2021 , along with the$83.1 million in estimated net proceeds from our IPO, will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 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:
? 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, due to the COVID-19 pandemic, or other factors; ? 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. We believe that our existing cash, together with the$83.1 million in estimated net proceeds from our IPO, will enable us to fund our operating expenses and capital expenditure requirements through late 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. 23 -------------------------------------------------------------------------------- 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,
2021 2020
Net cash used in operating activities
94,050 -
Operating activities
For the six months ended June 30, 2021 , net cash used in operating activities
was $15.2 million . This consisted primarily of 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 .
For the six months ended June 30, 2020 , net cash used in operating activities
was $6.1 million . This consisted primarily of a net loss of $3.5 million and an
increase in our operating assets and liabilities of $2.6 million , which was
partially offset by the non-cash charge for stock-based compensation of $0.2
million .
Financing activities
For the six months ended June 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.
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 generally do not contain 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. We lease various operating spaces in theUnited Kingdom under non-cancelable operating lease arrangements that expire on various dates throughJune 30, 2023 . As ofJune 30, 2021 andDecember 31, 2020 , our future minimum lease payments under non-cancelable lease agreements were$712,000 and$47,000 , respectively.
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, 2020 included in our final prospectus datedAugust 9, 2021 and filed with the 24 --------------------------------------------------------------------------------Securities and Exchange Commission , orSEC , onAugust 11, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended for our IPO. There were no material changes to our critical accounting policies during the six months endedJune 30, 2021 .
Recent Accounting Pronouncements
See Note 2 to our annual consolidated financial statements for more information included in our final prospectus datedAugust 9, 2021 and filed with theSecurities and Exchange Commission , orSEC , onAugust 11, 2021 pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended.
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) the last day of the fiscal year following the fifth anniversary of completion of our IPO. 25
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