ENTRADA THERAPEUTICS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q (Quarterly Report) and the audited financial information and the notes thereto included in our Annual Report on Form 10-K, which was filed with theSecurities and Exchange Commission (SEC) onMarch 15, 2022 . Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Cautionary Note Regarding Forward Looking Statements" and "Risk Factors" section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. You should carefully read the "Cautionary Note Regarding Forward Looking Statements" and "Risk Factors" sections of this Quarterly Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements contained in the following discussion and analysis.
Overview
We are a biotechnology company that aims to transform the lives of patients by establishing EEV therapeutics as a new class of medicines and we aim to become the world's foremost intracellular therapeutics company. Through our proprietary, highly versatile and modular EEV platform (EEV Platform), we are building a robust development portfolio of EEV therapeutic candidates designed to enable the efficient intracellular delivery of therapeutics in various organs and tissues with an improved therapeutic index. We are initially focused on the development of EEV therapeutics for rare neuromuscular diseases, including Duchenne muscular dystrophy (DMD) and myotonic dystrophy type 1 (DM1). In our neuromuscular disease programs, we link EEVs to small strands of nucleic acids called oligonucleotides, including phosphorodiamidate morpholino oligomers (PMOs).
ENTR-601-44
DMD is caused by a number of genetic mutations that prevent the creation of functional dystrophin, a protein required to maintain the structural integrity of muscle cells. We are developing EEV-PMOs that promote the skipping of some of these mutations. We are initially focusing on the development of an EEV-PMO, ENTR-601-44, for patients with DMD that are specifically exon 44 skipping amenable. People with this mutation have significant unmet medical needs and represent approximately 7.6% of the total DMD population. We believe that our EEV-PMO exon-skipping therapy will enable the production of functional dystrophin to slow, stop or even reverse disease progression. OnMay 11, 2022 , we announced new data from a preclinical study evaluating ENTR-601-44 for the potential treatment of DMD, showing robust exon 44 skipping in NHP biceps through 12 weeks following a single intravenous (IV) infusion, demonstrating durability of response. These data build on a previously reported NHP study indicating robust exon 44 skipping across different muscle groups at 7 days following a single IV infusion. [[Image Removed: trda-20220331_g1.jpg]] 22
--------------------------------------------------------------------------------
Table of Contents
We plan to submit an Investigational New Drug (IND) application to the
ENTR-701
Patients with DM1 carry extra cytosine-uracil-guanine (CUG) triplet repeats that result in the misprocessing of multiple proteins, which in turn results in multisystemic clinical manifestations. There are no approved treatments for DM1, despite the debilitating nature of the disease and the fact that approximately 1/8,000 people are affected worldwide. OnMay 11, 2022 , we announced a lead candidate, ENTR-701, which we are developing for patients with DM1. ENTR-701 is designed to block the triplet repeats in the messenger RNA (mRNA) and to restore muscle function. The selection of ENTR-701 as our clinical candidate for DM1 was supported by new preclinical data indicating prolonged splicing correction in the tibialis anterior, triceps and quadriceps, and amelioration of myotonia in a DM1 mouse model following a single dose. We plan to submit an IND to the FDA for ENTR-701, for the treatment of DM1, in 2023. Since our inception, we have devoted substantially all our resources to research and development efforts relating to our EEV Platform, advancing development of our portfolio of programs and general and administrative support for these operations, including raising capital. Since our inception, we have raised over$400.0 million in private and public capital from leading biotechnology investors, most recently, with net proceeds of$190.7 million from the sale of common stock in our initial public offering (IPO) inNovember 2021 . We have incurred losses since our inception. Our net losses were$21.7 million and$8.4 million for the three months endedMarch 31, 2022 and 2021, respectively. As ofMarch 31, 2022 , we had an accumulated deficit of$115.3 million . We expect to continue to generate operating losses and negative operating cash flows for the foreseeable future as we advance our platform and EEV therapeutic candidates into later stages of preclinical development and, if successful, clinical development. We will not generate any revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for one or more therapeutic candidates, if ever. If we obtain regulatory approval for any therapeutic candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy, as we advance therapeutic candidates through preclinical and, if successful, into clinical development, seek regulatory approval, prepare for and, if any therapeutic candidates are approved, proceed to commercialization and operate as a public company. 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, including potential collaborations with other companies or other strategic transactions. If we are unable to obtain funding, we will be forced to delay, reduce, or eliminate some or all of our research and development programs, product portfolio expansion and ultimate commercialization efforts, which would adversely affect our business prospects, or we may be unable to continue operations. Although we continue to pursue these plans, we may not be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we can generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As ofMarch 31, 2022 , we had cash, cash equivalents and marketable securities of$263.9 million . We believe that our cash, cash equivalents and marketable securities as ofMarch 31, 2022 will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2024. 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. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources." To finance our operations beyond that point we will need to raise additional capital, which cannot be assured. 23
--------------------------------------------------------------------------------
Table of Contents
Impact of the Ongoing COVID-19 Pandemic on Our Business
The duration of the ongoing COVID19 pandemic and the extent to which it may directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and difficult to predict, including the duration of the pandemic, new information that may emerge concerning the severity of COVID-19, such as new strains of the virus, including the Delta and Omicron variants and any future variants that may emerge, which may impact rates of infection and vaccination efforts, developments or perceptions regarding the safety of vaccines and the extent and effectiveness of actions to contain COVID-19 or treat its impact, including vaccination campaigns and lockdown measures, among others. At times during the pandemic, we, our contract manufacturing organizations (CMOs), and our contract research organizations (CROs), experienced temporary reductions in certain operations that have since normalized. We, together with our CMOs and CROs, are closely monitoring the impact of the ongoing COVID19 pandemic on these operations. Additionally, to provide a safe work environment for our employees, we have implemented various measures including limiting on-site presence to essential employees, providing for social distancing, increased sanitization of our facilities and providing personal protective equipment for our employees. We are continuing to monitor the impact and effects of the ongoing COVID19 pandemic and our response to it, and we expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees and other business partners in light of the pandemic. We have not incurred any significant impairment losses in the carrying values of our assets as a result of the pandemic and we are not aware of any specific related event or circumstance that would require us to revise our estimates reflected in our condensed consolidated financial statements included elsewhere in this Quarterly Report. Our estimates of the impact on our business may change based on new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets.
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue. We do not expect to generate any revenue from the sale of products for the foreseeable future. If our development efforts for our therapeutic candidates are successful and result in regulatory approval or we successfully enter into collaboration or license arrangements with third parties, we may generate revenue in the future from product sales, payments from collaboration or license arrangements that we may enter into with third parties, or any combination thereof.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and the development of our programs. These expenses include:
•personnel-related expenses, including salaries, related benefits, and stock-based compensation expense for individuals engaged in research and development functions;
•expenses incurred in connection with the discovery and preclinical development of our therapeutic candidates and research programs, including under agreements with third parties, such as consultants, contractors, and CROs; •the cost of developing and validating our manufacturing process for use in our preclinical studies and potential future clinical trials, including the cost of raw materials used in our research and development activities, and engaging with third party CMOs;
•the cost of laboratory supplies and research materials;
•the costs of payments made under third-party licensing agreements and related future payments should certain development and regulatory milestones be achieved; and
•facilities, depreciation and other direct and allocated expenses, including rent and other operating costs, incurred as a result of our research and development activities.
We expense research and development costs as incurred. Non-refundable advance
payments that we make for goods or services to be received in the future for use
in research and development activities are recorded as prepaid expenses. The
prepaid amounts are expensed as the related goods are delivered or the services
are performed, or when it is
24
--------------------------------------------------------------------------------
Table of Contents
no longer expected that the goods will be delivered or the services rendered. Upfront payments under license agreements are expensed upon receipt of the license and annual maintenance fees under license agreements are expensed in the period in which they are incurred. Milestone payments under license agreements are accrued, with a corresponding expense being recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable. As a preclinical-stage company in the early phases of development, our research and development costs are primarily devoted to proof-of-concept studies and our overall EEV Platform that underpins our therapeutic candidates. Our direct, external research and development expenses consist primarily of fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our process development, manufacturing and clinical development activities. Our direct external research and development expenses also include fees incurred under license and intellectual property purchase agreements. We expect to track these external research and development costs on a program-by-program basis as we identify specific programs and product candidates to advance into clinical development. We do not allocate employee costs, costs associated with our development efforts and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources and third-party consultants primarily to conduct our research and development activities as well as for managing our process development, manufacturing and clinical development activities. Therapeutic candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our platform development efforts and planned preclinical and clinical development activities in the near term and in the future. We expect that the research and development expenses of our programs will increase in the near term as we initiate investigational new drug (IND)-enabling activities for our therapeutic candidates. Therefore, we cannot reasonably estimate or know the nature, timing, and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our therapeutic candidates. The successful development of our therapeutic candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development, including the following:
•the scope, timing, rate of progress and expenses of our ongoing and potential future research activities, including preclinical and IND-enabling studies, clinical trials and other research and development activities we decide to pursue;
•the successful initiation, enrollment, and completion of clinical trials under current good clinical practices;
•the timing of filing and acceptance of INDs or comparable foreign applications that allow commencement of future clinical trials for our therapeutic candidates;
•whether our therapeutic candidates show safety and efficacy in our clinical trials and an acceptable risk-benefit profile in the intended populations;
•our ability to hire and retain key research and development personnel;
•our ability to successfully develop, obtain regulatory and marketing approvals of our therapeutic candidates for the expected indications and patient populations;
•our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if our therapeutic candidates are approved;
•commercializing therapeutic candidates, if and when approved, whether alone or in collaboration with others;
•our ability to maintain a continued acceptable safety, tolerability, and efficacy profile of our therapeutic candidates following approval;
•our ability to establish new licensing or collaboration arrangements to support our potential therapeutic candidates on favorable business terms;
•any decisions we make to discontinue, delay or modify our programs to focus on others;
•obtaining, maintaining, protecting and enforcing patent and trade secret protection and regulatory exclusivity for our therapeutic candidates;
•obtaining and maintaining adequate coverage and reimbursement from third party payors; and
25
--------------------------------------------------------------------------------
Table of Contents
•the effects of the ongoing COVID-19 pandemic.
A change in the outcome of any of these variables with respect to the development of any of our therapeutic candidates could significantly change the costs and timing associated with the development of that therapeutic candidate. We may never succeed in obtaining regulatory approval for any of our therapeutic candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and personnel-related costs, including stock-based compensation, for our personnel in executive, legal, finance and accounting, corporate and business development, human resources, and other administrative functions. General and administrative expenses also include: legal fees relating to intellectual property and corporate matters; professional fees paid for accounting, auditing, consulting, and tax services; insurance costs; travel expenses; and facility costs not otherwise included in research and development expenses. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our programs and EEV Platform. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance, and investor and public relations expenses associated with operating as a public company.
Interest and Other Income, net
Interest and other income, net consists primarily of interest earned on our invested cash equivalents and marketable securities, gains and losses on disposal of fixed assets and gains and losses on foreign currency transactions.
Income Taxes
Since our inception, we have not recorded any income tax benefits for the net losses we have incurred or for the research and development tax credits earned in each year and interim period as we believe, based upon the weight of available evidence, that it is more likely than not that all our net operating loss carryforwards and tax credit carryforwards will not be realized. As part of the Tax Cuts and Jobs Act of 2017 (TCJA), beginning with the 2022 tax year, we are required to capitalize research and development expenses, as defined under Internal Revenue Code section 174. For expenses that are incurred for research and development in theU.S. , the amounts will be amortized over 5 years, and expenses that are incurred for research and experimentation outside theU.S. will be amortized over 15 years. We expect that this provision will result in a significant decrease to our 2022 tax loss but will not result in an actual tax liability for 2022.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States . The preparation of our financial statements and related disclosures requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, costs and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies and estimates from those reported in our Annual Report on Form 10-K filed with theSEC onMarch 15, 2022 , except as described further in Note 2 Summary of Significant Accounting Policies in the condensed consolidated financial statements elsewhere in this Quarterly Report, which discusses new policies regarding restricted cash, marketable securities, other comprehensive loss and our adoption of ASC 842 Leases. 26
--------------------------------------------------------------------------------
Table of Contents
Results of Operations
Comparison of the three months ended
Three Months Ended March 31,
(in thousands) 2022 2021 Change
Operating expenses:
Research and development $ 15,718 $ 6,223 $ 9,495
General and administrative 6,433 2,170 4,263
Total operating expenses 22,151 8,393 13,758
Loss from operations (22,151) (8,393) (13,758)
Other income:
Interest and other income, net 480 13 467
Total other income, net 480 13 467
Net loss $ (21,671) $ (8,380) $ (13,291) Research and Development Expenses
Three Months Ended March 31,
(in thousands) 2022 2021 Change
Personnel related (including stockbased
compensation) $ 5,128 $ 2,178 $ 2,950
External expenses performed by outside consulting
services, including third-party CROs 7,525 1,901 5,624
Lab supplies used in research and development
activities 1,037 654 383
Facility and equipment related costs (including
depreciation) and other unallocated costs 2,028 1,490 538
Total research and development expenses $ 15,718 $
6,223
Research and development expenses were$15.7 million for the three months endedMarch 31, 2022 , compared to$6.2 million for the three months endedMarch 31, 2021 . The increase of$9.5 million in research and development expenses was primarily attributable to: •an increase of$5.6 million in external expenses associated with discovery and preclinical studies performed by outside consulting services, including third party CROs; •an increase of$3.0 million in personnel-related costs driven by an increased headcount in our research and development function, inclusive of stock-based compensation expense of$0.7 million and$0.1 million for the three months endedMarch 31, 2022 andMarch 31, 2021 , respectively; •an increase of$0.5 million in facility and equipment-related costs, including depreciation, and other allocated miscellaneous expenses in connection with the operating lease for our corporate headquarters; and
•an increase of
We expect our research and development expenses will continue to increase as we
continue our current research and development activities, initiate new research
programs, continue our preclinical development of therapeutic candidates and
progress ENTR-601-44, and future product candidates, into clinical trials.
27--------------------------------------------------------------------------------
Table of Contents
General and Administrative Expenses
General and administrative expenses for the three months endedMarch 31, 2022 were$6.4 million , compared to$2.2 million for the three months endedMarch 31, 2021 . The increase of$4.3 million was primarily attributable to the following: •a$2.4 million increase in personnel costs, primarily a result of the increase in headcount in our general and administrative function, inclusive of stock-based compensation expense of$1.1 million and$0.1 million for the three months endedMarch 31, 2022 andMarch 31, 2021 , respectively;
•a
•a
•a
Interest and Other Income, net
Total interest and other income, net was$0.5 million for the three months endedMarch 31, 2022 , compared to less than$0.1 million for the three months endedMarch 31, 2021 ; this increase is primarily driven by interest on money market and marketable securities investments.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception in 2016, we have incurred significant operating losses. Our net losses were$21.7 million and$8.4 million for the three months endedMarch 31, 2022 and 2021, respectively. As ofMarch 31, 2022 andDecember 31, 2021 , we had an accumulated deficit of$115.3 million and$93.7 million , respectively. We expect to incur significant expenses and operating losses for the foreseeable future as we further our platform development and advance the preclinical and, if successful, the clinical development of our programs. Since our inception, we have raised over$400.0 million in private and public capital from leading biotechnology investors, most recently, with net proceeds of$190.7 million from the sale of common stock in our IPO inNovember 2021 . As ofMarch 31, 2022 , we had cash, cash equivalents and marketable securities of$263.9 million .
Cash Flows
The following table summarizes our cash flows for each of the periods presented:
Three Months Ended March 31,
(in thousands) 2022 2021
Net cash used in operating activities $ (20,991) $ (8,336)
Net cash used in investing activities (181,533) (908)
Net cash provided by financing activities 50 116,385
Net increase (decrease) in cash, cash equivalents, and
restricted cash $ (202,474) $ 107,141
Operating Activities
For the three months ended March 31, 2022 , net cash used in operating activities
was $21.0 million , consisting primarily of our net loss of $21.7 million and a
net decrease in our working capital of $1.6 million , partially offset by
stock-based compensation expense of $1.8 million , depreciation expense of $0.4
million , amortization of premiums and discounts on marketable securities of $0.1
million .
For the three months ended March 31, 2021 , net cash used in operating activities
was $8.3 million , consisting primarily of our net loss of $8.4 million and a net
decrease in our working capital of $0.3 million , partially offset by stock-based
compensation expense of $0.2 million , depreciation expense of $0.2 million .
28--------------------------------------------------------------------------------
Table of Contents
Investing Activities
Net cash used in investing activities was$181.5 million for the three months endedMarch 31, 2022 , consisting primarily of$182.6 million in purchases of marketable securities, partially offset by$1.7 million from the maturities of those marketable securities, and$0.6 million of purchases of property and equipment.
Net cash used in investing activities was
Financing Activities
Net cash provided by financing activities was less than
Net cash provided by financing activities was
Funding Requirements
We expect to incur significant expenses and operating losses for the foreseeable future as we advance the preclinical and, if successful, the clinical development of our programs. In addition, we expect to incur additional costs associated with operating as a public company. Our operating expenses and future funding requirements are expected to increase substantially as we continue to advance our portfolio of programs. We believe that our cash, cash equivalents and marketable securities as ofMarch 31, 2022 will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2024. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.
Because of the numerous risks and uncertainties associated with research, development, and commercialization of our candidates, we are unable to estimate the exact amount of our working capital requirements. Our future capital requirements will depend on many factors, including costs associated with:
•the continuation of our current research programs and our preclinical development of therapeutic candidates from our current research programs;
•seeking to identify additional research programs and additional therapeutic candidates;
•advancing our existing and future therapeutic candidates into clinical development;
•initiating preclinical studies and clinical trials for any therapeutic candidates we identify and develop or expand development of existing programs into additional indications;
•maintaining, expanding, enforcing, defending and protecting our intellectual property portfolio and providing reimbursement of third-party expenses related to our patent portfolio;
•timing of manufacturing for our therapeutic candidates and commercial manufacturing if any therapeutic candidate is approved;
•establishing and maintaining clinical and commercial supply for the development and manufacture of our therapeutic candidates;
•seeking regulatory and marketing approvals for any of our therapeutic candidates that we develop, if any;
•seeking to identify, establish and maintain additional collaborations and license agreements, and the success of those collaborations and license agreements;
•ultimately establishing a sales, marketing, and distribution infrastructure to commercialize any platforms for which we may obtain marketing approval, either by ourselves or in collaboration with others;
•generating revenue from commercial sales of therapeutic candidates we may develop for which we receive marketing approval;
•hiring additional personnel including research and development, clinical, and commercial personnel;
29
--------------------------------------------------------------------------------
Table of Contents
•adding operational, financial, and management information systems and personnel, including personnel to support our product development;
•achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
•acquiring or in-licensing products, intellectual property, and technologies; and
•the ongoing costs of operating as a public company.
Until such time, if ever, as we can generate substantial product revenue to support our cost structure, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise funds through collaborations or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or therapeutic candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our therapeutic candidates even if we would otherwise prefer to develop and market such therapeutic candidates ourselves.
Contractual Obligations and Commitments
Lease Commitments
During the three months endedMarch 31, 2022 , there were no material changes to our contractual obligations and commitments from those described in Note 9 Commitments and Contingencies to our financial statements in the Annual Report on Form 10-K, with the exception of our lease agreement forOne Design Center Place , which was signed onMarch 16, 2022 . For additional information regarding our leased facilities, refer to Note 11 Leases to our condensed consolidated financial statements in this Quarterly Report .
Purchase and Other Obligations
We enter into contracts in the normal course of business with CROs, third-party manufacturers, and other third parties for preclinical research studies and testing and manufacturing services. These contracts do not contain minimum purchase commitments and are cancellable by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation. We have also entered into license agreements under which we are obligated to make certain payments. For additional information about our license agreement and amounts that could become payable in the future under such agreements, see "Business-Intellectual property- License agreement withThe Ohio State University " and Note 9 Commitments and Contingencies to our financial statements in the Annual Report on Form 10-K.
Emerging Growth Company and Smaller Reporting Company Status
We are an "emerging growth company," or EGC, under the Jumpstart Our Business
Startups Act of 2012 (the JOBS Act). Section 107 of the JOBS Act provides that
an EGC can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or
revised accounting standards. Thus, an EGC can delay the adoption of certain
accounting standards until those standards would otherwise apply to private
companies. We have elected to avail ourselves of delayed adoption of new or
revised accounting standards and, therefore, we will be subject to the same
requirements to adopt new or revised accounting standards as private entities.
30--------------------------------------------------------------------------------
Table of Contents
As an EGC, we may, and intend to, take advantage of certain exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an EGC:
•we may present only two years of audited financial statements and only two years of related Management's Discussion and Analysis of Financial Condition and Results of Operations; •we may avail ourselves of the exemption from providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended (the Sarbanes-Oxley Act); •we may avail ourselves of the exemption from complying with any requirement that may be adopted by thePublic Company Accounting Oversight Board (PCAOB) regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis;
•we may provide reduced disclosure about our executive compensation arrangements; and
•we may not require nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments.
We will remain an EGC until the earliest to occur of (i) the last day of the fiscal year following the fifth anniversary of the completion of our IPO, (ii) the last day of the fiscal year in which we have total annual gross revenues of$1.07 billion or more, (iii) the date on which we have issued more than$1.0 billion in non-convertible debt during the previous rolling three-year period or (iv) the date on which we are deemed to be a large accelerated filer under the Securities Exchange Act of 1934, as amended (the Exchange Act). We are also a "smaller reporting company," meaning that the market value of our stock held by non-affiliates is less than$700 million and our annual revenue was less than$100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than$250 million or (ii) our annual revenue was less than$100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than$700 million . If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
Recently Issued Accounting Pronouncements
See Note 2 Summary of Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this Quarterly Report.
© Edgar Online, source
