FOGHORN THERAPEUTICS INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under "Risk Factors" in our Registration Statement on Form S-1 (File No. 333-249264), as amended, or the Registration Statement. Overview We are pioneering the discovery and development of a new class of medicines targeting genetically determined dependencies within the chromatin regulatory system, an untapped opportunity for therapeutic intervention. Our proprietary Gene Traffic Control platform gives us an integrated, mechanistic understanding of how the various components of the chromatin regulatory system interact, allowing us to identify, validate and potentially drug targets within the system. Breakdowns in the chromatin regulatory system are associated with over 50 percent of all cancers. Addressing these breakdowns could potentially provide therapies for over 2.5 million patients. Consequently, we are initially focused in oncology. We are developing FHD-286, a selective, allosteric ATPase inhibitor, and FHD-609, a protein degrader, to treat hematologic cancers and solid tumors, for which we plan to file investigational new drug applications, or INDs, in the fourth quarter of 2020 and in the first half of 2021, respectively. Our product candidates are in preclinical development, and so we currently do not have any products approved for commercial sale. Our vision is to use our Gene Traffic Control platform to discover and develop drugs in oncology and other therapeutic areas, including virology, autoimmune disease and neurology. Since our inception inOctober 2015 , we have focused substantially all of our resources on building our Gene Traffic Control platform, organizing and staffing our company, business planning, raising capital, conducting discovery and research activities, protecting our trade secrets, filing patent applications, identifying potential product candidates, undertaking preclinical studies and establishing arrangements with third parties for the manufacture of initial quantities of our product candidates and component materials. We do not have any products approved for sale and have not generated any revenue from product sales. To date, we have funded our operations with proceeds from sales of preferred stock, term loans and an upfront payment of$15.0 million we received inJuly 2020 under our collaboration agreement withMerck Sharp & Dohme Corp. , or Merck, and, most recently, with proceeds from the sale of common stock in our initial public offering, or IPO. OnOctober 27, 2020 , we completed our IPO pursuant to which we issued and sold 7,500,000 shares of our common stock at a public offering price of$16.00 per share, resulting in net proceeds of$108.0 million , after deducting underwriting discounts and commissions and other offering expenses. OnNovember 19, 2020 , we issued and sold an additional 951,837 shares of common stock at the IPO price of$16.00 per share pursuant to the underwriters' partial exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of$14.2 million after deducting underwriting discounts and commissions. We have incurred significant operating losses since our inception. For the year endedDecember 31, 2019 , we reported net losses of$51.1 million , and for the nine months endedSeptember 30, 2020 , we reported net losses of$48.0 million . As ofSeptember 30, 2020 , we had an accumulated deficit of$142.2 million . We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our ability to generate any product revenue or product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more product candidates we may develop.
We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
• advance our FHD-286 and FHD-609product candidates into Phase 1 clinical
development and continue our preclinical development of product candidates
from our current research programs;
• identify additional research programs and additional product candidates;
• initiate preclinical testing for any new product candidates we identify and
develop;
• obtain, maintain, expand, enforce, defend and protect our trade secrets and
intellectual property portfolio and provide reimbursement of third-party
expenses related to our patent portfolio;
• hire additional clinical, regulatory and scientific personnel;
• add operational, legal, compliance, financial and management information
systems and personnel to support our research, product development and
operations as a public company;
• expand the capabilities of our platform;
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• acquire or in-license product candidates, intellectual property and
technologies;
• operate as a public company;
• seek marketing approvals for any product candidates that successfully
complete clinical trials; and
• ultimately establish a sales, marketing and distribution infrastructure to
commercialize any products for which we may obtain marketing approval.
We will not generate revenue from product sales unless and until we successfully commercialize one of our product candidates, after completing clinical development and obtaining regulatory approval. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, and distribution. Further, following the completion of this offering, we expect to incur additional costs associated with operating as a public company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through our collaboration agreement with Merck and a combination of equity offerings, debt financings and collaborations or licensing arrangements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back our development or commercialization plans for one or more of our product candidates. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
COVID-19
InMarch 2020 , COVID-19 was declared a global pandemic by theWorld Health Organization and to date the COVID-19 pandemic continues to present a substantial public health and economic challenge around the world. The length of time and full extent to which the COVID-19 pandemic will 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 are difficult to predict. While we continue to conduct our research and development activities, the COVID-19 pandemic may cause disruptions that affect our ability to initiate and complete preclinical studies, future clinical trials or to procure items that are essential for our research and development activities. We plan to continue to closely monitor the ongoing impact of the COVID-19 pandemic on our employees and our business operations. In an effort to provide a safe work environment for our employees, we have, among other things, increased the cadence of sanitization of our office and lab facilities, implemented various social distancing measures in our office and labs including replacing in-person meetings with virtual interactions, and are providing personal protective equipment for our employees present in our office and lab facilities. 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.
Components of Our Results of Operations
Collaboration Revenue
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval or licenses with third parties, we may generate revenue in the future from product sales, milestone payments under our existing collaboration agreement or payments from other license agreements that we may enter into with third parties. InJuly 2020 , we entered into a strategic research collaboration and license agreement, or the Collaboration Agreement, with Merck, pursuant to which we will apply our proprietary Gene Traffic Control platform to discover and develop novel therapeutics. Under the Collaboration Agreement, we granted Merck exclusive global rights to develop and commercialize drugs that target dysregulation of a single transcription factor. Under the terms of the Collaboration Agreement, we received a nonrefundable upfront payment of$15.0 million from Merck, and are eligible to receive up to$245.0 million upon first achievement of specified research, development and regulatory milestones by any product candidate generated by the collaboration, and up to$165.0 million upon achievement of specified sales-based milestones per approved product from the collaboration, if any, as well as royalties on sales of any approved product from the collaboration. We cannot provide assurance as to the timing of future milestone or royalty payments or that we will receive any of these payments at all. 21
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We record revenue over the research term as we satisfy our performance obligation under the Collaboration Agreement. Accordingly, the upfront payment of$15.0 million is being recognized as revenue using the cost-to-cost method, which we believe best depicts the transfer of control to the customer over time. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified single performance obligation. We expect revenue to fluctuate as our efforts to satisfy our performance obligation will likely vary from period to period. In estimating the total costs to satisfy our performance obligation pursuant to the Collaboration Agreement, we are required to make significant estimates including an estimate of the number of transcription factor substitutions and the expected time and expected costs to fulfill the performance obligation. The cumulative effect of revisions to the total estimated costs to complete our performance obligation will be recorded in the period in which the changes are identified, and amounts can be reasonably estimated. While such revisions will have no impact on our cash flows, a significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods. As ofSeptember 30, 2020 , we recorded$14.8 million of the upfront payment as deferred revenue and recognized$0.2 million of revenue under the Collaboration Agreement.
Operating Expenses
Our operating expenses are comprised of research and development expenses and general and administrative expenses.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts, and progressing our programs, which include:
• personnel-related costs, including salaries, benefits and stock-based
compensation expense, for employees engaged in research and development
functions;
• expenses incurred in connection with our research programs, including under
agreements with third parties, such as consultants and contractors and
contract research organizations, or CROs;
• the cost of manufacturing drug substance and drug product for use in our
research and preclinical studies and future clinical trials under
agreements with third parties, such as consultants and contractors and
contract development and manufacturing organizations, or CDMOs;
• laboratory supplies and research materials;
• facilities, depreciation and amortization and other expenses, which include
direct and allocated expenses for rent and maintenance of facilities and
insurance; and
• payments made under third-party licensing agreements.
We track our direct external research and development expenses on a
program-by-program basis. These consist of costs that include fees, reimbursed
materials, and other costs paid to consultants, contractors, CDMOs, and CROs in
connection with our preclinical and manufacturing activities. We do not allocate
employee costs, costs associated with our discovery efforts, laboratory
supplies, and facilities expenses, including depreciation or other indirect
costs, to specific product development programs because these costs are deployed
across multiple programs and our platform and, as such, are not separately
classified.
We expect that our research and development expenses will increase substantially
as we advance our programs into clinical development and expand our discovery,
research and preclinical activities in the near term and in the future. At this
time, we cannot accurately estimate or know the nature, timing and costs of the
efforts that will be necessary to complete the preclinical and clinical
development of any product candidates we may develop. A change in the outcome of
any number of variables with respect to product candidates we may develop could
significantly change the costs and timing associated with the development of
that product candidate. We may never succeed in obtaining regulatory approval
for any product candidates we may develop.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related
costs, including salaries, benefits and stock-based compensation, for employees
engaged in executive, legal, finance and accounting and other administrative
functions. General and administrative expenses also include professional fees
for legal, patent, consulting, investor and public relations and accounting and
audit services as well as direct and allocated facility-related costs.
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 platform. We also anticipate that we will
incur increased accounting, audit, legal, regulatory, compliance, director and
officer insurance costs and investor and public relations expenses associated
with operating as a public company.
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Table of Contents Other Income (Expense) Interest Expense
Interest expense consists of interest expense associated with outstanding
borrowings under our existing loan agreement with
Interest Income and Other Income (Expense), Net
Interest income consists of interest earned on our invested cash balances. Other income (expense) consists of sublease income and miscellaneous expense unrelated to our core operations. 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 period, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our net operating loss carryforwards and tax credit carryforwards will not be realized. As ofDecember 31, 2019 , we had federal and state net operating loss carryforwards of$87.6 million and$84.9 million , respectively, which may be available to offset future taxable income. The federal net operating loss carryforwards include$12.5 million which expire at various dates beginning in 2035 and$75.1 million which carryforward indefinitely but in some circumstances may be limited to offset 80% of annual taxable income. The state net operating loss carryforwards expire at various dates beginning in 2036. As ofDecember 31, 2019 , we also had federal and state research and development tax credit carryforwards of$1.5 million and$1.2 million , respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2036 and 2031, respectively. Due to our history of cumulative net losses since inception and uncertainties surrounding our ability to generate future taxable income, we have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date.
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended September 30,
2020 2019 Change
(in thousands)
Collaboration revenue $ 179 $ - $ 179
Operating expenses:
Research and development 16,113 11,292 4,821
General and administrative 2,555 1,808 747
Total operating expenses 18,668 13,100 5,568
Loss from operations (18,489 ) (13,100 ) (5,389 )
Other income (expense):
Interest expense (202 ) (113 ) (89 )
Interest income and other income (expense), net 394 121 273
Change in fair value of preferred stock warrant
liability (70 ) - (70 )
Total other income (expense), net 122 8 114
Net loss $ (18,367 ) $ (13,092 ) $ (5,275 )
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Collaboration Revenue
Collaboration revenue recognized during the three months endedSeptember 30, 2020 of$0.2 million was related to our Collaboration Agreement. The upfront payment of$15.0 million was initially recorded as deferred revenue and is being recognized as revenue under the cost-to-cost method.
Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended
Three Months Ended September 30,
2020 2019 Change
(in thousands)
Direct research and development expenses
by program:
FHD-286 $ 1,220 $ 1,092 $ 128
FHD-609 3,300 1,334 1,966
Platform, research and discovery, and
unallocated expenses:
Platform and other early stage research
external costs 3,349 3,489 (140 )
Personnel related (including stock-based
compensation) 4,568 3,609 959
Facility related and other 3,676 1,768 1,908
Total research and development expenses $ 16,113 $ 11,292 $ 4,821
Research and development expenses were $16.1 million for the three months ended
September 30, 2020 , compared to $11.3 million for the three months ended
September 30, 2019 . FHD-609 program costs increased by $2.0 million as a result
of an increase in preclinical and manufacturing costs, partially offset by a
decrease in research costs as we progressed our candidate into IND-enabling
studies. Personnel-related costs increased by $1.0 million due primarily to
increased headcount in our research and development function. The increase in
facility-related expenses and other of $1.9 million was due to the increased
costs of supporting a larger group of research and development personnel and
their research efforts, including increased rent expense related to our new
facility lease, which commenced in January 2020 .
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the
three months ended
Three Months Ended September 30,
2020 2019 Change
(in thousands)
Personnel related (including stock-based
compensation) $ 1,474 $ 1,031 $ 443
Professional and consultant 741 590 151
Facility related and other 340 187 153
Total general and administrative expenses $ 2,555 $ 1,808 $ 747
General and administrative expenses were $2.6 million for the three months ended
September 30, 2020 , compared to $1.8 million for the three months ended
September 30, 2019 . The increase in personnel-related costs of $0.4 million was
primarily a result of an increase in headcount in our general and administrative
function to support our business.
Other Income (Expense)
Interest expense was
Interest income and other income (expense), net was$0.4 million for the three months endedSeptember 30, 2020 and consisted primarily of sublease income of$0.4 million related to the sublease that began inJuly 2020 . Interest income and other income (expense), net of$0.1 million for the three months endedSeptember 30, 2019 consisted primarily of$0.1 million of interest income. 24
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Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended September 30,
2020 2019 Change
(in thousands)
Collaboration revenue $ 179 $ - $ 179
Operating expenses:
Research and development 41,244 30,842 10,402
General and administrative 6,687 5,056 1,631
Total operating expenses 47,931 35,898 12,033
Loss from operations (47,752 ) (35,898 ) (11,854 )
Other income (expense):
Interest expense (658 ) (362 ) (296 )
Interest income and other income
(expense), net 437 424 13
Change in fair value of preferred stock
warrant liability (69 ) - (69 )
Total other income (expense), net (290 ) 62 (352 )
Net loss $ (48,042 ) $ (35,836 ) $ (12,206 )
Collaboration Revenue
Collaboration revenue recognized during the three months ended September 30,
2020 of $0.2 million was related to our Collaboration Agreement. The upfront
payment of $15.0 million was initially recorded as deferred revenue and is being
recognized as revenue under the cost-to-cost method.
Research and Development Expenses
The following table summarizes our research and development expenses for the
nine months ended
Nine Months Ended September 30,
2020 2019 Change
(in thousands)
Research and development program expenses:
FHD-286 $ 4,289 $ 3,935 $ 354
FHD-609 5,269 3,671 1,598
Platform, research and discovery, and
unallocated expenses:
Platform and other early stage research
external costs 9,735 8,996 739
Personnel related (including stock-based
compensation) 12,846 9,251 3,595
Facility related and other 9,105 4,989 4,116
Total research and development expenses $ 41,244 $ 30,842 $ 10,402
Research and development expenses were $41.2 million for the nine months ended
September 30, 2020 , compared to $30.8 million for the nine months ended
September 30, 2019 . The increases in our FHD-286 and FHD-609 program costs of
$0.4 million and $1.6 million , respectively, were due to an increase in
preclinical and manufacturing costs, partially offset by a decrease in research
costs as we progressed our program candidates into IND-enabling studies.
Platform and other early stage research external costs, which include our
selective BRM and selective ARID 1B early-stage programs, increased by
$0.7 million , primarily as a result of an increase in selective BRM costs as a
result of our ongoing hit-to-lead efforts. Personnel-related costs increased by
$3.6 million due primarily to increased headcount in our research and
development function. The increase in facility-related expenses and other of
$4.1 million was due to the increased costs of supporting a larger group of
research and development personnel and their research efforts, including
increased rent expense related to our new facility lease, which commenced in
January 2020 .
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General and Administrative Expenses
The following table summarizes our general and administrative expenses for the
nine months ended
Nine Months Ended September 30,
2020 2019 Change
(in thousands)
Personnel related (including stock-based
compensation) $ 3,946 $ 2,744 $ 1,202
Professional and consultant 1,958 1,760 198
Facility related and other 783 552 231
Total general and administrative expenses $ 6,687 $ 5,056 $ 1,631
General and administrative expenses were $6.7 million for the nine months ended
September 30, 2020 , compared to $5.1 million for the nine months ended
September 30, 2019 . The increase in personnel-related costs of $1.2 million was
a result of an increase in headcount in our general and administrative function
to support our business.
Other Income (Expense)
Interest expense was
Interest income and other income (expense), net was$0.4 million for the nine months endedSeptember 30, 2020 and consisted primarily of sublease income of$0.4 million related to the sublease that began in July 2020.Interest income and other income (expense), net of$0.4 million for the nine months endedSeptember 30, 2019 consisted primarily of$0.4 million of interest income. Interest income decreased from the nine months endedSeptember 30, 2019 to the same period in 2020 as a result of lower invested balances and lower interest rates on invested balances.
Liquidity and Capital Resources
Since our inception inOctober 2015 , we have incurred significant operating losses. We expect to incur significant expenses and operating losses for the foreseeable future as we support our continued research activities and development of our programs and platform. ThroughSeptember 30, 2020 , we have funded our operations with proceeds from sales of preferred stock, term loans and an upfront payment of$15.0 million we received inJuly 2020 under our Collaboration Agreement. As ofSeptember 30, 2020 , we had cash and cash equivalents of$74.6 million . OnOctober 27, 2020 , we completed our IPO pursuant to which we issued and sold 7,500,000 shares of our common stock at a public offering price of$16.00 per share, resulting in net proceeds of$108.0 million , after deducting underwriting discounts and commissions and other offering expenses. OnNovember 19, 2020 , we issued and sold an additional 951,837 shares of common stock at the IPO price of$16.00 per share pursuant to the underwriters' partial exercise of their option to purchase additional shares of common stock, resulting in additional net proceeds of$14.2 million after deducting underwriting discounts and commissions.
Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Nine Months Ended September 30,
2020 2019
(in thousands)
Cash used in operating activities $ (20,631 ) $ (33,151 )
Cash used in investing activities (8,694 ) (836 )
Cash provided by financing activities 88,964 15,469
Net increase (decrease) in cash, cash equivalents
and restricted cash $ 59,639 $ (18,518 )
Operating Activities
During the nine months ended September 30, 2020 , operating activities used
$20.6 million of cash, resulting from our net loss of $48.0 million , partially
offset by net non-cash charges of $6.0 million and net cash provided by changes
in our operating assets and liabilities of $21.4 million . Net cash provided by
changes in our operating assets and liabilities for the nine months ended
September 30, 2020 consisted primarily of a $14.8 million increase in deferred
revenue resulting from the upfront payment received in connection with our
Collaboration Agreement and an $8.9 million increase in operating lease
liabilities resulting from our landlord
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incentives, partially offset by a decrease of
During the nine months endedSeptember 30, 2019 , operating activities used$33.2 million of cash, resulting from our net loss of$35.8 million , partially offset by net non-cash charges of$2.5 million and net cash provided by changes in our operating assets and liabilities of$0.2 million . Net cash provided by changes in our operating assets and liabilities for the nine months endedSeptember 30, 2019 consisted primarily of a$1.5 million increase in accounts payable and accrued expenses and other current liabilities, partially offset by a$0.8 million decrease in operating lease liabilities and an increase of$0.5 million in prepaid expenses and other current assets. Changes in accounts payable, accrued expenses and other current liabilities and prepaid expenses and other current assets in all periods were generally due to growth in our business, the advancement of our research programs and the timing of vendor invoicing and payments.
Investing Activities
During the nine months endedSeptember 30, 2020 and 2019, net cash used in investing activities was$8.7 million and$0.8 million , respectively, due to the acquisition of property and equipment during these periods. Property and equipment purchases for the nine months endedSeptember 30, 2020 were primarily related to leasehold improvements for our new facility inCambridge, Massachusetts .
Financing Activities
During the nine months endedSeptember 30, 2020 , net cash provided by financing activities was$89.0 million , consisting of net proceeds from the sale of our Series B preferred stock of$89.9 million and proceeds from the exercise of common stock options of$0.9 million . These amounts were partially offset by the payment of offering costs of$1.2 million and the repayment of notes payable of$0.5 million . During the nine months endedSeptember 30, 2019 , net cash provided by financing activities was$15.5 million , consisting of net proceeds from the sale of our Series B preferred stock of$15.3 million and proceeds from the exercise of common stock options of$0.2 million .
Loan and Security Agreement with Comerica
As ofSeptember 30, 2020 , we have outstanding loans under our amended loan and security agreement, or the Loan, withComerica Bank , or Comerica, of$6.8 million (Term Loan A) and$7.7 million (Term Loan B). Borrowings under both Term Loan A and Term Loan B are being repaid in monthly payments of equal principal plus interest until the loan maturity date ofFebruary 1, 2023 . Interest for Term Loan A is the greater of (a) Comerica's Prime Rate or (b) LIBOR plus 2.5%, and for Term Loan B, 1.0% plus the greater of (a) Comerica's Prime Rate or (b) LIBOR plus 2.5%. A final payment fee of 3.0% of the aggregate amounts drawn under Term Loan A and 4.0% of the aggregate amounts drawn under Term Loan B, which amounts to$0.5 million , is due upon the earlier of the maturity date, the repayment date if paid early, whether voluntary or upon acceleration due to default, the sale of substantially all of our assets, or our IPO. OnNovember 19, 2020 , the amounts outstanding under this Loan were paid in full with proceeds from a new debt agreement. Borrowings under the Loan, as amended, are collateralized by substantially all of our assets, other than our intellectual property. There are no financial covenants associated with the Loan, as amended; however, we are subject to certain affirmative and negative covenants restricting our activities, including limitations on dispositions, mergers or acquisitions; encumbering our intellectual property; incurring indebtedness or liens; paying dividends; making certain investments; and engaging in certain other business transactions. The obligations under the Loan, as amended, are subject to acceleration upon the occurrence of specified events of default, including a material adverse change in our business, operations or financial or other condition. Upon the occurrence of an event of default and until such event of default is no longer continuing, the annual interest rate will be 5.0% above the otherwise applicable rate. We believe an event of default would be remote.
Loan and Security Agreement with Oxford
OnNovember 19, 2020 , we entered into a new loan and security agreement, or the Oxford Loan, withOxford Finance LLC , or Oxford, for an aggregate principal amount of$20.0 million (Oxford Term Loan A) and up to an additional$5.0 million (Oxford Term Loan B). The Term Loan bears interest at a floating per annum rate equal to the greater of (i) 8.0% and (ii) the sum of (a) thirty-day 27
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U.S. DOLLAR LIBOR rate reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 7.84%. In addition, upon loan maturity or prepayment, we are reqired to make a final payment fee equal to 5.0% of the aggregate principal amount borrowed. We are required to make monthly interest only payments under the Oxford Loan on the first calendar day of each month beginning onJanuary 1, 2021 . Beginning onDecember 1, 2023 , we are required to make consecutive equal monthly payments of principal, together with applicable interest, in arrears, based upon a repayment schedule equal to 24 months, with a final maturity date ofNovember 1, 2025 . Our obligations under the Oxford Loan Agreement will be secured by a security interest in all of our assets, other than our intellectual property. We are also subject to certain affirmative and negative covenants.
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and initiate clinical trials for our product candidates in development. We believe that the net proceeds from our IPO inOctober 2020 , together with our existing cash and cash equivalents, will enable us to fund our operating expenses, capital expenditure requirements and debt service payments into the third quarter of 2022. We have based these estimates as to how long we expect we will be able to fund our operations on assumptions that may prove to be wrong. We could use our available capital resources sooner than we currently expect, in which case we would be required to obtain additional financing, 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 be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. If we are unable to raise sufficient capital as and when needed, we may be required to significantly curtail, delay or discontinue one or more of our research or development programs or the commercialization of any product candidate we may develop, or be unable to expand our operations or otherwise capitalize on our business opportunities. If we raise additional funds through collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to future revenue streams or product candidates or grant licenses on terms that may not be favorable to us.
See "Risk Factors" in our Registration Statement for additional risks associated with our substantial capital requirements.
Contractual Obligations and Commitments
During the three months endedSeptember 30, 2020 , there were no material changes to our contractual obligations and commitments from those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations and Commitments" in our Registration Statement.
Critical Accounting Policies and Significant Judgments and Estimates
We prepare our condensed consolidated financial statements in accordance with GAAP. The preparation of financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from the estimates made by our management. Other than our revenue policy disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Quarterly Report, there have been no material changes to our critical accounting policies and estimates from those disclosed in our financial statements and the related notes and other financial information included in our Registration Statement.
Off-balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have,
any off-balance sheetarrangements, as defined in the rules and regulations of
the
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially
impact our financial position and results of operations is disclosed in Note 2
to our consolidated financial statements appearing elsewhere in this Quarterly
Report.
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