FORMA THERAPEUTICS HOLDINGS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, 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 section entitled "Risk Factors," 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 section entitled "Risk Factors" to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled "Special Note Regarding Forward-Looking Statements." We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Overview
We are a clinical-stage biopharmaceutical company focused on the development and commercialization of novel therapeutics to transform the lives of patients with rare hematologic diseases and cancers. Our drug discovery expertise has generated a pipeline of product candidates focused on indications with significant unmet patient need. Our pipeline consists of four product candidates, two of which we are pursuing for our development, etavopivat for the treatment of sickle cell disease, or SCD, and other hemoglobinopathies, and FT-7051 for the treatment of metastatic castration-resistant prostate cancer, or mCRPC.
Our lead product candidate, etavopivat, is a novel, oral, once-daily,
potentially disease-modifying therapy initially being studied for the treatment
of SCD. SCD, one of the most common single-gene disorders in the world, is a
chronic hemolytic anemia that affects hemoglobin, the iron-containing protein in
red blood cells, or RBCs, that delivers oxygen to cells throughout the body. SCD
is often characterized by low hemoglobin levels, painful vaso-occlusive crises,
or VOCs, progressive multi-organ damage and early death. Etavopivat is a potent
activator of pyruvate kinase-R, or PKR, designed to improve RBC metabolism,
function and survival, and potentially resulting in both increased hemoglobin
levels and reduced VOCs. We are completing our evaluation of etavopivat in a
multi-center, placebo-controlled Phase I trial in SCD patients ages 12 years and
older. Based on the results of the Phase I trial, we opened a global pivotal
Phase II/III trial, which we refer to as the Hibiscus Study, in SCD patients in
late 2020 and began enrolling patients in the first quarter of 2021. In
Our product candidate, FT-7051, is a potent and selective inhibitor of
CREB-binding protein/E1A binding protein p300, or CBP/p300, in clinical
development for the treatment of mCRPC. Prostate cancer is reported as the
second and third leading cause of cancer death for men in
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We continue to plan to pursue a strategic partner for the further development
and potential commercialization of our compound, olutasidenib, a selective
inhibitor of mutant isocitrate dehydrogenase 1, or mIDH1. IDH1 mutations have
been shown to be oncogenic for patients with acute myeloid leukemia, or AML, and
glioma. We have successfully completed a registrational Phase II trial for
olutasidenib in relapsed / refractory acute myeloid leukemia, or R/R AML. In
Additionally, we licensed exclusively two programs each to
In 2021, we ceased development of our compound FT-8225, a targeted FASN inhibitor for possible treatment of non-alcoholic steatohepatitis.
Since our founding in 2007, we have devoted substantially all of our resources
to the research and development of our drug discovery technology, developing our
pipeline, building our intellectual property portfolio and raising capital. To
date, we have financed our operations primarily with proceeds from our license
and collaboration agreements, through the issuance and sale of our preferred
shares and preferred stock to outside investors, the completion of our initial
public offering, or IPO, in
On
On
On
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offering, issuance and sale of up to an aggregate amount of
To date, we have not had any products approved for sale and have not generated
any revenue from product sales, and do not expect to do so for several years, if
at all. All of our programs are still in preclinical or clinical development.
Our ability to generate product revenue will depend on the successful
development and eventual commercialization of one or more of our product
candidates. Since our inception, all of our revenue has been generated from our
license and collaboration agreements with third parties. We have experienced
periods of both income and loss and positive and negative cash flows from
operations since inception. Our net loss was
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complete preclinical studies, initiate and complete clinical trials for product candidates;
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proceed with finalizing our evaluation of our Phase I clinical trial for etavopivat for the treatment of SCD;
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continue our registration-enabling, global pivotal Phase II/III clinical trial of etavopivat in SCD patients;
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initiate our planned clinical trial of etavopivat in patients with thalassemia;
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continue enrollment in our Phase I study for FT-7051 for the treatment of mCRPC;
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contract to manufacture our product candidates;
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advance research and development related activities to expand our product pipeline;
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seek regulatory approval for our product candidates that successfully complete clinical development;
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develop and scale up our capabilities to support our ongoing preclinical activities and clinical trials for our drug candidates and commercialization of any of our drug candidates for which we obtain marketing approval;
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maintain, expand, enforce, defend and protect our intellectual property portfolio;
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hire additional staff, including clinical, scientific and management personnel;
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continue to take temporary precautionary measures to help minimize the risk of
the coronavirus disease, or COVID-19, pandemic including new variants, to our
employees and patients
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secure facilities to support continued growth in our research, development and commercialization efforts; and
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incur costs associated with our continued operations as a public company.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain marketing approval for our drug candidates. Business interruptions resulting from the coronavirus outbreak or similar public health crises have and could continue to cause a disruption of the development of our product candidates and our business. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.
The lengthy process of securing marketing approvals for new drugs requires the expenditure of substantial resources. Any delay or failure to obtain regulatory approvals would materially adversely affect our product candidate development efforts and our business overall. Given the inherent uncertainties of pharmaceutical product development, we cannot estimate with any degree of certainty the likelihood, timing or cost of obtaining regulatory approval and marketing our product candidates.
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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 equity offerings, debt financings or other capital sources, including collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other collaboration agreements or strategic transactions 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 delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.
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 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.
We have determined that our cash, cash equivalents and marketable securities of
COVID-19 Pandemic
In
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Financial Operations Overview
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 foreseeable future.
Historically, our revenue has been primarily derived from collaboration
agreements to discover, develop, and commercialize drug candidates. Our
collaboration arrangements with Celgene Corporation were all terminated in
Operating Expenses
Research and Development Expense
Research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates, including the conduct of preclinical and clinical studies and product development, which are expensed as they are incurred. These expenses consist primarily of:
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compensation, benefits, including equity-based compensation, and other employee related expenses;
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research and development related facility and depreciation costs;
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supplies to support our internal research and development efforts; and
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third-party contract costs relating to research, process and formulation development, preclinical and clinical studies and regulatory operations.
We track direct research and development expenses, consisting principally of external costs, such as costs associated with CROs and manufacturing of preclinical and clinical drug product and other outsourced research and development expenses to specific product programs once a product candidate has been selected. We do not allocate internal research and development expenses consisting of employee and contractor-related costs, costs associated with our research and facility expenses, including depreciation or other indirect costs, to specific product candidate programs because these costs are deployed across multiple product candidate programs under research and development and, as such, are separately classified. The table below summarizes our research and development direct expenses for non-partnered product candidates and both external and internal costs for partnered programs and those costs that were unallocated to programs for the periods presented (in thousands):
YEAR ENDED DECEMBER 31,
2021 2020
Etavopivat $ 46,380 $ 31,375
FT-7051 5,247 4,295
Olutasidenib 17,340 21,355
FT-8225 85 1,333External predevelopment and unallocated expenses 11,246 5,898 Internal research and development expenses
45,363 29,111
$ 125,661 $ 93,367 We invest carefully in our pipeline, and the commitment of funding for each subsequent stage of our development programs is dependent upon the receipt of clear, supportive data. We anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each
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program on an ongoing basis in response to the scientific and clinical data of each product candidate, as well as the competitive landscape and ongoing assessments of such product candidate's commercial potential. We expect our research and development costs will be substantial for the foreseeable future. We expect costs associated with etavopivat and FT-7051 programs to increase as the programs progress through clinical development. We expect costs associated with olutasidenib to decrease over time, as the ongoing clinical trials for olutasidenib in AML and solid tumors progress towards completion. We do not anticipate significant future costs for FT-8225 since we ceased development in 2021.
At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:
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our ability to add and retain key research, pharmaceutical sciences and development personnel;
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our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize etavopivat and FT-7051;
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our successful enrollment in and completion of clinical trials, including our ability to generate positive data from any such clinical trials;
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the costs associated with the development of any additional development programs we identify in-house or acquire through collaborations or other arrangements;
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our ability to discover, develop and utilize biomarkers to demonstrate target engagement, pathway engagement and the impact on disease progression, as applicable, of our product candidates;
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our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing;
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our ability to forecast and meet supply requirements for clinical trials and commercialized products using third-party manufacturers;
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the terms and timing of any additional collaboration, license or other arrangement, including the terms and timing of any payments thereunder;
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the ability to develop and obtain clearance or approval of companion diagnostic tests, if required, on a timely basis, or at all;
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obtaining and maintaining third-party coverage and adequate reimbursement, if etavopivat or FT-7051 is approved;
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acceptance of our lead product candidates, if and when approved, by patients, the medical community and third-party payors;
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effectively competing with other therapies, if etavopivat or FT-7051 is approved;
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our ability to obtain and maintain patent, trade secret and other intellectual property protection for etavopivat and FT-7051 and regulatory exclusivity for etavopivat and FT-7051 if and when approved;
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our receipt of marketing approvals for etavopivat and FT-7051 from applicable regulatory authorities; and
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the continued acceptable safety profiles of our lead products following approval.
A change in any of these variables with respect to any of our programs would significantly change the costs, timing and viability associated with that program.
General and Administrative Expense
General and administrative expense consists primarily of salaries and other related costs, including equity-based compensation, for personnel in our executive, finance, legal, business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other
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operating costs. These costs relate to the operation of the business, unrelated to the research and development function, or any individual program.
Our general and administrative expenses may increase in the future as our
organization and headcount needed to support our research and development
activities grows and the potential commercialization of our product candidates,
if approved. We also expect to incur increased expenses associated with being a
public company, including increased costs of accounting, audit, legal,
regulatory and tax-related services associated with maintaining compliance with
exchange listing and
Restructuring Charges
Restructuring charges consist of termination costs, including employee
severance, health benefits, and outplacement services, incurred as a result of
our
Gain on Hit Discovery Divestiture
Gain on Hit Discovery divestiture consists of the gain recognized on the
divestiture of our hit discovery capabilities, or Hit Discovery, to
Interest Income
Interest income consists of interest generated from our cash, cash equivalents
and marketable securities, amortization and accretion of purchase premiums and
discounts associated with our investments, and the accretion of the carrying
value of the installment receivable from the divestiture of our Hit Discovery
capabilities to
Other Income (Expense), Net
Other income (expense), net primarily consists of gains and losses recognized from recording our warrants at fair value and a gain on the modification of an operating lease.
Income Taxes
On
Income tax expense is comprised of domestic (US federal and state) income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits, and other permanent differences. Due to our full valuation allowance, our income tax provision is not likely to be materially affected by changes to our estimates.
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Results of Operations
Comparison of the Years Ended
The following table summarizes our consolidated statements of operations for each period presented (in thousands):
YEAR ENDED DECEMBER 31, CHANGE
2021 2020 $
Collaboration revenue $ - $ - $ -
Operating expenses:
Research and development 125,661 93,367 32,294
General and administrative 48,325 30,782 17,543
Restructuring charges - 63 (63 )
Total operating expenses 173,986 124,212 49,774
Loss from operations (173,986 ) (124,212 ) (49,774 )
Other income:
Gain on Hit Discovery divestiture - 23,312 (23,312 )
Interest income 1,054 3,428 (2,374 )
Other income (expense), net 122 (2,661 ) 2,783
Total other income, net 1,176 24,079 (22,903 )
Loss before taxes (172,810 ) (100,133 ) (72,677 )
Income tax expense (benefit) 154 (29,719 ) 29,873
Net loss $ (172,964 ) $ (70,414 ) $ (102,550 )
Collaboration Revenue
There was no collaboration revenue for the years ended
Research and Development Expense
The following table summarizes our research and development expenses for each period presented (in thousands):
YEAR ENDED DECEMBER 31, CHANGE
2021 2020 ($)
Etavopivat $ 46,380 $ 31,375 $ 15,005
FT-7051 5,247 4,295 952
Olutasidenib 17,340 21,355 (4,015 )
FT-8225 85 1,333 (1,248 )
External predevelopment and unallocated expenses 11,246 5,898 5,348
Internal research and development expenses 45,363 29,111 16,252
Total research and development expense $ 125,661 $ 93,367 $ 32,294 Research and development expense increased by
The increase in research and development expense was primarily attributable to a
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General and Administrative Expense
General and administrative expense increased by approximately
The increase in general and administrative expense was primarily attributable to
a
Restructuring Charges
In the year ended
Gain on Hit Discovery divestiture
For the year ended
Interest Income
Interest income decreased by approximately
Other Income (Expense), Net
Other income (expense), net increased by
Income Taxes
For the year ended
Liquidity and Capital Resources
Sources of Liquidity
To date, we have financed our operations primarily with proceeds from our
license and collaboration agreements, through the issuance and sale of our
preferred shares and preferred stock to outside investors and completion of our
IPO and follow-on public offering. From inception through
Continued cash generation is highly dependent on our ability to establish new third-party collaborators, through out-licensing of assets and from potential milestones from existing out-licensed programs with
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Bristol-Myers Squibb and
Cash Flows
The following table summarizes our sources and uses of cash for each period presented (in thousands):
YEAR ENDED DECEMBER 31,
2021 2020
Net cash (used in) provided by:
Operating activities $ (149,787 ) $ (95,418 )
Investing activities (55,375 ) (345,821 )
Financing activities (459 ) 552,602
Net (decrease) increase in cash, cash equivalents and
restricted cash $ (205,621 ) $ 111,363
Operating Activities
Our cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support the business. We have historically experienced negative cash flows from operating activities as we invested in developing our platform, drug discovery efforts and related infrastructure.
Net cash used in operating activities increased by approximately
Investing Activities
Net cash used in investing activities decreased by approximately
Financing Activities
For the year ended
Plan of Operation and Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance the preclinical and clinical activities of our programs. If we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution, which costs we might offset through entry into collaboration agreements with third parties. In addition, as a
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result of the completion of the IPO, we expect to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows in the foreseeable future.
As of
Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may receive payments under collaboration arrangements or enter into collaborations with third parties is unknown, we may incorrectly estimate the timing and amounts of operating expenses and capital expenditures. Our future capital requirements will depend on many factors, including, but not limited to:
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the scope, progress, results and costs of preclinical studies and clinical trials for our programs;
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the number and characteristics of programs and technologies that we develop or may in-license;
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the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;
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the costs necessary to obtain regulatory approvals, if any, for products in
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the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
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the continuation of our existing licensing arrangements and entry into new collaborations and licensing arrangements;
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the costs we incur in maintaining business operations;
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the costs associated with being a public company;
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the revenue, if any, received from commercial sales of any product candidates for which we receive marketing approval;
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the effect of competing technological and market developments;
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the impact of any business interruptions to our operations or to those of our manufacturers, suppliers, or other vendors resulting from the COVID-19 pandemic or similar public health crisis; and
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the extent to which we acquire or invest in businesses, products and technologies, including entering into licensing or collaboration arrangements for programs.
Identifying potential product candidates and conducting preclinical studies and clinical trials is a time consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.
Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution, or licensing arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Market volatility resulting from the COVID-19 pandemic or other factors could also adversely impact our ability to access capital as and when needed. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Additional debt financing and
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preferred equity offerings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially result in dilution to the holders of our common stock.
If we raise additional funds through strategic collaborations or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity offerings or debt financings when needed, we may be required to delay, limit or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.
In
In
Other Obligations
We have agreements with certain vendors for various services, including services related to preclinical and clinical operations and support, for which we are not contractually able to terminate for convenience and avoid any and all future obligations to the vendors. Certain agreements provide for termination rights subject to termination fees or wind-down costs. Under such agreements, we are contractually obligated to make certain payments to vendors, mainly, to reimburse them for their unrecoverable outlays incurred prior to cancellation. The exact amounts of such obligations are dependent on the timing of termination, and as such cannot be reasonably estimated.
In addition, we enter into standard indemnification agreements and agreements containing indemnification provisions in the ordinary course of business. Pursuant to these agreements, we indemnify and agree to reimburse the indemnified party for losses and other costs incurred by the indemnified party, generally our customers. The term of these indemnification agreements is generally perpetual upon execution of the agreement. The maximum potential amount of future payments we could be required to make under these indemnification agreements cannot be reasonably estimated.
Critical Accounting Policies and Significant Judgments and Estimates
Our 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 with generally accepted accounting principles in
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and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.
Research and Development Expenses and Related Accruals
Research and development costs are charged to operations in the period incurred and include internal and external costs incurred in performing research and development activities in connection with the discovery and development of product candidates. Such expenses primarily consist of personnel costs, including compensation, benefits and other related expenses, equity-based compensation, clinical supplies, research and development facilities and related expenses, and third-party contract costs relating to research, process and formulation development, preclinical and clinical studies and regulatory operations.
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. In circumstances where amounts have been paid in excess of costs incurred, we record a prepaid expense. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with our service providers and make adjustments if necessary.
We base the expense recorded related to contract research and manufacturing activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple vendors that supply materials and conduct services. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Equity-Based Compensation
Prior to the IPO, the estimated fair value of our common securities underlying stock-based awards had been determined by our board of directors as of the date of each award grant, with input from management, considering our most recently available third-party valuations of common securities. Such valuations included a number of judgements and assumptions which significantly affected the outcome of the estimated fair value of our common securities, including a discount for lack of an active public market, our results of operations, financial position and status of our research and development efforts, material business risks and strategies, likelihood of a liquidity event such as an IPO or sale of the company, and current conditions in the public markets, among others. Subsequent to the IPO, the fair value of our
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common stock underlying the stock-based awards, which include stock options and restricted stock units, is based on the quoted market price of our common stock on the grant date. We estimate the fair value of our stock options utilizing the Black-Scholes option pricing model, which is affected by our stock price and certain estimates by management, including expected stock price volatility, expected term of the award, the risk-free rate and expected dividends.
Expected Term-We use the "simplified method" for estimating the expected term, whereby the expected term is presumed to be the midpoint between the vesting date and the end of the contractual term of the stock options (generally 10 years).
Expected Volatility-Expected volatility is calculated based on reported volatility data for a representative group of publicly traded companies for which historical information is available. We select companies with comparable characteristics to us with historical share price information that approximates the expected term of the stock options. We compute the historical volatility data using the daily closing prices for the selected companies' shares during the equivalent period that approximates the calculated expected term of the stock options. We will continue to apply this method until a sufficient amount of historical information regarding the volatility of our stock price becomes available.
Risk-Free Rate-The risk-free rate is based on the
Expected Dividend-We do not expect to issue dividends on common stock over the life of the stock options. As a result, we have estimated the dividend yield to be zero.
For awards with service-based vesting conditions, we recognize equity-based compensation expense on a straight-line basis over the vesting period. For awards subject to performance conditions, we recognize equity-based compensation expense using an accelerated recognition method over the remaining service period when we determine the achievement of the performance condition is probable. We account for forfeitures as they occur.
The assumptions underlying these valuations represent management's best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation expense could be materially different.
Recently Issued Accounting Pronouncements
We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, such standards will not have a material impact on our consolidated financial statements or do not otherwise apply to our operations.
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