ICOSAVAX, INC. The following discussion and analysis and the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q (Quarterly Report) should be read in conjunction with the financial statements and notes thereto for the year endedDecember 31, 2021 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Annual Report on Form 10-K (Annual Report), filed with theSecurities and Exchange Commission (SEC), onMarch 30, 2022 .
Forward-Looking Statements
This Quarterly Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the Securities Act), and
Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange
Act). All statements other than statements of historical facts contained in this
Quarterly Report, including statements regarding our future results of
operations and financial position, business strategy, research and development
plans, the potential of our technology, the anticipated timing, costs, design,
conduct and results of our ongoing and planned preclinical studies and clinical
trials for our vaccine candidates, the timing and likelihood of regulatory
filings and approvals for our vaccine candidates, our ability to commercialize
our vaccine candidates, if approved, the pricing and reimbursement of our
vaccine candidates, if approved, the potential benefits of strategic
collaborations and our intent to enter into any strategic arrangements, the
timing and likelihood of success, plans and objectives of management for future
operations, and future results of anticipated vaccine development efforts, are
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other important factors that may cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
statements.
In some cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "expect," "plan," "anticipate," "could," "intend,"
"target," "project," "contemplates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms or other similar
expressions. The forward-looking statements in this Quarterly Report are only
predictions. We have based these forward-looking statements largely on our
current expectations and projections about future events and financial trends
that we believe may affect our business, financial condition and results of
operations. These forward-looking statements speak only as of the date of this
Quarterly Report and are subject to a number of risks, uncertainties and
assumptions, including those described in Part II, Item 1A, "Risk Factors" of
this
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Quarterly Report. The events and circumstances reflected in our forward-looking
statements may not be achieved or occur and actual results could differ
materially from those projected in the forward-looking statements. Moreover, we
operate in an evolving environment. New risk factors and uncertainties may
emerge from time to time, and it is not possible for management to predict all
risk factors and uncertainties. Except as required by applicable law, we do not
plan to publicly update or revise any forward-looking statements contained
herein, whether as a result of any new information, future events, changed
circumstances or otherwise.
Overview
We are a biopharmaceutical company leveraging our innovative virus-like particle (VLP) platform technology to develop vaccines against infectious diseases, with an initial focus on life-threatening respiratory diseases. Our VLP platform technology is designed to enable multivalent, particle-based display of complex viral antigens, which we believe will induce broad, robust, and durable protection against the specific viruses targeted. Our pipeline includes vaccine candidates targeting some of the most prevalent viral causes of pneumonia. We are developing these candidates for older adults, a patient population with high unmet need. Our vaccine candidate IVX-A12 is a bivalent candidate, or a mixture of two different VLP candidates. IVX-A12 combines IVX-121, a vaccine candidate designed to target respiratory syncytial virus (RSV), and IVX-241, a vaccine candidate designed to target human metapneumovirus (hMPV). There are currently no approved vaccines that target both RSV and hMPV, and our IVX-A12 combination is the first bivalent vaccine candidate against both RSV and hMPV to reach clinical stage, as well as the only clinical stage VLP in this space. RSV and hMPV are highly prevalent respiratory pathogens that occur seasonally. Based on the EPIC epidemiological study published in 2015, RSV and hMPV were two of the five most common pathogens causing pneumonia in adults, after human rhinovirus, influenza, and pneumococcus. In older adults, RSV is estimated to cause approximately 177,000 hospitalizations and 14,000 deaths each year inthe United States alone, and data support similar morbidity and mortality for hMPV. Given the lack of a combination RSV and hMPV vaccine, and the current size of vaccines markets such as pneumococcal and influenza, we believe this represents an important unmet need and large commercial opportunity. InJune 2022 , we announced positive topline interim results from our Phase 1/1b clinical trial of IVX-121 in young and older adults. These topline interim data showed that IVX-121 induced a robust immune response, consistent across both young and older adult groups, and including at the lowest non-adjuvanted dose tested and was generally well-tolerated across all dosage groups. InAugust 2022 , we submitted an investigational new drug application (IND) for IVX-A12 to theU.S. Food and Drug Administration (FDA). We received authorization to proceed from the FDA and inOctober 2022 , we announced initiation of a Phase 1 clinical trial, with topline interim data expected in mid-2023. We are also conducting a Phase 1b extension study for IVX-121, in which a subset of older adults from the Phase 1b cohort will be followed out to 12 months to assess durability of response, with 6-month immunogenicity data expected by early 2023, and 12-month immunogenicity data expected in mid-2023. We are developing additional vaccine candidates as part of our strategy to develop combination VLP vaccines targeting the viral causes of pneumonia in older adults. We are focused on a bivalent strategy for our COVID-19 vaccine candidate development, with optionality to include such a candidate as a potential component of our combination VLP vaccines. We have also licensed the rights to develop and commercialize an influenza VLP vaccine from theUniversity of Washington (UW) and have an emerging flu program. We expect to select a vaccine candidate to advance into clinical development for both the COVID-19 bivalent program and the influenza program in 2023. We commenced our operations in 2017 and have devoted substantially all of our resources to date to organizing and staffing our company, business planning, raising capital, in-licensing intellectual property rights, developing vaccine candidates, scaling up manufacturing of vaccine candidates, and preparing for and conducting preclinical studies and clinical trials. Our operations to date have been funded primarily through the sale and issuance of convertible preferred stock and our common stock, generating net proceeds of$340.2 million . InAugust 2021 , we completed our initial public offering (IPO) with the sale of 13,953,332 shares of common stock at an IPO price of$15.00 per share with net proceeds of$190.7 million , which included the exercise in full by the underwriters of their option to purchase 1,819,999 additional shares. Prior to our IPO, we had funded our operations primarily through the sale of convertible preferred stock and had previously raised$149.5 million in net proceeds. As ofSeptember 30, 2022 , we had cash, cash equivalents, restricted cash, and short-term investments of$222.5 million . We have incurred significant operating losses since inception. Our net loss for the nine months endedSeptember 30, 2022 was$68.1 million . As ofSeptember 30, 2022 , we had an accumulated deficit of$162.2 million . Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical development 23 -------------------------------------------------------------------------------- activities, other research and development activities and capital expenditures. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate our expenses will increase substantially as we seek to advance our vaccine candidates through preclinical and clinical development, expand our research and development activities, develop new vaccine candidates, complete clinical trials, seek regulatory approval and, if we receive regulatory approval, commercialize our products, as well as hire additional personnel, and protect our intellectual property. Based on our current operating plan, we believe that our existing cash and restricted cash will be sufficient to fund our operations through at least 2024. We have never generated any revenue from product sales and do not expect to generate any revenues from product sales unless and until we successfully complete development of and obtain regulatory approval for our vaccine candidates, which will not be for multiple years, if ever. 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 sales of our vaccine candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potential collaborations, licenses, and other similar arrangements. However, we may not be able to raise additional funds or enter into such other arrangements when needed or on favorable terms, or at all. If we are unable to raise additional capital or enter into such arrangements when needed, we could be forced to delay, limit, reduce or terminate our research and development programs or future commercialization efforts, or grant rights to develop and market our vaccine candidates to third parties where we might otherwise prefer to develop and market such vaccine candidates ourselves.
Components of Results of Operations
Grant Revenue
To date, we have not generated any revenues from the commercial sale of approved products, and we do not expect to generate revenues from the commercial sale of our vaccine candidates for at least the foreseeable future, if ever. For the three and nine months endedSeptember 30, 2022 and 2021, revenue was derived from theSeptember 2020 grant agreement (the Grant Agreement) with theBill & Melinda Gates Foundation (BMGF), pursuant to which BMGF awarded a grant totaling up to$10.0 million in support of our development of our IVX-411 COVID-19 vaccine for pandemic use. The Grant Agreement terminated in accordance with its terms onMarch 31, 2022 . Operating Expenses Research and Development Research and development expenses consist primarily of external and internal costs related to the development of vaccine candidates. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. External costs include: • expenses incurred in connection with outsourced research and preclinical studies; • expenses incurred in connection with conducting clinical trials and site payments for time and pass-through expenses and expenses incurred under agreements with CROs, other vendors, or service providers engaged to conduct our trials; • expenses incurred in connection with manufacturing of our vaccine candidates and related intermediates under agreements with contract development and manufacturing organizations or other service providers; • the cost of consultants engaged in research and development related services and the cost to manufacture vaccine candidates for use in our preclinical studies and clinical trials; • costs related to regulatory compliance; and • the cost of annual license fees and milestone payments under our license agreements. Internal costs include: • employee-related expenses, including salaries, related benefits, travel and stock-based compensation expenses for employees engaged in research and development functions; • facilities, depreciation and other expenses, which include allocated expenses for rent and maintenance of facilities, insurance, laboratory consumables and supplies. 24
-------------------------------------------------------------------------------- Research and development activities are central to our business model. There are numerous factors associated with the successful development and regulatory approval of any of our vaccine candidates, including future trial design and various regulatory requirements, as well as the safety, immunogenicity and efficacy of our vaccine candidates, which cannot be determined with accuracy at this time. We may never succeed in obtaining regulatory approval for any of our vaccine candidates. Vaccine 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. At this time, 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 vaccine candidates. In addition, we cannot forecast which vaccine candidates may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements. However, we expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the near term and in the future. Our future development costs may vary significantly based on factors such as: • the number and scope of preclinical and regulatory filing-enabling studies; • the number of trials required for approval; • the number of sites included in the trials; • the countries in which the trials are conducted; • the length of time required to enroll eligible subjects; • the number of subjects that participate in the trials; • the number of doses evaluated in the trials; • the costs and timing of manufacturing our vaccine candidates; • the drop-out or discontinuation rates of clinical trial subjects; • potential additional safety monitoring requested by regulatory agencies; • the duration of subject participation in the trials and follow-up; • the phase of development of the vaccine candidate; • the impact of any interruptions to our operations or to those of the third parties with whom we work due to the COVID-19 pandemic and any associated supply chain disruption and staffing shortages; • the rate of inflation; and • the immunogenicity, efficacy and safety profile of the vaccine candidate.
General and Administrative
General and administrative expenses consist of personnel-related costs, including salaries, payroll taxes, employee benefits, and stock-based compensation charges for personnel in executive, finance and other administrative functions. Other significant costs include facility-related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, and insurance costs. We anticipate that our general and administrative expenses will increase substantially for the foreseeable future to support our continued research and development activities, pre-commercial preparation activities for our vaccine candidates, and, if any vaccine candidate receives marketing approval, commercialization activities. We also anticipate increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing andSEC requirements, director and officer insurance premiums, and investor relations costs associated with operating as a growing public company.
Change in Fair Value of Derivative Liability
We issued a convertible promissory note inAugust 2020 . We bifurcated certain embedded features that were required to be accounted for separately as a single derivative liability. The initial recognition of the fair value of the derivative resulted in a reduction to the carrying value of the convertible promissory note, a discount which is then amortized to interest expense over the term of the note. We adjusted the carrying value of the derivative liability to its estimated fair value at each reporting date, with any related changes in fair value recorded as change in fair value of derivative liability in our statements of operations and comprehensive loss. The convertible promissory note converted into 2,805,850 shares of our Series B-2 convertible preferred stock inMarch 2021 . Prior to the conversion of the convertible promissory note into our Series B-2 convertible preferred stock inMarch 2021 , the fair value of the derivative liability was estimated using a scenario-based analysis comparing the probability-weighted present value of the convertible promissory note payoff at maturity with and without the bifurcated features, considering possible outcomes available to the noteholders, including various financing dissolution scenarios. 25 --------------------------------------------------------------------------------
Loss on Extinguishment of Convertible Promissory Note
We recorded a loss on extinguishment of convertible promissory note of$0 and$0.8 million during the three and nine months endedSeptember 30, 2021 , respectively, in connection with the conversion of our convertible promissory note issued inAugust 2020 . See Note 7 to the unaudited condensed financial statements included in this Quarterly Report for more information on this transaction.
Interest and Other Income (Expense)
Interest income consists of interest income earned on short-term investments in debt securities and interest bearing demand accounts.
Interest expense consisted of interest on our outstanding convertible promissory note at a per annum interest rate of 6.0% and non-cash interest expense related to discount amortization prior to its conversion into shares of our Series B-2 convertible preferred stock inMarch 2021 .
Results of Operations
Comparison of the Three and Nine Months Ended
The following table summarizes our results of operations for the three and nine
months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 Change 2022 2021 Change
Grant revenue $ - $ 1,827 $ (1,827 ) $ 582 $ 5,732 $ (5,150 )
Operating expenses:
Research and development 15,484 10,883 4,601 49,217 24,713 24,504
General and administrative 7,659 25,357 (17,698 ) 21,292 28,669 (7,377 )
Total operating expenses 23,143 36,240 (13,097 ) 70,509 53,382 17,127
Loss from operations (23,143 ) (34,413 ) 11,270 (69,927 ) (47,650 ) (22,277 )
Other income (expense)
Change in fair value of
embedded derivative
liability - - - - (205 ) 205
Loss on extinguishment of
convertible promissory note - - - - (754 ) 754
Interest and other 1,167 27 1,140 1,782 (180 ) 1,962
Total other income
(expense) 1,167 27 1,140 1,782 (1,139 ) 2,921
Net loss $ (21,976 ) $ (34,386 ) $ 12,410 $ (68,145 ) $ (48,789 ) $ (19,356 )
Grant Revenue
We recognized revenue from the Grant Agreement of $0 and $0.6 million for the
three and nine months ended September 30, 2022 , respectively, compared to $1.9
million and $5.8 million for the three and nine months ended September 30, 2021 ,
respectively. We had received the full $10.0 million in funding under the Grant
Agreement as of December 31, 2021 , and through September 30, 2022 , we have
recognized $10.0 million in revenue since the inception of the Grant Agreement.
Research and Development Expenses
Research and development expenses were$15.5 million for the three months endedSeptember 30, 2022 , compared to$10.9 million for the three months endedSeptember 30, 2021 . The increase of$4.6 million was due to a$1.9 million increase in direct costs related to clinical development, a$1.3 million increase in personnel related expenses due to increased headcount to support our development activities, a$1.1 million increase related to non-cash stock-based compensation expense, and a$0.5 million increase in other expenses, offset by a$0.2 million decrease in direct costs related to manufacturing and preclinical development. 26
-------------------------------------------------------------------------------- For the nine months endedSeptember 30, 2022 , research and development expenses were$49.2 million , compared to$24.7 million for the nine months endedSeptember 30, 2021 . The increase of$24.5 million was due to a$8.1 million increase in direct costs related to manufacturing and preclinical development, a$6.0 million increase in direct costs related to clinical development, a$4.5 million increase related to non-cash stock-based compensation expense, a$4.5 million increase in personnel related expenses due to increased headcount to support our development activities, and a$1.3 million increase in other expenses. We track outsourced development, outsourced personnel costs and other external research and development costs of specific programs. We do not track our internal research and development costs, which include but are not limited to personnel and facilities costs, on a program-by-program basis. Research and development expenses are summarized by program in the table below (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 RSV-hMPV$ 7,382 $ 2,800 $ 20,974 $ 8,471 SARS-CoV-2 865 4,209 7,853 9,651 Internal costs and unallocated research and development expense 7,237 3,874 20,390 6,591 Total research and development expense$ 15,484 $ 10,883 $ 49,217 $ 24,713
General and Administrative Expenses
General and administrative expenses were$7.7 million for the three months endedSeptember 30, 2022 , compared to$25.4 million for the three months endedSeptember 30, 2021 . The decrease of$17.7 million consisted of lower non-cash stock-based compensation expense of$19.4 million , due to$21.0 million recognized in 2021 for the modification of stock options accelerated in connection with the death of our former Chairman, offset by increased personnel-related expenses of$0.8 million , increased professional services, including audit and legal fees, of$0.3 million , increased insurance costs of$0.2 million , and increased other expenses of$0.4 million . For the nine months endedSeptember 30, 2022 , general and administrative expenses were$21.3 million , compared to$28.7 million for the nine months endedSeptember 30, 2021 . The decrease of$7.4 million consisted of lower non-cash stock-based compensation expense of$14.3 million , due to$21.0 million recognized in 2021 for the modification of stock options accelerated in connection with the death of our former Chairman, offset by increased personnel-related expenses of$2.9 million , increased professional services, including audit and legal fees, of$1.7 million , increased insurance costs of$1.2 million , and increased other expenses of$1.1 million
Other Income (Expense)
Other income (expense) was income of
Other income (expense) was income of$1.8 million for the nine months endedSeptember 30, 2022 , compared to$1.1 million of expense for the nine months endedSeptember 30, 2021 . The$2.0 million change was the result of a loss on extinguishment of convertible promissory note of$0.8 million in 2021, a loss recognized on the change in fair value of derivative liability of$0.2 million in 2021, and net interest income of$1.8 million in 2022 compared to net interest expense of$0.2 million in 2021.
Liquidity and Capital Resources
We have incurred significant operating losses since our inception and anticipate we will continue to incur significant operating losses for the foreseeable future as we continue to develop our current and future vaccine candidates, and we may never become profitable. Since our inception, we have funded our operations primarily through the sale of our convertible preferred stock and common stock. InAugust 2021 , we completed our IPO with the sale of 13,953,332 shares of common stock, which included the exercise in full by the underwriters of their option to purchase 1,819,999 additional shares, at an IPO price of$15.00 per share with net proceeds of$190.7 million . Prior to our IPO, we had funded our operations primarily through the sale of convertible preferred stock and had previously raised$149.5 million in net 27 -------------------------------------------------------------------------------- proceeds. As ofSeptember 30, 2022 , we had cash, cash equivalents, restricted cash, and short-term investments of$222.5 million and an accumulated deficit of$162.2 million . InAugust 2022 , we entered into the Equity Distribution Agreement withOppenheimer & Co. Inc. (the "Agent"), pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to$150 million from time to time, in "at the market" offerings through the Agent. Sales of the shares of common stock, if any, will be made at prevailing market prices at the time of sale, or as otherwise agreed with the Agent. There have been no shares of our common stock sold under the Equity Distribution Agreement as ofSeptember 30, 2022 . Funding Requirements Based on our current operating plan we believe that our existing cash and restricted cash will be sufficient to meet our anticipated operating expenses and capital expenditures through at least 2024. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing vaccine candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain. Our future capital requirements will depend on many factors, including: ? the initiation, type, number, scope, results, costs and timing of, our ongoing and planned clinical trials and preclinical studies or clinical trials of other potential vaccine candidates we may choose to pursue in the future, including feedback received from regulatory authorities; ? the costs and timing of manufacturing for current or future vaccine candidates, including commercial scale manufacturing if any vaccine candidate is approved; ? the costs, timing and outcome of regulatory review of current or future vaccine candidates; ? any delays and cost increases that may result from the COVID-19 pandemic or supply chain and staffing issues; ? the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights; ? our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting; ? the costs associated with hiring additional personnel and consultants as our business grows, including additional executive officers and research, clinical development and manufacturing personnel; ? the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements; ? the timing and amount of the milestone or other payments we must make to current and future licensors; ? the costs and timing of establishing or securing sales and marketing capabilities if a current or future vaccine candidate is approved; ? our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products; ? patients' willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors; and ? costs associated with any products or technologies that we may in-license or acquire.
Our existing cash and restricted cash will not be sufficient to complete development of IVX-A12, a bivalent COVID-19 vaccine candidate, an influenza vaccine candidate, or any other vaccine candidate. Accordingly, we will be required to obtain further funding to achieve our business objectives.
Until such time, if ever, as we can generate substantial product revenues to
support our cost structure, we expect to finance our cash needs through equity
offerings, debt financings or other capital sources, including potential
collaborations, licenses, and other similar arrangements. However, we may be
unable to raise additional funds or enter into such other arrangements when
needed on favorable terms or at all. 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 vaccine 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 through equity or debt financings when needed, we may be
required to delay, limit, reduce or
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terminate our product development or future commercialization efforts or grant
rights to develop and market our vaccine candidates to third parties where we
might otherwise prefer to develop and market such vaccine candidates ourselves.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods set forth below (in thousands):
Nine Months Ended
September 30,
2022 2021
Net cash (used in) provided by
Operating activities $ (52,671 ) $ (25,504 )
Investing activities (162,707 ) (583 )
Financing activities 220 304,512
Net change in cash, cash equivalents, and restricted cash
Operating Activities Net cash used in operating activities for the nine months endedSeptember 30, 2022 was$52.7 million , consisting primarily of our net loss incurred during the period of$68.1 million adjusted for$15.8 million of non-cash expenses and$0.3 million for net changes in operating assets and liabilities. Non-cash expenses consisted primarily of$15.5 million in stock-based compensation expense. The net change in operating assets and liabilities consisted of a$0.3 million increase in accounts payable and accrued and other current liabilities, and a$0.6 million decrease in deferred revenue. Net cash used in operating activities for the nine months endedSeptember 30, 2021 was$25.5 million , consisting primarily of our net loss incurred during the period of$48.8 million adjusted for$26.7 million of non-cash expenses, and$3.3 million for net changes in operating assets and liabilities. Non-cash expenses consisted primarily of$25.4 million in stock-based compensation, including$21.0 million recognized for the modification of stock options accelerated in connection with the death of our former Chairman,$0.8 million loss on extinguishment of convertible promissory note,$0.3 million non-cash interest expense, and$0.2 million of non-cash expense recognized related to the change in fair value of the derivative liability. The net change in operating assets and liabilities consisted of a$5.7 million decrease in prepaid and other current assets, a$2.1 million increase in accounts payable and other current liabilities, and a$0.3 million decrease in deferred revenue.
Investing Activities
Net cash used in investing activities for the nine months endedSeptember 30, 2022 was$162.7 million , consisting of purchases of short-term investments of$171.0 million and$8.6 million of purchases of property and equipment, offset by$14.3 million of maturities of short-term investments and$2.6 million in proceeds from lease incentives.
Net cash used in investing activities for the nine months ended
Financing Activities
Net cash provided by financing activities for the nine months endedSeptember 30, 2022 was$0.2 million consisting of$0.6 million of proceeds from exercises of stock options offset by payment of$0.4 million of deferred offering costs. Net cash provided by financing activities for the nine months endedSeptember 30, 2021 was$304.5 million consisting of$190.7 million in net proceeds related to the issuance of common stock in connection with the IPO inAugust 2021 ,$92.6 million in net proceeds related to the issuance of Series B-1 convertible preferred stock inMarch 2021 ,$21.0 million in net proceeds related to the issuance of Series A-1 convertible preferred stock inFebruary 2021 , and$0.2 million proceeds from exercises of stock options, including early exercises.
Contractual Obligations and Commitments
As we describe in Note 8 of the accompanying unaudited condensed financial
statements, we have a lease agreement for corporate office and laboratory space
in
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2027 and provides for a one-time option to extend for a period of five
additional years. Lease payments begin in January 2023 , and the monthly base
rent will be $0.2 million for the first year and will increase by 3.0% per year
over the initial term. In addition, we are obligated to pay for common area
maintenance and other costs. The lease agreement provides us with an allowance
for tenant improvements of $5.3 million that will be reimbursed to us or paid on
our behalf as construction of improvements occurs. Under the terms of the lease
agreement, we are required to maintain a standby letter of credit of $1.1
million at the execution of the lease agreement, reduced to $0.9 million at the
first anniversary, and further reduced to $0.7 million at the second anniversary
of the lease.
Under our license agreements, we have milestone payment obligations that are
contingent upon the achievement of specified development, regulatory, and
commercial sales milestones and are required to make certain royalty payments in
connection with the sale of products developed under the agreements. As of
September 30, 2022 and December 31, 2021 , we are unable to estimate the timing
or likelihood of achieving the milestones or making future product sales and,
therefore, any related payments are not reflected as contractual obligations
herein.
We enter into contracts in the normal course of business for contract research
services, contract manufacturing services, professional services and other
services and products for operating purposes. These contracts generally provide
for termination after a notice period, and, therefore, are cancelable contracts
and not included as contractual obligations herein.
See the descriptions of these agreements provided above and in the section of the Annual Report titled "Business-Material Agreements" for additional information on these license agreements.
Critical Accounting Policies and Significant Judgments and Estimates
Our financial statements are prepared in accordance with generally accepted accounting principles inthe United States (GAAP). The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, costs, and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience, known trends and events, 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 values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates under different assumptions or conditions. We describe our significant accounting policies in Note 2 of the accompanying unaudited condensed financial statements and in Note 2 to the audited financial statements contained in the Annual Report. During the nine months endedSeptember 30, 2022 , there were no material changes to our significant accounting policies from those described in the Annual Report.
As an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (JOBS Act), we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of Sarbanes-Oxley. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of our IPO, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least$1.07 billion , (iii) the first day of the fiscal year in which we are deemed to be a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded$700.0 million as of the last business day of the second fiscal quarter of the prior year, or (iv) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period. We are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so 30 -------------------------------------------------------------------------------- long as our voting and non-voting common stock held by non-affiliates is less than$250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than$100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than$700.0 million measured on the last business day of our second fiscal quarter.
Recent Accounting Pronouncements
See Note 2 to the accompanying unaudited condensed financial statements for discussion of recent accounting pronouncements, if any.
Off-Balance Sheet Arrangements
During the periods presented we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under
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