IKENA ONCOLOGY, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by these forward-looking statements. For convenience of presentation some of the numbers have been rounded in the text below. 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 targeted oncology company developing precision medicines tailored to biomarker-defined patient groups with specific unmet needs. With our robust biomarker and translational approach we aim to develop targeted treatments and define patient populations who are most likely to respond to treatment. Our current programs are across the Hippo pathway, RAS pathway, and key immune signals in the tumor-microenvironment (TME), with approaches to targeting both cancer driving targets and mechanisms of resistance to targeted therapies. Our focus on patient-driven development is platform and process agnostic, allowing us to research both known and novel targets, with a shared guiding principle of aiming to address the unmet need of a biomarker-defined patient population. Since we commenced operations in 2016, we have advanced multiple product candidates into clinical development. In addition, we have a robust pipeline of discovery-stage targeted oncology programs. Our lead targeted oncology product candidate, IK-930, is an oral small molecule inhibitor of the transcriptional enhanced associate domain, or TEAD, transcription factor in the Hippo signaling pathway. The Hippo pathway is genetically altered in approximately 10% of human cancers and is widely accepted as a prevalent driver of cancer pathogenesis and a mediator of poor outcomes for patients. In our ongoing first-in-human clinical trial, we are focusing on indications that provide the potential for rapid clinical development to achieve proof-of-concept, such as NF2 deficient mesothelioma and solid tumors with YAP1 or TAZ gene fusions, including epithelioid hemangioendothelioma, or EHE, in which 100% of patients have Hippo pathway alterations. We also plan to assess IK-930 in combination with other targeted therapies across several indications, including EGFR mutated non-small cell lung cancer (NSCLC) and KRAS mutated cancers. InOctober 2021 , our Investigational New Drug Application, or IND, for IK-930 was accepted by theU.S. Food and Drug Administration , or FDA, and we subsequently initiated a first in human Phase 1 clinical trial of IK-930 in patients with advanced solid tumors with a high frequency of Hippo pathway alternations. The first patient was dosed inJanuary 2022 , and we are currently recruiting patients in this ongoing Phase 1 clinical trial.
Our discovery efforts are focused on additional targeted oncology programs, following our philosophy of designing treatments for patients' populations identified through the genetic make-up of their tumors. Our pre-clinical pipeline is growing to include additional Hippo pathway and RAS pathway-targeting programs, including our program against the novel target extracellular signal related kinase 5 (ERK5). We are generating mechanistic and translational data to accompany our approaches and identify underserved RAS-mutated cancer patient populations.
Our clinical-stage programs also include product candidates in development to
target immune signaling in the tumor microenvironment (TME). These programs are
all built on the same foundation of biomarker-driven clinical trial design and
patient enrichment, aiming to develop therapies that can precisely be used for
specific cancer patients. IK-175 is an oral inhibitor of aryl hydrocarbon
receptor, or AHR, which we are evaluating in a Phase 1a/1b clinical trial in
solid tumors and in urothelial carcinomas as monotherapy and in combination with
nivolumab. We expect to report initial clinical data from this trial in the
second half of 2022. Additionally, we plan to initiate a second Phase 1b trial
with IK-175 in head and neck squamous cell carcinoma (HNSCC) in the second half
of 2022. The IK-175
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program is partnered with Bristol-Myers Squibb Company. The partnership also
includes our IK-412 program, which experienced manufacturing delays previously
disclosed in 2021. Considering these delays and the timeline of the partnership,
we made the strategic decision to pause IK-412 development activities for the
remainder of the Bristol Myers Squibb collaboration agreement term once the
ongoing committed Chemistry, Manufacturing, and Controls (CMC) work has been
completed.
Also within TME immune signaling, IK-007, which inhibits the prostaglandin E
receptor 4, or EP4, in the COX2 pathway, is being evaluated in a Phase 1b
clinical trial in combination with pembrolizumab for the treatment of patients
with MSS CRC. We recently completed enrollment in this trial and expect to
report data at a medical conference in the second half of 2022.
We were incorporated as a Delaware corporation on March 2, 2016 , and our
headquarters is located in Boston, Massachusetts . Since our inception, we
devoted all of our efforts to organizing and staffing our company, acquiring
intellectual property, business planning, raising capital, conducting discovery,
research and development activities, and providing general and administrative
support for these operations. On March 30, 2021 , we completed an IPO, in which
we issued and sold 8,984,375 shares of our common stock at a public offering
price of $16.00 per share, including 1,171,875 shares of common stock sold
pursuant to the underwriters' exercise of their option to purchase additional
shares of common stock, for aggregate gross proceeds of $143.8 million . We
raised approximately $131.3 million after deducting underwriting discounts and
commissions and offering expenses payable by us.
To date, we have not had any products approved for sale and have not generated any revenue from product sales.
We have incurred significant net losses in every year since our inception and expect to continue to incur significant expenses and increasing net losses for the foreseeable future. Our net losses may fluctuate significantly from quarter to quarter and year to year and could be substantial. Our ability to generate product revenue sufficient to achieve profitability will depend on the successful development and eventual commercialization of one or more of our current or future product candidates. Our net losses were$34.1 million and$44.3 million for the years endedDecember 31, 2021 and 2020, respectively. As ofDecember 31, 2021 , we had an accumulated deficit of$145.5 million . We anticipate that our expenses will increase significantly as we:
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advance the development of our product candidate pipeline;
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initiate and continue research and preclinical and clinical development of potential new product candidates;
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maintain, expand and protect our intellectual property portfolio;
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acquire or in-license additional product candidates and technologies;
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expand our infrastructure and facilities to accommodate our growing employee base and ongoing development activities;
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establish agreements with contract research organizations, or CROs, and contract manufacturing organizations, or CMOs, in connection with our preclinical studies and clinical trials;
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require the manufacture of larger quantities of our product candidates for clinical development and potential commercialization;
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seek marketing approvals for our product candidates that successfully complete clinical trials, if any;
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establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval; and
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add operational, financial and management information systems and personnel,
including personnel to support our research and development programs, any future
commercialization efforts and our transition to 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 the sale of equity instruments, debt financings, or other
capital sources, which may include
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collaborations with other companies or other strategic transactions. 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, reduce or eliminate the development and commercialization
of one or more of our product candidates.
We will not generate revenue from product sales unless and until we successfully
complete clinical development and obtain marketing approval for our product
candidates. 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 the development
efforts of our product candidates and our business overall. 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 revenue from 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.
If we raise additional funds through collaborations, strategic alliances, 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 or debt financings, when needed,
we may be required to delay, limit, reduce, or terminate our product development
programs or any future commercialization efforts or grant rights to develop and
market product candidates that we would otherwise prefer to develop and market
ourselves.
As of December 31, 2021 , we had cash and cash equivalents of $232.2 million . We
believe the existing cash and cash equivalents on hand as of December 31, 2021
will enable us to fund our operating expenses and capital expenditure
requirements through mid 2024. To date, we have primarily financed our
operations through proceeds from private placements of preferred stock, payments
from a collaboration agreement, related party revenue and completion of the IPO.
We expect to incur substantial operating losses and negative cash flows from
operations for the foreseeable future as we continue to invest significantly in
research and development of our programs. Our belief with respect to our ability
to fund operations is based on estimates that are subject to risks and
uncertainties. If actual results are different from our estimates, we may need
to seek additional funding sooner that would otherwise be expected. There can be
no assurance that we will be able to obtain additional funding on acceptable
terms, if at all.
Impact of COVID-19 Pandemic
We continue to monitor the impacts of the COVID-19 pandemic and its potential
impact on our business including in our clinical trials, manufacturing
capabilities, and ability to access necessary resources. We have taken important
steps to ensure the safety of our employees and their families and to reduce the
spread of COVID-19. We have established a work-from-home policy for all
employees while ensuring essential staffing levels in our operations remain in
place, including maintaining key personnel in our laboratories. For employees
working in our facilities, we have implemented stringent safety measures
designed to comply with applicable federal, state and local guidelines
instituted in response to the COVID-19 pandemic. We have also maintained
efficient communication with our partners and clinical sites as the COVID-19
situation has evolved. We have taken these precautionary steps while maintaining
business continuity so that we can continue to progress our programs.
In the first half of 2021, we were notified that a key component required in the
manufacturing of IK-412, our novel kynurenine-degrading enzyme, is similarly
essential to the manufacturing of COVID-19 vaccines and therapies. As such, the
availability of the component has been delayed as resources have been allocated
towards vaccine production in the near-term. With this information and
manufacturing lead times, the IND submission for IK-412 was delayed. Considering
these delays and the timeline of the BMS collaboration partnership we have made
the strategic decision to pause IK-412 development for the remainder of the BMS
contract term once the ongoing committed CMC work has been completed. We will
continue to monitor the impact of COVID-19 related supply chain issues relating
to our business.
See "Risk Factors" for a discussion of the potential adverse impact of the COVID-19 pandemic on our business, financial condition, and results of operations.
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--------------------------------------------------------------------------------Components of our Results of Operations
Revenue
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. If our development efforts for our product candidates are successful and result in regulatory approval and successful commercialization efforts, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.
All of our revenue has been derived from research and development revenue under our BMS Collaboration Agreement.
Collaboration Agreement and Stock Purchase Agreement with BMS
InJanuary 2019 , we entered into the BMS Collaboration Agreement with Celgene Corporation (which was acquired by BMS inNovember 2019 ), pursuant to which BMS may elect in its sole discretion to exclusively license rights to develop and commercialize compounds (and products and diagnostic products containing such compounds) that modulate the activity of two collaboration targets, kynurenine and aryl hydrocarbon receptor, or AHR, excluding AHR agonists for inverse agonists, which we are developing as IK-412 and IK-175, respectively. On a program-by-program basis, through the completion of a Phase 1b clinical trial for each of IK-175 and IK-412, BMS has the exclusive option to exclusively license to develop, commercialize and manufacture the relevant product candidate worldwide. Concurrent with execution of the BMS Collaboration Agreement, we entered into a stock purchase agreement with Celgene Corporation (now BMS) inNovember 2019 , or the Stock Purchase Agreement, pursuant to which we issued Celgene Corporation 14,545,450 shares of Series A-1 preferred stock. BMS paid a total of$95.0 million in aggregate upfront consideration related to the BMS Collaboration Agreement and Stock Purchase Agreement. We are eligible to receive$50.0 million , in case of an exercise of its option with respect to IK-175, and$40.0 million , in case of an exercise of its option with respect to IK-412. If we do not complete a Phase 1b clinical trial by the end of the research term, we may elect to provide a data package to BMS upon which BMS may exercise the foregoing option for an additional$0.25 million fee. Upon the delivery of each license, we become eligible to receive up to$265.0 million in regulatory milestones and$185.0 million in commercial milestones as well as a tiered royalties at rates ranging from the high single to low teen digits percentages based on worldwide annual net sales by BMS, subject to specified gross sale reductions. In the first half of 2021, we were notified that a key component required in the manufacturing of IK-412, is similarly essential to the manufacturing of COVID-19 vaccines and therapies. As such, the availability of the component has been delayed as resources have been allocated towards vaccine production in the near-term. With this information and manufacturing lead times, the IND submission for IK-412 was delayed. Considering these delays and the timeline of the BMS collaboration partnership we have made the strategic decision to pause IK-412 development for the remainder of the BMS contract term once the ongoing committed CMC work has been completed.
Operating Expenses
Our operating expenses since inception have consisted solely of research and development costs and general and administrative costs.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research and development activities. These efforts and costs include external research costs, personnel costs, consultants, supplies, license fees and facility-related expenses. We expense research and development costs as incurred. These expenses include:
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employee-related expenses, including salaries, related benefits and stock-based compensation expense, for employees engaged in research and development functions;
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expenses incurred under agreements with CROs which are primarily engaged to support our clinical trials;
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expenses incurred under agreements with CMOs, which are primarily engaged to provide drug substance and product for our preclinical research and development programs, nonclinical and clinical studies and other scientific development services;
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the cost of acquiring and manufacturing preclinical study materials, including manufacturing registration and validation batches;
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facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance;
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acquisition of in-process research and development assets that have no alternative future use;
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costs related to compliance with quality and regulatory requirements; and
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payments made under third-party licensing agreements.
Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned clinical development 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 clinical development of, or obtain regulatory approval for, any of our current or future product candidates. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:
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our ability to add and retain key research and development personnel;
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our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize our product candidates;
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our successful enrollment in and completion of clinical trials, including our ability to generate positive data from any such trials;
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the size and cost of any future clinical trials for existing or future product candidates in our pipeline;
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the costs associated with the development of any additional programs we identify in-house or acquire through collaborations and other arrangements and the success of such collaborations;
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the terms and timing of any additional collaborations, license or other arrangement, including the timing of any payments thereunder;
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our ability to establish and maintain agreements and operate with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if any of our product candidates are approved;
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costs related to manufacturing of our product candidates or to account for any future changes in our manufacturing plans;
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our ability to obtain and maintain patents, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates, both inthe United States and internationally;
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our ability to obtain and maintain third-party insurance coverage and adequate reimbursement for our product candidates, if and when approved;
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the acceptance of our product candidates, if approved, by patients, the medical community and third-party payors;
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effectively competing with other products if our product candidates are approved;
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the impact of any business interruptions to our operations, including the timing and enrollment of patients in our planned clinical trials, or to those of our manufacturers, suppliers, or other vendors resulting from the ongoing COVID-19 pandemic or similar public health crisis; and
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our ability to maintain a continued acceptable safety profile for our therapies following approval.
A change in the outcome of any of these variables with respect to the development of our product candidates 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 of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting, auditing, tax services and insurance costs. We expect that our general and administrative expenses will increase as our organization and headcount needed in the future to support continued research and development activities and potential commercialization of our product candidates. These increases will likely include increased costs related to the hiring of additional personnel and fees to outside consultants, attorneys and accountants, among other expenses. Additionally, we expect to incur increased expenses associated with being a public company, including costs of additional personnel, accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing andSecurities and Exchange Commission , orSEC , requirements, director and officer insurance costs, and investor and public relations costs.
Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations:
Year Ended December 31,
(In thousands, except percentages) 2021 2020 Dollar Change Percent Change
Revenue:
Research and development revenue under
collaboration agreement $ 30,985 $ 9,194 $ 21,791 237 %
Operating expenses:
Research and development 47,108 44,847 2,261 5 %
General and administrative 18,015 8,866 9,149 103 %
Total operating expenses 65,123 53,713 11,410 21 %
Loss from operations (34,138 ) (44,519 ) 10,381 -23 %
Other income 23 263 (240 ) (91 )%
Net loss $ (34,115 ) $ (44,256 ) $ 10,141 -23 %
Revenue
The research and development revenue under collaboration agreement of
The revenue increase on IK-412 is due to a decrease in our estimate of the total services to be performed on the IK-412 program during the remainder of the BMS Collaboration Agreement term. InDecember 2021 , the Company re-assessed the IK-412 program, which experienced manufacturing delays previously disclosed in 2021. Considering 124 -------------------------------------------------------------------------------- these delays and the timeline of the BMS partnership, the Company made the strategic decision to pause IK-412 development activities for the remainder of the BMS research term once the ongoing committed CMC work has been completed. As a result of the decision to pause, the Company recorded a change in estimate during the three months endedDecember 31, 2021 and recognized$16.5 million of research and development revenue.
The revenue also increased on IK-175 is due to continued progression of the
program during the year ended
Research and Development Expenses
The following table summarizes our research and development expenses:
Year Ended
Percent
(In thousands, except percentages) 2021 2020 Dollar Change Change
Direct research and development
expenses by program:
IK-930 $ 8,351 $ 4,911 $ 3,440 70 %
IK-175 5,844 7,161 (1,317 ) (18 )%
IK-412 2,984 3,699 (715 ) (19 )%
IK-007 2,632 4,943 (2,311 ) (47 )%
Other discovery stage programs 11,708 3,556 8,152 229 %
Acquisition of in-process research and
development assets - 11,140 (11,140 ) (100 )%
Research and development personnel and
overhead expenses 15,589 9,437 6,152 65 %
Total research and development
expenses $ 47,108 $ 44,847 $ 2,261 5 %
Research and development expense was $47.1 million for the year ended December
31, 2021 , compared to $44.8 million for the year ended December 31, 2020 .
Included within research and development personnel and overhead expenses is
stock-based compensation expense of $2.4 million and $0.8 million for the years
ended December 31, 2021 and 2020, respectively. The increase in research and
development expense of $2.3 million was primarily attributable to the
IND-enabling studies, manufacturing development costs and clinical trial
start-up costs for IK-930, and research activities for other discovery stage
programs. In addition, research and development expenses related to personnel
and overhead expenses increased due to an increase in headcount. This increase
in research and development expenses was partially offset by the write-off for
the acquisition of in process research and development assets of $11.1 million
as a result of the acquisition of Amplify in October 2020 , and a net decrease in
development activities for IK-175, IK-412, and IK-007.
General and Administrative Expenses
General and administrative expense was$18.0 million for the year endedDecember 31, 2021 , as compared to$8.9 million for the year endedDecember 31, 2020 . General and administrative expense includes$2.7 million and$1.0 million of stock-based compensation expense for the years endedDecember 31, 2021 and 2020, respectively. The increase was primarily attributable to an increase in compensation expense due to an increase in headcount, as well as general increases in legal and consulting expenses.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not generated any revenue from product sales and have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of any product candidates for several years, if ever. To date, we have financed our operations primarily through private placements of preferred stock, from upfront payments from the BMS Collaboration Agreement, from cash obtained from acquisitions, and most recently, from common stock in our IPO. InMarch 2021 , we completed our IPO in which we received net proceeds, inclusive of the exercise by the underwriters of their option of purchase additional 125 --------------------------------------------------------------------------------
shares, of approximately
As ofDecember 31, 2021 , we had cash and cash equivalents of$232.2 million . Based upon our current operating plans, we expect that our existing cash and cash equivalents balances will enable us to meet our planned operating expenses and capital expenditure requirements into mid-2024.
Cash Flows
The following table summarizes our sources and uses of cash for the years endedDecember 31, 2021 and 2020: Year Ended December 31, (In thousands) 2021 2020 Net cash provided (used in) by operating activities$ (60,252 ) $ (37,826 ) Net cash (used in) provided by investing activities (1,760 ) 2,922 Net cash provided by financing activities 131,738
116,184
Net increase in cash and cash equivalents$ 69,726 $ 81,280 Operating Activities During the year endedDecember 31, 2021 , we used$60.3 million of cash in operating activities. The net cash used in operating activities primarily consisted of our net loss of$34.1 million which includes non-cash charges of$5.2 million of stock-based compensation expense, and the realization of$31.0 million of previously deferred revenue recognized as a result of the BMS Collaboration Agreement. During the year endedDecember 31, 2020 , we used$37.8 million of cash in operating activities. We utilized cash to fund our net loss of$44.3 million , which includes non-cash expense recognized related to the acquisition of in process research and development assets of$11.1 million as a result of the acquisition of Amplify inOctober 2020 and the realization of$9.2 million of previously deferred revenue recognized as a result of the BMS Collaboration Agreement. There was$3.1 million of other non-cash expenses and a net use of$1.4 million to fund changes in prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities and lease liability.
Investing Activities
The net cash used in investing activities for the year endedDecember 31, 2021 was primarily attributable to an increase in property and equipment purchased in connection with the commencement of our new lease. The net cash provided by investing activities for the year endedDecember 31, 2020 was related to the$3.7 million of cash received in our acquisition of Amplify. These proceeds were offset by the use of$0.8 million of cash to acquire plant and equipment.
Financing Activities
During the year endedDecember 31, 2021 , the net cash provided by financing activities primarily reflects cash proceeds received in connection with the IPO. During the year endedDecember 31, 2020 , the net cash provided by financing activities is related to net proceeds from the issuance of preferred stock of$116.2 million . Funding Requirements We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development for, initiate clinical trials for, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Furthermore, we expect to continue to incur additional costs associated with operating as a public company. Accordingly, we will 126 --------------------------------------------------------------------------------
need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.
We expect that our existing cash and cash equivalents as ofDecember 31, 2021 , will enable us to fund our operating expenses and capital expenditure requirements through mid-2024. We have based this estimate on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Our future capital requirements will depend on many factors, including:
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the scope, progress, results and costs of discovery, preclinical development, laboratory testing and clinical trials for other potential product candidates we may develop, if any;
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the costs, timing and outcome of regulatory review of our product candidates;
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our ability to establish and maintain collaborations on favorable terms, if at all;
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the achievement of milestones or occurrence of other developments that trigger payments under any collaboration agreements we might have at such time;
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the costs and timing of future commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
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the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval;
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the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
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the in-licensing or acquisition of assets in line with our strategy;
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our headcount growth and associated costs as we expand our business operations and our research and development activities; and
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the costs of operating as a public company.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that could adversely affect your rights as a common stockholder. Any debt financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. If we raise funds through collaborations, strategic alliances 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 to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Contractual Obligations We have a non-cancelable operating lease agreement for our office, lab and animal care facility space in ourBoston, Massachusetts corporate headquarters. We expect lease payments under this commitment to total$1.8 million in 2022 and increase annually through the lease expiration in 2026. Our total future minimum lease payments for each of the next five years and in total are included in Note 14. 127 -------------------------------------------------------------------------------- We enter into contracts in the normal course of business with CROs and CMOs for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior notice of 30 days. Payments due upon cancelation consist only of payments for services provided and expenses incurred up to the date of cancelation. We may incur potential contingent payments upon our achievement of clinical, regulatory and commercial milestones, as applicable, or that we may be required to make royalty payments under license agreements we have entered into with various entities pursuant to which we have in-licensed certain intellectual property such as our patent license agreement with theUniversity of Texas at Austin and our license agreement withAskAt, Inc. Due to the uncertainty of the achievement and timing of the events requiring payment under these agreements, the amounts to be paid by us are not fixed or determinable at this time and have not been included in the table above.
Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States , or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. 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 value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in the Notes to our consolidated financial statements included elsewhere in this annual report on Form 10-K, we believe the following accounting policies to be the most critical in understanding the judgments and estimates we use in preparing our consolidated financial statements:
Revenue Recognition
To determine revenue recognition we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. At contract inception, once the contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations, then assess whether each promised good or service is distinct. When we offer options for additional goods or services, such as to receive a license for intellectual property or for additional goods or services, we evaluate whether such options contain material rights that should be treated as additional performance obligations. Once performance obligations are identified, we then recognize as revenue the amount of the transaction price that the Company allocated to the respective performance obligation when (or as) each performance obligation is satisfied, either at a point in time or over time. If the performance obligation is satisfied over time, we recognize revenue based on the use of an input method. At each reporting date, we calculate the measure of progress for the performance obligations transferred over time. The calculation generally uses an input measure based on costs incurred to-date relative to estimated total costs to complete the transfer of the performance obligation. The measurement of progress is then used to calculate the total revenue earned, including any cumulative catch-up adjustment. InDecember 2021 , the Company re-assessed the IK-412 program, which experienced manufacturing delays previously disclosed in 2021. Considering these delays and the timeline of the BMS partnership, the Company made the strategic decision to pause IK-412 development activities for the remainder of the BMS research term once the ongoing committed CMC work has been completed. 128 --------------------------------------------------------------------------------
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 applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of 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 advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:
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vendors, including research laboratories, in connection with preclinical development activities;
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CROs and investigative sites in connection with preclinical studies; and
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CMOs in connection with drug substance and drug product formulation of preclinical studies.
We base the expense recorded related to external research and development on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage nonclinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. 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 the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Stock-Based Compensation
We account for stock-based compensation awards in accordance with ASC 718, Compensation-Stock Compensation (ASC 718). ASC 718 requires all stock-based payments, including grants of employee stock options, to be recognized in the consolidated statement of operations and comprehensive loss based on their grant date fair values. We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model. Calculating the fair value of stock-based awards requires that we make subjective assumptions. Pursuant to ASC 718, we measure stock-based awards at fair value on the date of grant and recognize the corresponding stock-based compensation expense of those awards on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. We have historically granted stock options with exercise prices equivalent to the fair value of our common stock as of the date of grant. The Black-Scholes option-pricing model uses the following inputs: the fair value of our common stock, the expected volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Due to the lack of a public market for our common stock and a lack of company-specific historical and implied volatility data, we have based our computation of expected volatility on the historical volatility of a representative group of public companies with similar characteristics to us, including stage of product development, life science industry focus, length of trading history and similar vesting provisions. The historical volatility data is calculated based on a period of time commensurate with the expected term assumption. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available or until circumstances change, such that the identified entities are no longer representative companies. In the latter case, more suitable, similar entities whose share prices are publicly available would be utilized in the calculation. We use the simplified method as prescribed by theSEC Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the 129 -------------------------------------------------------------------------------- expected term for options granted to employees as we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. Under this approach, the weighted-average expected option term is presumed to be the average of the contractual term (ten years) and the vesting term (generally four years) of our stock options. We utilize this method due to lack of historical exercise data and the "plain-vanilla" nature of our stock-based awards. The expected term is applied to the stock option grant group as a whole, as we do not expect substantially different exercise or post-vesting termination behavior among our employee population. For options granted to non-employees, we utilize the contractual term of the arrangement as the basis for the expected term assumption. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero as we have never paid cash dividends and have no current plans to pay any cash dividends on our common stock. The fair value of each restricted common stock award is estimated on the date of grant based on the fair value of our common stock on that same date.
Determination of Fair Value of Common Stock contractual obligation
Historically, the fair value of the shares of common stock underlying the stock options was determined by the Company's board of directors. Because there was no public market for the Company's common stock prior to the Company's IPO, the board of directors determined fair value of common stock at the time of grant of the option by considering a number of objective and subjective factors including independent third-party valuations of the Company's common stock, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock and the general and industry specific economic outlook, among other factors. Following the Company's IPO, the fair value of the Company's common stock has been determined based on the closing price of the Company's common stock on the Nasdaq Global Select Market.
Emerging Growth Company
InApril 2012 , the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an "emerging growth company," or an EGC, can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. Thus, an EGC can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for new or revised accounting standards during the period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early. We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have more than$1.07 billion in annual revenue; (2) the date we qualify as a "large accelerated filer," with at least$700.0 million of equity securities held by non-affiliates; (3) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering. 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 until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is more than$250.0 million measured on the last business day of our second fiscal quarter, or our annual revenues are more than$100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is more than$700.0 million measured on the last business day of our second fiscal quarter.
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