INVIVYD, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes 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, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Adagio Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of differentiated products for the prevention and treatment of infectious disease. We are developing our lead product candidate, adintrevimab, for the prevention and treatment of coronavirus disease 2019, or COVID-19, the disease caused by the virus SARS-CoV-2 and its variants. COVID-19 has caused the current global pandemic that remains a significant global health crisis and has resulted in millions of deaths and lasting health problems in many survivors. We believe that COVID-19 will become an endemic disease requiring a variety of effective, safe and convenient prevention and treatment options for years to come. We are leveraging our team's collective expertise and platform to deliver adintrevimab to patients and to discover novel solutions to infectious diseases through internal research and collaborations. Adintrevimab is designed to be a potent, long-acting and broadly neutralizing antibody for both the prevention and treatment of COVID-19. We believe several key attributes combine to differentiate adintrevimab, including breadth, potency, durability of protection, convenient intramuscular, or IM, administration, and potential for broad application across multiple indications, depending on the SARS-CoV-2 variant. Data from our Phase 1 healthy volunteer study ADG20-1-001 confirmed the extended half-life of adintrevimab, which we believe may allow for durable protection against COVID-19, depending on the variant. InFebruary 2022 , we expanded the Phase 1 study to evaluate safety and pharmacokinetics at higher doses. As ofMarch 27, 2022 , there were no study drug related adverse events, serious adverse events, injection-site reactions or hypersensitivity reactions reported across all dose levels evaluated. We are assessing adintrevimab in two separate Phase 2/3 clinical trials: our EVADE trial to evaluate adintrevimab for the prevention of COVID-19 and our STAMP trial to evaluate adintrevimab for the treatment of COVID-19. Our EVADE clinical trial is a global Phase 2/3 clinical trial evaluating adintrevimab as a prevention for COVID-19 in both the post-exposure and pre-exposure settings. Our STAMP trial is our global Phase 2/3 clinical trial evaluating adintrevimab as a treatment for COVID-19. Due to the emergence and global spread of the Omicron variant, against which adintrevimab has reduced in vitro neutralization potency compared to prior variants, enrollment in both EVADE and STAMP was paused onJanuary 11, 2022 , and preliminary efficacy and safety data were evaluated in pre-and post-Omicron populations. In the primary analysis population, patients infected with or exposed to a non-Omicron variant, or the pre-Omicron group, adintrevimab met the primary objectives across all three indications, demonstrating statistically significant and clinically meaningful efficacy. In pre-exposure and post-exposure prophylaxis, adintrevimab was associated with 71% and 75% relative risk reductions compared to placebo, respectively, in the prevention of RT-PCR confirmed symptomatic COVID-19. In an exploratory analysis of patients exposed to the Omicron variant, or the post-Omicron group, in pre-exposure prophylaxis, adintrevimab was associated with a clinically meaningful reduction in the risk of developing RT-PCR confirmed symptomatic COVID-19 compared with placebo. In treatment, adintrevimab was associated with a 66% relative risk reduction compared to placebo in the incidence COVID-19 related hospitalization or all cause death through Day 29 in the pre-Omicron group. In patients treated within three days of symptom onset, adintrevimab was associated with a reduced risk of COVID-19 hospitalization or death from any cause through Day 29 by 77% compared to placebo. A preliminary analysis of available safety data in each trial revealed a safety profile similar to that of placebo for adintrevimab. We are also evaluating additional broadly neutralizing antibodies targeting the receptor binding domain, or RBD, as well as other subdomains within the spike protein for COVID-19. In addition, we plan to leverage the robust antibody discovery and development capabilities that have enabled our expedited advancement of adintrevimab into clinical trials to develop therapeutic or preventative options for other infectious diseases, such as additional coronaviruses and influenza. In addition to building a portfolio of broadly neutralizing antibodies, we are leveraging our knowledge around broadly neutralizing antibody responses to inform the rational design of coronavirus vaccine antigens. SARS-CoV-2 has given rise to a global pandemic that swept rapidly throughout the world in 2020. Of significant current concern is the continued emergence of a number of SARS-CoV-2 variants with increased transmissibility, pathogenicity, and/or the ability to evade neutralizing antibodies. In addition to the emergence of these variants, there are multiple factors that we 106 -------------------------------------------------------------------------------- believe contribute to the likelihood of COVID-19 becoming an endemic threat, including: (1) viral transmission before symptom onset; (2) uneven global rollout of vaccinations; (3) ongoing vaccine hesitancy; (4) limited duration of immunity conferred by both natural infection and vaccination; (5) limited vaccine efficacy against certain SARS-CoV-2 variants; (6) uncertain impact of vaccines on transmission; and (7) variable implementation of virus mitigation behaviors, such as wearing masks and social distancing. We also believe that future pandemics similar to the COVID-19 pandemic are likely because, in many parts of the world, humans live in close proximity to animal species harboring coronaviruses that are capable of infecting humans. Our vision is to discover, develop and commercialize differentiated products for the prevention and treatment of infectious diseases. To enable this vision, our current discovery efforts are focused on unique antibody-based product candidates that we optimize to improve breadth, potency, half-life, where applicable, and developability. Key elements that we believe differentiate our approach include: (1) recognition of the importance of and identification of broadly neutralizing antibodies; (2) industry-leading B cell mining, protein engineering and developability screening capabilities through our internal expertise and collaborations; and (3) reducing risk of clinical resistance. We were formed inJune 2020 . InJuly 2020 , we entered into an assignment and license agreement, or the Adimab Assignment Agreement, withAdimab , pursuant to which we acquired certain rights toAdimab's antibodies relating to COVID-19 and severe acute respiratory syndrome, or SARS, as well as related provisional patent applications, know-how and data generated with respect to the associated antibodies. In addition,Adimab granted to us a non-exclusive, worldwide license to certain ofAdimab's platform patents and technology for use in research and development. In connection with the rights and license acquired, we issued 5,000,000 shares of our Series A preferred stock toAdimab . InMay 2021 , we entered into a funded discovery agreement withAdimab focused on discovery efforts for new antibodies that may be effective against other coronaviruses and influenza, both of which have the potential to cause pandemics. In the event thatAdimab discovers an antibody that is expected to meet certain product profiles developed by Adagio, Adagio will have the exclusive option to requireAdimab to assign us its rights in any such antibody and to grant us certain licenses. In addition, the Company engages third parties, includingThe Scripps Research Institute , or TSRI, to perform ongoing research and development and other services on its behalf. Since our inception, we have devoted substantially all of our resources to organizing and staffing, building an intellectual property portfolio, business planning, conducting research and development, establishing and executing arrangements with third parties for the manufacture of our product candidates and raising capital. We rely heavily on external consultants and contract research organizations, or CROs, to conduct our non-clinical, preclinical and clinical activities. Additionally, we are currently dependent on WuXi Biologics (Hong Kong ) Limited, or WuXi, a contract development and manufacturing organization, or CDMO, for the manufacture of our product candidates for clinical and commercial use. We expect to continue to rely on third parties for clinical trials and the manufacture and testing of our product candidates. Since our inception, we have financed our operations with net proceeds of$464.7 million from sales of our preferred stock, and most recently, with net proceeds from our initial public offering, or IPO. InAugust 2021 , we completed our IPO, pursuant to which we issued and sold 20,930,000 shares of our common stock, including 2,730,000 shares of common stock pursuant to the full exercise of the underwriters' option to purchase additional shares. We received aggregate net proceeds from our IPO of$327.5 million , after deducting underwriting discounts and commissions and offering expenses payable by us. To date, we have not generated any revenue from any sources, including product sales. We have not yet commenced significant development activities with respect to other product candidates. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates, if approved. Since our inception, we have incurred significant losses, including net losses of$226.8 million and$65.3 million for the year endedDecember 31, 2021 and the period fromJune 3, 2020 (inception) toDecember 31, 2020 , respectively. As ofDecember 31, 2021 , we had an accumulated deficit of$292.1 million . We expect to continue to incur significant expenses and recognize losses in the foreseeable future as we expand and progress our research and development activities as well as the associated manufacturing activities and commercialization efforts. In addition, our losses from operations may fluctuate significantly from period to period depending on the timing of our clinical trials and our expenditures on other research and development activities, including any associated manufacturing activities, and potential commercialization efforts. We anticipate that our expenses will increase substantially in connection with our ongoing activities, as we:
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continue to conduct our ongoing clinical trials of adintrevimab, including advancement through late-stage global clinical trials, as well as initiate and complete additional clinical trials of future product candidates or current product candidates in new indications or patient populations;
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continue to advance the preclinical development of our other product candidates and our preclinical and discovery programs;
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seek regulatory approval for any product candidates that successfully complete clinical trials;
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pursue marketing approvals or EUA and reimbursement for our product candidates;
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acquire or in-license other product candidates, intellectual property and/or technologies;
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develop, establish and validate our commercial-scale current good manufacturing practices, or cGMP, manufacturing process;
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manufacture material under cGMP for clinical trials and potential EUA and commercial sales at our contracted manufacturing facilities;
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maintain, expand, enforce, defend and protect our intellectual property portfolio;
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comply with regulatory requirements established by the applicable regulatory authorities;
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establish a sales, marketing and distribution infrastructure and scale up manufacturing capabilities to commercialize any product candidates for which we may obtain regulatory approval or EUA;
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hire and retain additional personnel, including research, clinical, development, manufacturing, quality control, quality assurance, regulatory and scientific personnel;
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add operational, financial, corporate development, management information systems and administrative personnel, including personnel to support our product development and planned future commercialization efforts; and
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incur additional legal, accounting and other expenses in operating as a public company.
We do not anticipate generating revenue from product sales, including government supply contracts, unless and until we successfully complete clinical development and obtain marketing approvals or EUA for one or more of our product candidates. We are currently establishing our commercial infrastructure to support the anticipated marketing and distribution of our product candidates. Subject to receiving marketing approval or EUA for any of our product candidates for the prevention and/or treatment of COVID-19, we expect to enter into arrangements with third parties for the sale, marketing and distribution of our product candidates. Accordingly, if we obtain marketing approval or EUA for any of our product candidates, we will incur significant additional commercialization expenses related to product manufacturing, marketing, sales and distribution. 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 a combination of equity offerings, government or private-party grants, debt financings, collaborations with other companies and strategic alliances. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions. Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. We may never obtain regulatory approval for any of our product candidates. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities of$591.4 million as ofDecember 31, 2021 , will be sufficient to fund our operating expenses and capital expenditure requirements into the second half of 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See "-Liquidity and Capital Resources."
Impact of COVID-19 on Our Operations
InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 a global pandemic. The evolving and constantly changing impact of the pandemic will directly affect the potential commercial prospects of adintrevimab for the prevention and treatment of COVID-19. The severity of the COVID-19 pandemic and the continued emergence of variants of 108 -------------------------------------------------------------------------------- concern (such as the widespread Omicron and Delta variants), the availability, administration and acceptance of vaccines, monoclonal antibodies, antiviral agents and other therapeutic modalities, the introduction of local, national and/or employer vaccine mandates, and the potential development of "herd immunity" by the global population will affect the design and enrollment of our clinical trials, the potential regulatory authorization or approval of our product candidates and the commercialization of our product candidates, if approved. In addition, our business and operations may be more broadly adversely affected by the COVID-19 pandemic. The COVID-19 outbreak and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, facilities and production have been suspended and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services has fallen. The global COVID-19 pandemic continues to evolve rapidly, and we will continue to monitor it closely. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition, operations and product development timelines and plans remains highly uncertain and will depend on future developments, including the duration and spread of outbreaks and the continued emergence of variants, its impact on our clinical trial design and enrollment, trial sites, contract research organizations, or CROs, contract development and manufacturing organizations, or CDMOs, and other third parties with which we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. To date, we have experienced some delays and disruptions in our development activities as a result of the COVID-19 pandemic. Some of our CROs, CDMOs and other service providers also continue to be impacted. We will continue to monitor developments as we address the disruptions, delays and uncertainties relating to the COVID-19 pandemic. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or the overall economy are impacted for an extended period, our results and operations may be materially adversely affected and may affect our ability to raise capital.
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from product sales, including government supply contracts, or any other sources. If our development efforts for our product candidates are successful and result in regulatory approval or collaboration or license agreements with third parties, we may generate revenue in the future from product sales or payments from collaboration or license agreements that we may enter into with third parties, or any combination thereof.
Research and Development Expenses
The nature of our business and primary focus of our activities generate a significant amount of research and development costs. Research and development expenses represent costs incurred by us for:
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the non-clinical and preclinical development of our product candidates, including our discovery efforts;
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the procurement of our product candidates from third-party manufacturers; and
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the global clinical development of our product candidates
Such costs consist of:
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personnel-related expenses, including salaries, bonuses, benefits and other compensation-related costs, including stock-based compensation expense, for employees engaged in research and development functions;
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expenses incurred under agreements with third parties, such as consultants, contractors and CROs, that conduct the non-clinical and preclinical studies and clinical trials of our product candidates and research programs;
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costs of procuring manufactured product candidates for use in non-clinical studies, preclinical studies and clinical trials from third-party CDMOs;
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costs of outside consultants and advisors, including their fees and stock-based compensation;
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payments made under third-party licensing agreements; and
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other expenses incurred as a result of research and development activities.
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We expense research and development costs as incurred. Non-refundable advance
payments that we make for goods or services to be received in the future for use
in research and development activities are recorded as prepaid expenses. The
prepaid amounts are expensed as the related goods are delivered or the services
are performed, or when it is no longer expected that the goods will be delivered
or the services rendered.
Our primary focus since inception has been the development of adintrevimab. Our
research and development costs consist primarily of external costs, such as fees
paid to CDMOs, CROs and consultants in connection with our non-clinical studies,
preclinical studies and clinical trials. To date, external research and
development costs for any individual product candidate have been tracked
commencing upon product candidate nomination. We do not allocate
employee-related costs, costs associated with our discovery efforts and other
internal or indirect costs to specific research and development programs or
product candidates because these resources are used and these costs are deployed
across multiple programs under development and, as such, are not separately
classified.
Research and development activities are central to our business model. Product
candidates in later stages of clinical development generally have higher and
more variable 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 the near term as we advance adintrevimab through
clinical development on a global basis, pursue regulatory approval of
adintrevimab, continue to discover and develop additional product candidates and
incur expenses associated with hiring additional personnel to support our
research and development efforts, including the associated manufacturing
activities.
At this time, we cannot reasonably estimate or know the nature, timing and
estimated costs of the efforts that will be necessary to complete the
development of any of our product candidates. We are also unable to predict
when, if ever, material net cash inflows will commence from sales or licensing
of our product candidates. This is due to the numerous risks and uncertainties
associated with drug development, including the uncertainty of:
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the timing and progress of preclinical and clinical development activities;
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the number and scope of preclinical and clinical programs we decide to pursue;
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filing acceptable investigational new drug applications with theU.S. Food and Drug Administration or comparable foreign applications that allow commencement of our planned clinical trials or future clinical trials for our product candidates;
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sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials, manufacture the product candidates and complete associated regulatory activities;
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our ability to establish and maintain agreements with third-party manufacturers for clinical supply for our clinical trials and successfully develop, obtain regulatory approval or EUA for our product candidates;
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successful enrollment and timely completion of clinical trials, including our ability to generate positive data from any such clinical trials;
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the costs associated with the development of any additional development programs and product candidates we identify in-house or acquire through collaborations;
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the prevalence, nature and severity of adverse events experienced with adintrevimab or any other product candidates;
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the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder;
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our ability to obtain and maintain patent, trademark and trade secret protection and regulatory exclusivity for our product candidates, if and when approved, and otherwise protecting our rights in our intellectual property portfolio;
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receipt of timely marketing approvals from applicable regulatory authorities;
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our ability to maintain compliance with regulatory requirements, including good clinical practices, current good laboratory practices and cGMPs, and to comply effectively with other rules, regulations and procedures applicable to the development and sale of pharmaceutical products;
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potential significant and changing government regulation, regulatory guidance and requirements and evolving treatment guidelines; and
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the impact of any business interruptions to our operations or those of third parties with which we work, particularly in light of the current COVID-19 pandemic.
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. We may never succeed in obtaining regulatory approval or EUA for any of our product candidates. In addition, in the absence of a public health emergency, we will not be able to receive an EUA. The national public health emergency declaration was most recently renewed inJanuary 2022 and may or may not be renewed again.
Acquired in-process research and development, or IPR&D, expenses consist primarily of the upfront costs we incurred inJuly 2020 , as well as any costs of contingent milestone payments we incurred in subsequent periods, to acquire rights toAdimab's antibodies relating to COVID-19 and SARS and related intellectual property and a license to certain ofAdimab's platform patents and technology, or the IPR&D assets, for use in the research and development of our product candidates. We expensed the cost of the IPR&D assets because they had no alternative future use as of the acquisition date. We will recognize additional acquired IPR&D expenses in the future if and when we become obligated to make contingent milestone payments toAdimab under the terms of the agreement by which we acquired the IPR&D assets.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries, bonuses, benefits, third-party fees and other related costs, including stock-based compensation, for our personnel and external contractors involved in our executive, finance, legal, business development and other administrative functions as well as our commercial function. Selling, general and administrative expenses also include costs incurred for outside services associated with such functions, including legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; market research costs; and other selling, general and administrative expenses. These costs relate to the operation of the business, unrelated to the research and development function, or any individual program. We anticipate that our selling, general and administrative expenses will increase substantially in the future as our business expands and we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our product candidates. In particular, we expect to incur additional commercialization expenses prior to any regulatory approval or EUA of our product candidates as we continue to expand our commercial function to support potential future product launches. We also anticipate that we will incur increased expenses associated with operating as a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services, director and officer insurance premiums, and investor and public relations costs. We also expect to incur additional intellectual property-related expenses as we file additional patent applications to protect innovations arising from our research and development activities. ThroughDecember 31, 2021 , we have operated as a virtual company and maintain a corporate headquarters for general and administrative purposes only. Therefore, we do not incur material operating expenses for the rent, maintenance and insurance of facilities or for depreciation of fixed assets.
Other Income (Expense), Net
Other income (expense), net consists of interest income earned from our cash, cash equivalents and marketable securities and the net amortization or accretion of premiums and discounts related to our marketable securities. We expect our interest income to vary each reporting period depending on our average bank deposits, money market funds and investment balances during the period and market interest rates.
Income Taxes
Since our inception, we have not recorded any income tax expense or realized
benefits for the net losses we have incurred or for the research and development
tax credits generated in each period as we believe, based upon the weight of
available evidence, that it is more likely than not that all of our net
operating loss, or NOL, carryforwards and tax credit carryforwards will not be
realized.
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Comparison of the Year Ended
The following table summarizes our results of operations for the year endedDecember 31, 2021 and the period fromJune 3, 2020 (inception) toDecember 31, 2020 . We were formed inJune 2020 and, accordingly, our results of operations for the period fromJune 3, 2020 (inception) toDecember 31, 2020 are not comparable to our results of operations for the year endedDecember 31, 2021 . Period from Year Ended June 3, 2020 December 31, (Inception) to 2021 December 31, 2020 (in thousands) Operating expenses: Research and development$ 182,891 $ 21,992 Acquired in-process research and development 7,500 40,125 Selling, general and administrative 36,517 3,210 Total operating expenses 226,908 65,327 Loss from operations (226,908 ) (65,327 ) Other income (expense): Other income (expense), net 118 8 Total other income (expense), net 118 8 Net loss$ (226,790 ) $ (65,319 )
Research and Development Expenses
Period from
June 3, 2020
Year Ended (Inception) to
December 31, 2021 December 31, 2020
(in thousands)
Direct, external research and development expenses by
program:
Adintrevimab $ 136,470 $ 18,523
ADG10(1) 10,881 -
Unallocated research and development expenses:
Personnel related (including stock-based
compensation) 23,470 1,743
External discovery-related costs and other 12,070 1,726
Total research and development expenses $ 182,891 $ 21,992
(1) We have discontinued development of ADG10 due its less favorable neutralization profile compared to adintrevimab.
Research and development expenses were
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$58.8 million of contract development and manufacturing expenses related to the production of materials for use in our nonclinical studies and clinical trials for the adintrevimab and ADG10 programs, as well as supply for use under a potential EUA for adintrevimab, procured primarily from WuXi, our sole-source supplier of drug substance and drug product;
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$4.5 million of other external research and development costs associated with the adintrevimab program, including consulting services, insurance costs and software expenditures; 112 --------------------------------------------------------------------------------
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$4.1 million of other contracted facility and product supply expenses related to services, storage, distribution and testing costs for the adintrevimab and ADG10 programs; and
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The contract manufacturing, clinical and other external research and development costs for our adintrevimab program were incurred in connection with our first-in-human Phase 1 clinical trial to evaluate adintrevimab, our Phase 2/3 EVADE trial of adintrevimab for the prevention of COVID-19 and our Phase 2/3 STAMP trial of adintrevimab for the treatment of COVID-19.
Research and development expenses were
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$14.8 million of contract development and manufacturing expenses related to the production of materials for use in our preclinical studies and clinical trials for the adintrevimab program, procured primarily from WuXi, our sole-source supplier of drug substance;
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$1.0 million of other external research and development costs associated with the adintrevimab program, including consulting services, insurance costs and software expenditures;
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$1.7 million of personnel-related costs, including salaries, bonuses and other compensation-related costs, including stock-based compensation of$0.1 million ; and
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The contract manufacturing, clinical and other external research and development costs for our adintrevimab program were incurred in connection with our first-in-human Phase 1 clinical trial to evaluate adintrevimab and our Phase 2/3 STAMP trial of adintrevimab for the treatment of COVID-19.
Acquired IPR&D expenses of$7.5 million for the year endedDecember 31, 2021 consisted of the costs we incurred in the period under the Adimab Assignment Agreement for a$1.0 million milestone payment that became due toAdimab inFebruary 2021 upon the dosing of the first patient in a Phase 1 clinical trial evaluating adintrevimab, a$2.5 million milestone payment that became due toAdimab inApril 2021 upon the dosing of the first patient in the first Phase 2 clinical trial evaluating adintrevimab for the prevention of COVID-19, and a$4.0 million milestone payment that became due toAdimab inAugust 2021 upon dosing of the first patient in a Phase 3 clinical trial evaluating adintrevimab for the prevention of COVID-19. The second and third milestones were achieved in connection with our combined Phase 2/3 EVADE global clinical trial of adintrevimab for the prevention of COVID-19. We recognized the expense related to the first, second and third milestone payments in February, April andAugust 2021 , respectively, when we deemed it probable that each specified milestone would be achieved. The amounts of these contingent payments were recognized as an IPR&D expense based on the nature, assessed as of each milestone achievement date, of the assets originally acquired fromAdimab . Acquired IPR&D expenses of$40.1 million for the year endedDecember 31, 2020 consisted primarily of the$39.9 million of costs we incurred inJuly 2020 to acquire rights toAdimab's antibodies relating to COVID-19 and SARS and related intellectual property and a license to certain ofAdimab's platform patents and technology for use in the research and development of our product candidates. 113 --------------------------------------------------------------------------------
Selling, General and Administrative Expenses
Period from
June 3, 2020
Year Ended (Inception) to
December 31, 2021 December 31, 2020
(in thousands)
Personnel related (including stock-based compensation) $ 19,540 $ 1,239
Professional and consultant fees 15,563 1,849
Other 1,414 122
Total selling, general and administrative expenses $ 36,517 $ 3,210
Selling, general and administrative expenses were
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•
•
•
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Selling, general and administrative expenses were
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•
•
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Other Income (Expense), Net
Other income (expense), net for the year endedDecember 31, 2021 was$0.1 million , consisting primarily of$1.7 million of interest earned on our invested cash balances, partially offset by$1.4 million of net amortization of premiums related to our marketable securities.
Other income (expense), net for the year ended
Liquidity and Capital Resources
Sources of Liquidity
Since our inception inJune 2020 , we have not generated any revenue from any sources, including from product sales, and have incurred significant operating losses and negative cash flows from operations. We expect to incur substantial expenses and operating losses for the foreseeable future as we advance the clinical development of our product candidates. To date, we have financed our operations with net proceeds of$464.7 million from sales of our preferred stock, and most recently, with net proceeds from our IPO inAugust 2021 , in which we issued and sold 20,930,000 shares of our common stock, including 2,730,000 shares of common stock pursuant to the full exercise of the underwriters' option to purchase additional shares. We received aggregate net proceeds from our IPO of$327.5 million , after deducting underwriting discounts and commissions and offering expenses payable by us. 114 --------------------------------------------------------------------------------
As of
Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Period from
Year Ended June 3, 2020
December 31, (Inception) to
2021 December 31, 2020
(in thousands)
Net cash used in operating activities $ (184,736 ) $ (14,571 )
Net cash used in investing activities (50,711 ) -
Net cash provided by financing activities 662,683 129,559
Net increase in cash and cash equivalents$ 427,236 $ 114,988 Operating Activities During the year endedDecember 31, 2021 , operating activities used$184.7 million of cash, primarily due to our net loss of$226.8 million , partially offset by non-cash charges of$19.3 million and net cash provided by changes in our operating assets and liabilities of$22.8 million . Net cash provided by changes in our operating assets and liabilities consisted of a$51.3 million increase in accrued expenses, partially offset by a$22.9 million increase in prepaid expenses and other current assets, a$3.3 million increase in other non-current assets and a$2.4 million decrease in accounts payable. The increase in accrued expenses was primarily due to amounts owed to vendors in connection with our research and development activities, including increased external costs associated with clinical trials and manufacturing. The increase in prepaid expenses and other current assets and other non-current assets was primarily due to prepayments for external research and development activities and prepayments for insurance premiums. The decrease in accounts payable was primarily due to the timing of invoices received and payments made. During the period fromJune 3, 2020 (inception) toDecember 31, 2020 , operating activities used$14.6 million of cash, primarily due to our net loss of$65.3 million , partially offset by non-cash charges of$40.1 million and net cash provided by changes in our operating assets and liabilities of$10.7 million . Net cash provided by changes in our operating assets and liabilities consisted of an$8.2 million increase in accounts payable and a$4.9 million increase in accrued expenses, both partially offset by a$2.4 million increase in prepaid expenses and other current assets. The increases in accounts payable and accrued expenses were primarily due to amounts owed to vendors in connection with our research and development activities, including increased external costs associated with clinical trials and manufacturing, as well as increases in accrued employee bonuses. The increase in prepaid expenses and other current assets was primarily due to prepayments for external research and development activities. Investing Activities During the year endedDecember 31, 2021 , net cash used in investing activities was$50.7 million , primarily related to purchases of marketable securities of$188.6 million , offset by maturities of marketable securities of$138.0 million .
We had no cash used in or provided by investing activities for the period from
Financing Activities
During the year endedDecember 31, 2021 , net cash provided by financing activities was$662.7 million , primarily related to net proceeds of$335.2 million from the issuance of our Series C preferred stock inApril 2021 and net proceeds of$330.9 million from the issuance of our common stock in connection with our IPO inAugust 2021 , offset by$3.4 million of payments of initial public offering costs. During the period fromJune 3, 2020 (inception) toDecember 31, 2020 , net cash provided by financing activities was$129.6 million , primarily related to net proceeds of$49.7 million from the issuance of our Series A preferred stock inJuly 2020 and net proceeds of$79.8 million from the issuance of our Series B preferred stock in October andNovember 2020 . 115 --------------------------------------------------------------------------------
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the non-clinical and preclinical studies and the current and future clinical trials of our product candidates. Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including:
•
the rate of progress in the development of adintrevimab and our other product candidates;
•
the scope, progress, results and costs of non-clinical studies, preclinical development, laboratory testing and clinical trials for adintrevimab and future product candidates and associated development programs;
•
the extent to which we develop, in-license or acquire other product candidates and technologies in our pipeline;
•
the scope, progress, results and costs as well as timing of process development and manufacturing scale-up and validation activities associated with adintrevimab and our future product candidates and other programs as we advance them through preclinical and clinical development;
•
the number and development requirements of product candidates that we may pursue;
•
the costs, timing and outcome of regulatory review of our product candidates;
•
our headcount growth and associated costs as we expand our research and development capabilities and establish a commercial infrastructure;
•
the timing and costs of securing sufficient capacity for commercial supply of our product candidates, or the raw material components thereof;
•
the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval or EUA;
•
the costs necessary to obtain regulatory approvals, if any, for products inthe United States and other jurisdictions, and the costs of post-marketing studies that could be required by regulatory authorities in jurisdictions where approval is obtained;
•
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
•
the continuation of our existing licensing and collaboration arrangements and entry into new collaborations and licensing arrangements, if at all;
•
the need and ability to hire additional research, clinical, development, scientific and manufacturing personnel;
•
the costs we incur in maintaining business operations;
•
the need to implement additional internal systems and infrastructure;
•
the effect of competing technological, product and market developments;
•
the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;
•
the costs of operating as a public company; and
•
the progression of the COVID-19 pandemic and emergence of potential outbreaks of
other coronaviruses, including the impact of any business interruptions to our
operations or to those of our contract manufacturers, suppliers or other vendors
resulting from the COVID-19 pandemic or other similar public health crises.
We believe that our cash, cash equivalents and marketable securities, will
enable us to fund our operating expenses and capital expenditure requirements
into the second half of 2024. We have based this estimate on assumptions that
may prove to be wrong, and we could exhaust our available capital resources
sooner than we expect.
Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our operations through a combination of equity offerings,
government or private-party grants, debt financings, collaborations, strategic
alliances and licensing arrangements. To the extent that we raise additional
capital through the sale of equity or convertible debt securities, your
ownership interest will be diluted, and the terms of such securities may include
liquidation or other preferences and anti-dilution protections that adversely
affect your rights as a common stockholder. Additional debt financing and
preferred equity financing, if available, may involve agreements that include
covenants limiting or restricting our ability to take specific actions,
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such as incurring debt, making acquisitions or capital expenditures or declaring
dividends, which could adversely constrain our ability to conduct our business,
and may require the issuance of warrants, which could potentially dilute your
ownership interest. 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 or through other sources, 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 to third parties that we would otherwise prefer to develop and market
ourselves.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as ofDecember 31, 2021 (in thousands): Payments Due by Period Less than 1 to 3 4 to 5 More than Total 1 Year Years Years 5 Years Commercial manufacturing agreement(1)$ 139,544 $ 75,599 $ 63,945 $ - $ - Lease obligations(2) 1,991 401 1,262 328 -
Total contractual cash obligations
(1)
Amounts represent minimum purchase commitments under an arrangement with our CDMO for commercial supply. The table reflects obligations that are non-cancelable as ofDecember 31, 2021 , based on the expected due dates for such purchases. (2) Amounts represent minimum payments due under our operating lease agreement for office space inWaltham, Massachusetts , which expires in 2026 with an option to terminate in 2023. InDecember 2020 , we entered into a Commercial Manufacturing Services Agreement with WuXi, which was amended and restated inAugust 2021 (as amended and restated, the Commercial Manufacturing Agreement). The Commercial Manufacturing Agreement outlines the terms and conditions under which WuXi will manufacture adintrevimab drug substance and drug product for commercial use. Our requirements for manufacture of adintrevimab for the year endingDecember 31, 2022 , the payments for which will extend into 2023, are governed by a binding, forecasted schedule and are presented in the preceding table. InSeptember 2021 , we entered into a five-year lease agreement for approximately 9,600 square feet of office space inWaltham, Massachusetts . The monthly rental payments under the lease agreement, which include base rent charges of approximately$0.4 million per year, are subject to periodic rent increases throughSeptember 2026 . Under a separate cell line license agreement with WuXi, as ofDecember 31, 2020 , we were obligated to pay a license fee of$0.2 million to WuXi, which was an accrued expense as ofDecember 31, 2020 and paid during the year endedDecember 31, 2021 . Under the agreement, we are obligated to pay royalties in the range of 0.3% to 0.5% to WuXi based on our net sales of any products covered by the license. However, if we use WuXi to manufacture all of our commercial supplies, no royalties would be owed by us to WuXi for net sales of licensed products. We have an option to buy out our royalty obligations by making a one-time payment of$15.0 million to WuXi. These royalty payments are not included in the preceding table as the amount and timing of such payments are not known. InJuly 2020 , we entered into an assignment and license agreement withAdimab , or the Adimab Assignment Agreement, with respect to discovery and optimization of coronavirus-specific antibodies, including COVID-19 and SARS. Under the Adimab Assignment Agreement, we are obligated to payAdimab up to$16.5 million upon the achievement of specified development and regulatory milestones for the first product licensed under the agreement that achieves specified development and regulatory events and up to$8.1 million upon the achievement of specified development and regulatory milestones for the second product licensed under the agreement that achieves such development and regulatory events. InFebruary 2021 , we achieved the first specified milestone under the agreement upon dosing of the first patient in a Phase 1 global clinical trial evaluating adintrevimab, which obligated us to make a$1.0 million payment toAdimab . We made the payment inMarch 2021 . InApril 2021 , we achieved the second specified milestone under the agreement upon dosing of the first patient in a Phase 2 global clinical trial evaluating adintrevimab for the prevention of COVID-19, which obligated us to make a$2.5 million payment toAdimab . We made the payment inJune 2021 . InAugust 2021 , we achieved the third specified milestone under the agreement upon dosing of the first patient in a Phase 3 global clinical trial evaluating adintrevimab for the prevention of COVID-19, which obligated us to make a$4.0 million milestone payment toAdimab . The next potential milestone under the 117 -------------------------------------------------------------------------------- Adimab Assignment Agreement is a$4.0 million milestone related to the acceptance of the filing of the first New Drug Application for a product licensed under the agreement by the FDA. In addition, we are obligated to payAdimab royalties of a mid single-digit percentage based on our net sales of any products covered by the rights assigned. Further, we are obligated to payAdimab royalties of a specified percentage in the range of 45% to 55% of any compulsory sublicense consideration received by us in lieu of certain royalty payments. These milestone and royalty payments are not included in the preceding table as the amount and timing of such payments are not known. For additional information, see to Note 7 to our annual consolidated financial statements appearing at the end of this Annual Report on Form 10-K. InMay 2021 , we entered into a collaboration agreement withAdimab , or the Adimab Collaboration Agreement, for the discovery and optimization of proprietary antibodies as potential therapeutic product candidates. Under the Adimab Collaboration Agreement, we andAdimab will collaborate on research programs for a specified number of targets selected by us within a specified time period. Under the agreement, we are obligated to payAdimab a quarterly fee of$1.3 million , in exchange forAdimab and its affiliates agreeing not to assist or direct certain third parties to discover or optimize antibodies that are intended to bind to coronaviruses or influenza viruses, which obligation may be cancelled at our option at any time. For each agreed upon research program that is commenced, we are obligated to payAdimab quarterly for its services performed during a given research program at a specified full-time equivalent rate; a discovery delivery fee of$0.2 million ; and an optimization completion fee of$0.2 million . For each option exercised by us to commercialize a specific research program, we are obligated to payAdimab an exercise fee of$1.0 million . Under the Adimab Collaboration Agreement, we are obligated to payAdimab up to$18.0 million upon the achievement of specified development and regulatory milestones for each product under the agreement that achieves such milestones. We are also obligated to payAdimab royalties of a mid single-digit percentage based on annual aggregate worldwide net sales of products, subject to reductions for third-party licenses. In addition, we are obligated to payAdimab forAdimab's performance of certain validation work with respect to certain antigens acquired from a third party. In consideration for this work, we are obligated to payAdimab royalties of a low single-digit percentage based on annual aggregate worldwide net sales of products that contain such antigens for the same royalty term as antibody-based products, but we are not obligated to make any milestone payments for such antigen products. These milestone and royalty payments are not included in the preceding table as the amount and timing of such payments are not known. For additional information, see to Note 7 to our annual consolidated financial statements appearing at the end of this Annual Report on Form 10-K. InAugust 2021 , we entered into a research collaboration and license agreement, or the Research Agreement, withThe Scripps Research Institute , or TSRI. Under the terms of the Research Agreement, TSRI will perform research activities to identify vaccine candidates for the prevention, diagnosis or treatment of influenza or beta coronaviruses, or the Research Program. The Company is obligated to provide the research funding necessary to carry out each activity initiated under the Research Program pursuant to a budget to be agreed upon by the parties. InAugust 2021 , the Company paid TSRI$1.5 million in funding, which was credited against research funding payable by the Company under the Research Agreement. Additionally, the Company is obligated to make specified payments to TSRI to the extent that TSRI complies with certain exclusivity covenants. To the extent any product licensed under the Research Agreement is commercialized, the Company is obligated to pay TSRI royalties of a low single-digit percentage on a licensed product-by-licensed product and country-by-country basis based on a percentage of net sales, subject to reduction and floor. Royalties are payable for each product on a country-by-country basis through the later of (i) the expiration of the last valid claim of any patent covering such product in such country or (ii) 12 years from the first commercial sale of such product. The Research Agreement will expire when no further royalties are due to TSRI. For additional information, see to Note 7 to our annual consolidated financial statements appearing at the end of this Annual Report on Form 10-K. We enter into other contracts in the normal course of business with CROs, contract manufacturing organizations and other third parties for preclinical research studies and testing, clinical trials, manufacturing and other services. These contracts do not contain any minimum purchase commitments and provide for termination by us upon prior written notice. Payments due upon cancellation consist only of payments for services provided and expenses incurred up to the date of cancellation, including non-cancelable obligations of our service providers and, in some cases, wind-down costs. The exact amounts of such obligations are dependent on the timing of termination and the terms of the associated agreement. Accordingly, these payments are not included in the preceding table as the amount and timing of such payments are not known.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States , or GAAP. The preparation of consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, and liabilities and the disclosure of contingent assets and liabilities at 118 -------------------------------------------------------------------------------- the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and recorded amounts of expenses that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing at the end of this Annual Report, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.
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 estimating the level of service performed and the associated costs incurred for the services when we have not yet been invoiced or otherwise notified of the actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require 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. At each end period, we corroborate the accuracy of these estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include those related to fees paid to:
•
CROs in connection with performing non-clinical studies, preclinical studies and clinical trials;
•
CDMOs related to the production of our product candidates for non-clinical studies, preclinical studies and clinical trials; and
•
other providers and vendors in connection with research and development activities.
We record the expense and accrual related to contract research and manufacturing based on our estimates of the services received and efforts expended considering a number of factors, including our knowledge of the progress towards completion of the research, development and manufacturing activities; invoicing to date under the contracts; communication from the CROs, CDMOs and other companies of any actual costs incurred during the period that have not yet been invoiced; and the costs included in the contracts and purchase orders. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. For CRO expense and accruals, there is estimation uncertainty related to the timing of submission of investigator fees for the period. For CDMO expense and accruals, there is estimation uncertainty related to the percentage of completion of in process batch manufacturing at period end. To date, we have not had significant changes to our estimates. 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 expense 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.
We measure and recognize asset acquisitions that are not deemed to be business combinations based on the cost to acquire the asset or group of assets, which includes transaction costs.Goodwill is not recognized in asset acquisitions. In an asset acquisition, the cost allocated to acquire IPR&D with no alternative future use is recognized as expense on the acquisition date. Contingent consideration in asset acquisitions payable in the form of cash is recognized in the period the triggering event is determined to be probable of occurrence and the related amount is reasonably estimable. Such amounts are expensed or capitalized based on the nature of the associated asset at the date the related contingency is resolved. We concluded that the agreement under which we acquired rights toAdimab's antibodies relating to COVID-19 and SARS and related intellectual property and a license to certain ofAdimab's platform patents and technology inJune 2020 represented an asset acquisition of IPR&D assets with no alternative future use. We further concluded that the arrangement did 119 --------------------------------------------------------------------------------
not qualify as a business combination because substantially all of the fair value of the assets acquired was concentrated in a single asset.
Determination of Fair Value of Common Stock
Prior to the initial public offering, as there was no public market for our common stock, the estimated fair value of our common stock underlying our stock-based awards was determined by our board of directors as of each option grant date with input from management, considering our most recently available third-party valuations of common stock and our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were prepared in accordance with the guidance outlined in theAmerican Institute of Certified Public Accountants' Accounting and Valuation Guide , Valuation of Privately-Held Company Equity Securities Issued as Compensation. Our common stock valuations were prepared using either a current value method, or CVM, an option pricing method, or OPM, or a hybrid method. To estimate our enterprise value, the CVM used an asset approach and the OPM and hybrid methods used a market approach. Under the CVM, once the fair value of the enterprise is established based on the balance sheet, the value is allocated to the various series of preferred and common stock based on their respective liquidation preferences or conversion values, whichever is greater. The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company's securities changes. Under this method, the common stock has value only if the funds available for distribution to stockholders exceeded the value of the preferred stock liquidation preferences at the time of the liquidity event, such as a strategic sale or a merger. The hybrid method is a probability-weighted expected return method, or PWERM, where the equity value in one or more of the scenarios is calculated using an OPM. The PWERM is a scenario-based methodology that estimates the fair value of common stock based upon an analysis of future values for the company, assuming various outcomes. The common stock value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available as well as the rights of each class of stock. The future value of the common stock under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability weighted to arrive at an indication of value for the common stock. A discount for lack of marketability of the common stock is then applied to arrive at an indication of value for the common stock. Prior to the initial public offering, these third-party valuations were performed at various dates. In addition to considering the results of these third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of common stock as of each grant date, including:
•
the prices at which we sold our preferred stock and the superior rights and preferences of our preferred stock relative to those of our common stock at the time of each grant;
•
the progress of our research and development programs, including the status of preclinical studies and clinical trials for our product candidates;
•
our stage of development and our business strategy;
•
external market conditions affecting the biotechnology industry and trends within the biotechnology industry;
•
the competitive landscape for similar products for the treatment and prevention of COVID-19;
•
our financial position, including cash on hand, and our historical and forecasted performance and operating results;
•
the lack of an active public market for our common stock and our preferred stock;
•
the likelihood of achieving a liquidity event, such as an initial public offering, or IPO, or a sale of our company, given prevailing market conditions; and
•
the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.
The assumptions underlying these valuations represented management's best estimate, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could be materially different.
Stock-Based Compensation
We grant stock-based awards to employees, directors and non-employees in the
form of stock options to purchase shares of our common stock. We measure stock
options with service-based vesting granted to employees, directors and
non-employees
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based on the fair value on the date of grant using the Black-Scholes
option-pricing model. The Black-Scholes option-pricing model uses as inputs the
fair value of our common stock and assumptions we make for the 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. After the initial public offering, the fair value
of our common stock is based on the quoted market price of our common stock. Due
to the proximity to the IPO, we continue to lack company-specific historical and
implied volatility information. Therefore, we estimate our expected stock
volatility based on the historical volatility of a publicly traded set of peer
companies and we expect to continue to do so until such time that we have
adequate historical data regarding the volatility of our own traded stock price.
We have issued awards with only service-based vesting conditions through
December 31, 2021 . Compensation expense for awards granted to employees and
directors for their service on the board of directors is recognized on a
straight-line basis over the requisite service period of the respective award,
which is generally the vesting period of the award. Compensation expense for
awards granted to non-employees is recognized in the same period and manner as
if we had paid cash for the goods or services provided, which is generally the
vesting period of the award. We account for forfeitures of stock-based awards as
they occur.
In future periods, we expect stock-based compensation expense to increase due to
our existing unrecognized stock-based compensation expense and to additional
stock-based awards we expect to grant to continue to attract new hires and
retain our existing employees.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations and cash flows is disclosed in Note 2 to our consolidated financial statements appearing at the end of this Annual Report on Form 10-K.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth
company" such as us to take advantage of an extended transition period to comply
with new or revised accounting standards applicable to public companies until
those standards would otherwise apply to private companies. We have elected not
to "opt out" of such extended transition period, which means that when a
standard is issued or revised and it has different application dates for public
or private companies, we will adopt the new or revised standard at the time
private companies adopt the new or revised standard and will do so until such
time that we either (i) irrevocably elect to "opt out" of such extended
transition period or (ii) no longer qualify as an emerging growth company. We
may choose to early adopt any new or revised accounting standards whenever such
early adoption is permitted for private companies.
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