KALEIDO BIOSCIENCES, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and audited financial statements the notes thereto contained in our current report on Form 10-K filed with theSecurities and Exchange Commission (the "SEC"), onMarch 2, 2020 . Investors and others should note that we announce material financial information to our investors using our investor relations website ( https://investors.kaleido.com/ ),SEC filings, press releases, public conference calls and webcasts. We use these channels as well as social media to communicate with the public about our company, our business, our product candidates, and other matters. It is possible that the information we post on social media could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our company to review the information we post on the social media channels listed on our investor relations website.
Overview
We are a clinical-stage healthcare company with a differentiated,
chemistry-driven approach focused on targeting the microbiome to treat disease
and improve human health. We have built a proprietary product platform for
discovery and development that we believe will enable the rapid advancement of a
broad portfolio of novel product candidates into human clinical studies under
regulations supporting research with food. Our product candidates are Microbiome
Metabolic Therapies ("MMT" or "MMTs"), which are designed to modulate the
metabolic output and profile of the microbiome by driving the function and
distribution of the gut's existing microbes. We have an industrialized approach
to the discovery and development of MMTs, and our initial MMTs are novel
synthetic targeted glycans. Each targeted glycan is an ensemble of complex
carbohydrates that is intended to modulate microbial metabolism to drive a
specific biological response. We believe our MMTs have the potential to be novel
treatments across a variety of diseases and conditions.
The human microbiome is generally a community of more than 30 trillion microbes,
organisms that include bacteria, viruses, archaea and fungi, which reside on and
inside the human body. By evolving together over thousands of years, microbes
and humans have developed an intricate and mutually beneficial relationship.
Given the profound impact that microbes have on human health, this highly
complex microbial ecosystem has been referred to as a "newly discovered organ."
There is a growing body of research that links a healthy microbiome with overall
human health, while dysbiosis, or imbalance, in the microbiome has been
correlated with numerous human conditions, including those that can cause
significant morbidity and mortality. The gut microbiome remains a largely
untapped frontier in healthcare, and we believe that we are uniquely positioned
to succeed in translating its promise into solutions for human health.
Below is a snapshot of our current clinical pipeline. During the COVID-19 global
pandemic, our proprietary product platform provided Kaleido the flexibility to
initiate two new programs that are currently enrolling. The first is focused on
evaluating our MMT candidate, KB109, for individuals with mild-to-moderate
COVID-19. The second program is evaluating a new MMT candidate, KB295, in
mild-to-moderate ulcerative colitis. In addition to our clinical pipeline, there
is on-going effort to identify future clinical candidates in immune-oncology,
cardiometabolic and liver diseases, and immune-meditated diseases.
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Since our inception in 2015, we have devoted substantially all of our resources to building our proprietary product platform, developing our pipeline of MMT candidates, building our intellectual property portfolio and process development and manufacturing function, business planning, raising capital and providing general and administrative support for these operations. To date, we have primarily financed our operations through public offering of our equity securities, private placement of our convertible preferred stock and borrowings of long-term debt. We have incurred significant net losses since inception and expect to continue to incur net operating losses for the foreseeable future. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
• conduct preclinical studies, clinical studies and clinical trials for our
product candidates;
• advance the development of our product candidate pipeline;
• continue to discover and develop additional product candidates;
• continue to build out our proprietary product platform and to increase its
throughput for the discovery and nomination of product candidates;
• develop, acquire or in-license other product candidates and technologies;
• maintain, expand and protect our intellectual property portfolio;
• hire additional clinical, scientific and commercial personnel;
• expand manufacturing capabilities, including in-house and third-party
commercial manufacturing, through the purchase, renovation, customization and
operation of a manufacturing facility and securing supply chain capacity
sufficient to provide clinical study and clinical trial materials and
commercial quantities of any product candidates which we may commercialize;
• seek regulatory approvals for any product candidates for therapeutic
indications that successfully complete clinical trials;
• establish a sales, marketing and distribution infrastructure to commercialize
any products for which we may obtain regulatory approval or identify alternate
commercial pathways for such products; and
• add operational, financial and management information systems and personnel,
including personnel to support our product development and planned future
commercialization efforts, as well as to support our transition to a public
reporting company.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for or identify alternate non-drug pathways for our product candidates. If we obtain regulatory approval for or otherwise commercialize any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing 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 equity or debt financings or other capital sources, which may include 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 or delay our pursuit of potential in-licenses or acquisitions. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As ofSeptember 30, 2020 , we had$54.5 million in cash and cash equivalents and an accumulated deficit of$254.1 million . Based on our current operating plans, we have sufficient cash and cash equivalents to fund our operating expenses and capital expenditures into the second half of 2021. We will require additional capital to sustain our operations, including the development of our MMT candidates. We may implement cost reduction strategies, which may include amending, delaying, limited, reducing or terminating one or more of our ongoing or planned clinical trials of our product candidates. These factors raise substantial doubt about our ability to continue as a going concern. See "Liquidity and capital resources." 13
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In late 2019, a novel strain of a virus named SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes coronavirus disease, or COVID-19, was reported to have surfaced inWuhan, China , and has since spread to other regions and countries worldwide, includingthe United States andEurope . As part of the response to the COVID-19 pandemic, we closed our offices for a period of time, and have since opened them with additional safety measures in place, limiting the number of employees working in the office to individuals with a clear need to be in the office in order to achieve their job responsibilities. We are evaluating whether and when to open our offices further and intend to follow state and federal guidelines in making our decisions. The COVID-19 pandemic is still evolving, and may lead to additional actions that could have an impact on our business, including government-imposed quarantines, stay at home orders, travel restrictions, mandated business closures and other public health safety measures. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it has and will continue to impact our operations and the operations of our suppliers, vendors and business partners, and may take further precautionary and preemptive actions as may be required by federal, state or local authorities. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, our research programs or the global economy and we cannot presently predict the scope and severity of any potential business shutdowns or disruptions. Based on the information available to us at this time, we expect data from our two clinical studies of KB109 in COVID-19 in the first quarter of 2021, from our clinical study of KB295 in ulcerative colitis in mid-2021, and from our Phase 2 clinical trial of KB195 in UCD in the second half of 2021. Financial Overview Revenue We have recently begun to generate collaboration revenue but have not generated and do not expect to generate any revenue from the sale of products in the near future, if at all. If our development efforts for our current product candidates or additional product candidates that we may develop in the future are successful and can be commercialized, or if we enter into future collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements. The collaboration revenue recognized in 2020 relates to a research collaboration with Janssen's World Without Disease Accelerator, part of theJanssen Pharmaceutical Companies of Johnson & Johnson. The collaboration explores the potential for Kaleido's Microbiome Metabolic Therapies (MMT™) to prevent the onset of childhood allergy and other atopic, immune and metabolic conditions by driving specific microbiome features which support an appropriate maturation of the infant immune system. We do not expect the total revenue under this arrangement to be material in the aggregate.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. These expenses include:
• development and operation of our proprietary product platform;
• employee-related expenses, including salaries, related benefits and
stock-based compensation expense, for employees engaged in research and
development functions;
• expenses incurred in connection with the preclinical and clinical development
of our product candidates, including under agreements with third parties, such
as consultants and contract research organizations, or CROs;
• the cost of laboratory supplies and acquiring, developing and manufacturing
products for use in our preclinical studies, clinical studies and clinical
trials, including under agreements with third parties, such as consultants and
contract manufacturing organizations, or CMOs;
• facilities, depreciation and other expenses, which include direct or allocated
expenses for rent and maintenance of facilities and insurance; and
• costs related to compliance with regulatory requirements.
We expense research and development costs as incurred. 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.
Our direct external research and development expenses are tracked on a
program-by-program basis and consist of costs that include fees, reimbursed
materials and other costs paid to consultants, contractors, CMOs and CROs in
connection with our preclinical and clinical development and manufacturing
activities. We do not allocate employee costs, costs associated with our
discovery efforts, laboratory supplies and facilities expenses, including
depreciation or other indirect costs, to specific product development programs
because these costs are deployed across multiple programs and our platform
technology and, as such, are not separately classified.
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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. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:
• the timing and progress of preclinical and clinical development activities;
• the number and scope of programs we decide to pursue and their regulatory
paths to market;
• raising additional funds necessary to complete preclinical and clinical
development of and commercialize our product candidates;
• the progress of the development efforts of parties with whom we have entered
into and may enter into collaboration arrangements;
• our ability to maintain our current research and development programs and to
establish new ones;
• our ability to maintain existing and establish new licensing or collaboration
arrangements;
• the successful initiation and completion of clinical trials with safety,
tolerability and efficacy profiles that are satisfactory to the
• the receipt and related terms of regulatory approvals from applicable
regulatory authorities for any product candidates for therapeutic indications;
• the availability of specialty raw materials for use in production of our
product candidates;
• establishing agreements with third-party manufacturers for clinical supply for
our clinical trials and commercial manufacturing, if any of our product
candidates is approved or commercialized on an alternate regulatory pathway;
• meeting demand in a timely fashion with sufficient supply at appropriate
quality levels;
• our ability to obtain and maintain patents, trade secret protection and
regulatory exclusivity, both in
• our ability to protect our rights in our intellectual property portfolio;
• the commercialization of our product candidates, if and when approved if
approval to market is required;
• obtaining and maintaining third-party insurance coverage and adequate
reimbursement;
• the acceptance of our product candidates, if commercialized, by patients,
consumers, the medical community and third-party payors;
• competition with other products; and
• a continued acceptable safety profile of our therapies following
commercialization.
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 or commercialization for any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related
costs, including stock-based compensation, for personnel in executive, finance,
corporate and business development and administrative functions. General and
administrative expenses also include legal fees relating to patent and corporate
matters; professional fees for accounting, auditing, tax and administrative
consulting services; insurance costs; administrative travel expenses; and
facility-related expenses, which include direct depreciation costs and allocated
expenses for rent and maintenance of facilities and other operating costs.
We anticipate that our general and administrative expenses will increase in the
future as we increase our headcount to support our continued research activities
and development of our product candidates.
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Table of Contents Results of Operations
Comparison of Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended September 30,
2020 2019 Change
(in thousands)
Revenue: $ 482 $ - $ 482
Collaboration revenue
Operating expenses:
Research and development 15,659 16,188 (529 )
General and administrative 7,201 5,930 1,271
Total operating expenses 22,860 22,118 742
Loss from operations (22,378 ) (22,118 ) (260 )
Other income (expense)
Interest income 21 429 (408 )
Interest expense (713 ) (258 ) (455 )
Other expense (61 ) (14 ) (47 )
Total other expense, net (753 ) 157 (910 )
Net loss $ (23,131 ) $ (21,961 ) $ (1,170 ) Research and Development Expenses
Three Months Ended September 30,
2020 2019 Change
(in thousands)
Personnel-related $ 3,606 $ 5,436 $ (1,830 )
Stock-based compensation expense 962 929 33
External manufacturing and research 6,126 6,852 (726 )
Laboratory supplies and research materials 538 351 187
Professional and consulting fees 1,786 848 938
Facility-related and other 2,641 1,772 869
Total research and development expenses
16,188$ (529 ) Research and development expenses decreased by$0.5 million for the three months endedSeptember 30, 2020 as compared to the three months endedSeptember 30, 2019 . The decrease in personnel-related costs of$1.8 million was due to decreased headcount in our research and development function. The decrease in external manufacturing and research of$0.7 million was primarily due to less costs incurred for our clinical studies with external CROs and external CMOs, less IND-enablement costs associated with our preclinical and clinical development activities and a decrease in production of study material used in preclinical and clinical studies. The increase in professional and consulting fees of$0.9 million was primarily the result of increased spend relating to our two COVID-19 studies. The increase in facility-related and other of$0.9 million was primarily due to increased facility operating costs associated with the expansion of our corporate headquarters that were attributed to the research and development function.
General and Administrative Expenses
Three Months Ended September 30,
2020 2019 Change
(in thousands)
Personnel-related $ 1,435 $ 1,900 $ (465 )
Stock-based compensation expense 3,398 1,980 1,418
Professional and consulting fees 996 1,024 (28 )
Facility-related and other 1,372 1,026 346
Total general and administrative expenses $ 7,201 $
5,930 $ 1,271
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General and administrative expenses increased by$1.3 million for the three months endedSeptember 30, 2020 as compared to the period endedSeptember 30, 2019 . The decrease in personnel-related cost of$0.5 million was primarily due to reduced headcount in our general and administrative functions. The increase in stock-based compensation expense of$1.4 million was primarily due to the modification of the vesting provision of stock options and restricted stock units related to the resignation of our former CEO. The increase in facility-related and other expenses of$0.3 million was primarily due to increased facility operating costs associated with the expansion of our corporate headquarters that were attributed to general and administrative functions.
Comparison of Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended September 30,
2020 2019 Change
(in thousands)
Revenue $ 732 $ - $ 732
Collaboration revenue
Operating expenses:
Research and development 41,629 50,145 (8,516 )
General and administrative 18,677 17,544 1,133
Total operating expenses 60,306 67,689 (7,383 )
Loss from operations (59,574 ) (67,689 ) 8,115
Other income (expense)
Interest income 244 1,419 (1,175 )
Interest expense (2,084 ) (776 ) (1,308 )
Change in fair value of warrant liability - 252 (252 )
Other expense (190 ) (25 ) (165 )
Total other expense, net (2,030 ) 870 (2,900 )
Net loss $ (61,604 ) $ (66,819 ) $ 5,215 Research and Development Expenses
Nine Months Ended September 30,
2020 2019 Change
(in thousands)
Personnel-related $ 12,382 $ 17,223 $ (4,841 )
Stock-based compensation expense 2,892 2,610 282
External manufacturing and research 12,222 21,461 (9,239 )
Laboratory supplies and research materials 1,304 1,164 140
Professional and consulting fees 4,850 2,605 2,245
Facility-related and other 7,979 5,082 2,897
Total research and development expenses $ 41,629 $ 50,145 $ (8,516 )
Research and development expenses decreased by $8.5 million for the nine months
ended September 30, 2020 as compared to the same period in 2019. The decrease in
personnel-related costs of $4.8 million was due to decreased headcount in our
research and development function. The decrease in external manufacturing and
research of $9.2 million was primarily due to less costs incurred for our
clinical studies with external CROs and external CMOs, less IND-enablement costs
associated with our preclinical and clinical development activities, and a
decrease in production of study material used in preclinical and human studies.
The increase in professional and consulting fees of $2.2 million was primarily
the result of increased spend relating to our studies. The increase in
facility-related and other expenses of $2.9 million was primarily due to
increased facility operating costs associated with the expansion of our
corporate headquarters that were attributed to the research and development
function.
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General and Administrative Expenses
Nine Months Ended September 30,
2020 2019 Change
(in thousands)
Personnel-related $ 4,813 $ 6,469 $ (1,656 )
Stock-based compensation expense 7,009 5,227 1,782
Professional and consulting fees 2,833 2,800 33
Facility-related and other 4,022 3,048 974
Total general and administrative expenses
17,544$ 1,133
General and administrative expenses increased by
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all. To date, we have primarily financed our operations through public offering of our equity securities, private placement of our preferred shares and borrowings of long-term debt. As ofSeptember 30, 2020 ,$22.5 million was outstanding under the debt facility and$12.5 million was available for borrowing contingent upon successful completion of financing and operational milestones. InMarch 2019 , we completed our IPO, pursuant to which we issued and sold 5,000,000 shares of common stock. We received aggregate net proceeds of$69.8 million , after deducting underwriting discounts and commissions, but before deducting offering costs totaling$3.8 million . OnJune 4, 2020 , the Company completed a public offering (the "Offering"), pursuant to which it issued and sold 4,750,000 shares of the common stock. The aggregate net proceeds received by the Company from the Offering were$34.4 million , including 185,000 shares exercised onJuly 1, 2020 for the Underwriters' option. During the three-month period endedSeptember 30, 2020 , the Company sold 214,800 shares of its common stock under the ATM which resulted in aggregate net proceeds of$1.9 million , which was received onOctober 2, 2020 and is included in other current assets atSeptember 30, 2020 . As ofSeptember 30, 2020 , there was$48.1 million available under the ATM. As ofSeptember 30, 2020 , we had$54.5 million in cash and cash equivalents and an accumulated deficit of$254.2 million . Based on our current operating plans, we have sufficient cash and cash equivalents or borrowing capacity to fund our operating expenses and capital expenditures into the second half of 2021. We will require additional capital to sustain our operations, including the development of our MMT candidates. We may implement cost reduction strategies, which may include amending, delaying, limiting, reducing or terminating one or more of our ongoing or planned clinical studies or clinical trials of our product candidates. These factors raise substantial doubt about our ability to continue as a going concern. Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: Nine Months Ended September 30, 2020 2019 (in thousands) Net cash used in operating activities$ (50,221 ) $ (60,149 ) Net cash used in investing activities (3,362 ) (2,588 ) Net cash provided by financing activities 36,750
67,930
Net (decrease) increase in cash, cash equivalents and restricted cash$ (16,833 ) $ 5,193
During the nine months endedSeptember 30, 2020 , operating activities used$50.2 million of cash, due to our net loss of$61.6 million , and net cash used as a result of changes in our operating assets and liabilities of$0.6 million , partially offset by non-cash charges of$12.0 million . Net cash used as a result of changes in our operating assets and liabilities consisted of a$4.0 million increase in prepaid expenses and other assets, partially offset by a$3.4 million increase in accounts payable, accrued expenses and other liabilities. 18
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During the nine months endedSeptember 30, 2019 , operating activities used$60.1 million of cash, due to our net loss of$66.8 million , and net cash used as a result of changes in our operating assets and liabilities of$1.9 million , partially offset by non-cash charges of$8.6 million . Net cash used as a result of changes in our operating assets and liabilities consisted of a$1.6 million increase in prepaid expenses and other assets and a$0.3 million decrease in accounts payable, accrued expenses, and other liabilities.
Changes in prepaid expenses and other current assets, accounts payable, accrued expenses and other liabilities were generally due to the advancement of our research programs and the timing of vendor invoices and payments.
During the nine months ended
Net Cash Provided by Financing Activities
During the nine months endedSeptember 30, 2020 , net cash provided by financing activities was$36.8 million , consisting primarily of proceeds from the Offering inJune 2020 , ATM inSeptember 2020 , and proceeds from the exercise of stock options. During the nine months endedSeptember 30, 2019 , net cash provided by financing activities was$67.9 million , consisting primarily of proceeds from our IPO inMarch 2019 , partially offset by IPO costs and$0.3 million in the settlement of our derivative liability. Credit agreement InDecember 2019 , we entered into a Credit Agreement ("the Credit Agreement") with Hercules Capital, Inc. (the "Lender"). Under the Credit Agreement, and we borrowed$22.5 million to us, with the option to drawn down an additional$12.5 million if certain milestones and conditions are met. The Credit Agreement contains customary representations and warranties, events of default and affirmative and negative covenants, including, among others, covenants that limit or restrict our ability to, amount other things, incur additional indebtedness, merge or consolidate, make acquisitions, pay dividends or other distributions or repurchase equity, make investment, dispose of assets and entered into certain transactions with affiliates, in each case subject to certain exceptions. As security under the Credit Agreement, we granted the Lender a first priority security interest on substantially all of our assets (other than intellectual property), subject to certain exceptions. Following the entry into a Second Amendment to Loan and Security Agreement, the facility has a 48-month term with interest only payments on the outstanding principal for the first 18 months, which can be extended to up to 24 months, depending on the achievement of certain performance milestones. The Term Loan will mature inJanuary 2024 and bears an interest rate of equal to the greater of (a) 9.35% and (b) 9.35% plus theWall Street Journal prime rate minus 3.25%. The Term Loan is subject to mandatory prepayment provisions that require prepayment upon the occurrence of a Change in Control event (as defined in the Credit Agreement). Funding Requirements Over the next several quarters we are focusing our activities on key exploratory and clinical studies and clinical trials which we expect will reduce our overall expense rate. In the periods that follow, assuming the success of our clinical studies and clinical trials, we anticipate our expenses to increase as we progress towards larger and more pivotal clinical studies and clinical trials of our product candidates, with the potential for larger clinical studies, clinical trials and associated manufacturing, The timing and amount of our operating expenditures will depend largely on:
• the commencement, enrollment or results of the planned clinical studies or
clinical trials of our product candidates or any future clinical studies or
clinical trials we may conduct, or changes in the development status of our
product candidates;
• the timing and outcome of regulatory review of our product candidates;
• our decision to initiate a clinical trial, not to initiate a clinical trial or
to terminate an existing clinical trial;
• changes in laws or regulations applicable to our product candidates, including
but not limited to clinical trial requirements for approvals;
• developments concerning our CMOs;
• our ability to obtain materials and to produce adequate current good
manufacturing practice compliant product supply for any approved or
commercialized product or inability to do so at acceptable prices;
• our ability to establish and maintain collaborations, if needed;
• the costs and timing of future commercialization activities, including product
manufacturing, marketing, sales and distribution, for any of our product
candidates for which we obtain marketing approval or identify an alternate
regulatory pathway to market;
• the costs involved in prosecuting patent applications and enforcing patent
claims and other intellectual property claims;
• additions or departures of key scientific or management personnel;
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• unanticipated serious safety concerns related to the use of our product
candidates; and
• the terms and timing of any collaboration, license or other arrangement,
including the terms and timing of any milestone payments thereunder.
We believe that our existing cash and cash equivalents, will enable us to fund our operating expenses, capital expenditure requirements and debt service into the second half of 2021. 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 cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or marketing, distribution 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 other arrangements when needed, we may be required to delay, reduce or eliminate 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 and Commitments
During the three months ended
Off-Balance Sheet Arrangements
As of
Critical Accounting Policies and Significant Judgments and Estimates
Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on 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 values of assets and liabilities 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. There have been no significant changes to our critical accounting policies from those described in our Annual Report on Form 10-K filed with theSEC onMarch 2, 2020 .
Recent Accounting Pronouncements
Refer to Note 2, "Summary of Significant Accounting Policies," in the accompanying notes to the consolidated financial statements for a discussion of recent accounting pronouncements.
Emerging Growth Company and Smaller Reporting 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 to not "opt out" of this provision and, as a result, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting 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 are also a "smaller reporting company" meaning that the market value of our stock held by non-affiliates is less than$700 million and our annual revenue was less than$100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than$250 million or (ii) our annual revenue was less than$100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than$700 million . If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. 20
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