In this document, the terms "
This Quarterly Report on Form 10-Q (this "10-Q") contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect our current expectations about our future results, performance, prospects and opportunities. This 10-Q contains forward-looking statements that can involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, future revenue, timing and likelihood of success, plans and objectives of management for future operations, future results of anticipated products and prospects, plans and objectives of management are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "contemplate," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "should," "target," "will," or "would" or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. Factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements contained in this report include, but are not limited to, statements about:
? the ability of our clinical trials to demonstrate safety and efficacy of our
product candidates, and other positive results;
? the timing and focus of our ongoing and future preclinical studies and clinical
trials, and the reporting of data from those studies and trials;
? the size of the market opportunity for our product candidates, including our
estimates of the number of patients who suffer from the diseases we are
targeting;
? the success of competing therapies that are or may become available;
? the beneficial characteristics, safety, efficacy and therapeutic effects of our
product candidates;
? our ability to obtain and maintain regulatory approval of our product
candidates;
? our plans relating to the further development of our product candidates,
including additional disease states or indications we may pursue;
? existing regulations and regulatory developments in
and other jurisdictions;
? our plans and ability to obtain or protect intellectual property rights,
including extensions of existing patent terms where available and our ability
to avoid infringing the intellectual property rights of others;
? the need to hire additional personnel and our ability to attract and retain
such personnel;
? our estimates regarding expenses, future revenue, capital requirements and
needs for additional financing;
? the effect that global pathogens could have on financial markets, materials
sourcing, patients, governments and population (e.g., COVID-19);
? our need to raise additional capital, the difficulties we may face in obtaining
access to capital, and the dilutive impact it may have on our investors;
? our financial performance; and
? the period over which we estimate our existing cash and cash equivalents will
be sufficient to fund our future operating expenses and capital expenditure
requirements.
The forward-looking statements contained in this 10-Q are made on the basis of
the views and assumptions of management regarding future events and business
performance as of the date this 10-Q is filed with the
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Overview and Recent Developments
Overview
We are a clinical stage biotechnology company developing regenerative medicines to address unmet medical needs. The Company's lead investigational product is Lomecel-B™, an allogeneic medicinal signaling cell (MSC) therapy product isolated from the bone marrow of young, healthy adult donors. Lomecel-B™ has multiple modes of action that include pro-vascular, pro-regenerative, and anti-inflammatory mechanisms, promoting tissue repair and healing with broad potential applications across a spectrum of disease areas.
We are currently pursuing three pipeline indications: Hypoplastic Left Heart Syndrome (HLHS), Aging Frailty, and Alzheimer's disease (AD). Our mission is to advance Lomecel-B and other cell-based product candidates into pivotal Phase 3 trials, with the goal of achieving regulatory approvals, subsequent commercialization, and broad use by the healthcare community.
Our philosophy is that healthy aging can be improved through regenerative medicine approaches. Life expectancy has substantially increased over the past century as a result of medical and public health advancements. However, this increase in longevity has not been paralleled by the number of years a person is expected to live in relatively good health, with limited chronic disease and disabilities of aging - a period known as healthspan. As we age, we experience a decline in our own stem cells; a decrease in immune system function, known as immunosenescence; diminished blood vessel functioning; chronic inflammation, known as "inflammaging"; and other aging-related declines. Our preliminary clinical data suggest that Lomecel-B can potentially address these problems through multiple mechanisms of action, or MOAs, that simultaneously target key aging-related processes.
Improving healthspan is an imperative for governmental health agencies.
Our Strategy
Our core business strategy is to become a world leading regenerative medicine company through the development and commercialization of novel cell therapy products for unmet medical needs, with emphasis on aging-related indications. Key elements of our business strategy are as follows.
? Advance Lomecel-B and other regenerative medicine products to market. We are
advancing Lomecel-B into later stage clinical trials for the purpose of
achieving commercialization in one or more indications. Our studies throughout
the clinical development process are intended to generate safety and efficacy
data needed to advance these programs and establish foundations for subsequent
development and expansion into new areas. We will continue to leverage our
technical and clinical expertise, and relationships with clinical
investigators, treatment centers, and other key stakeholders, to explore new
opportunities.
? Expand our manufacturing capabilities to commercial-scale production. We
operate a good manufacturing practice (GMP) - compliant manufacturing facility
and produce our own product candidates for testing. We continue to improve and
expand our capabilities with the goal of achieving cost-effective manufacturing
that may potentially satisfy future commercial demand should Lomecel-B achieve
commercialization.
? Non-dilutive funding. Our clinical programs have received over
competitive extramural grant awards (
awarded to us and which are recognized as revenue when the performance
obligations are met) from the
and allow us to collaborate with state and federal partners in pursuing safe
and effective therapeutics for disorders that have few, if any, available
approved treatments.
? Continue to develop our existing international programs. We have selected
as our first non-
placebo-controlled clinical trial to evaluate Lomecel-B for Aging Frailty. We
may explore other indications in
and other indications in additional international locations for further
development and commercialization.
? Collaboration arrangements and out-licensing opportunities. We will be
opportunistic and consider entering into co-development, out-licensing,
commercialization or other collaboration agreements for the purpose of
commercializing Lomecel-B and other products domestically and internationally.
? Product candidate development pipeline through internal research and
development, and in-licensing. Through our research and development program,
and through strategic in-licensing agreements, or other business development
arrangements, we continue to actively explore promising potential additions to
our pipeline of product candidates.
? Continue to expand our intellectual property portfolio. Our intellectual
property is vitally important to our business strategy, and we take significant
steps to develop this property and protect its value. Results from our ongoing
research and development efforts are intended to add to our existing
intellectual property portfolio.
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Impact of COVID-19 Pandemic and other Macroeconomic Conditions
We continue to monitor new developments on the effects of COVID-19 on our
employees, business, and clinical trials. During the initial stages associated
with the spread of COVID-19, we instructed all employees who could perform their
essential employment duties from home to do so. Our laboratory scientists,
cell-processing scientists and other manufacturing personnel continued to work
from our GMP facility and headquarters on a day-to-day basis, and as such, cell
production was minimally impacted. Certain other employees continue to maintain
a fully remote or "hybrid" work arrangement as their roles allow. When the
pandemic began to emerge in the
In
As it relates to current macroeconomic conditions in the
Recent Developments
Lomecel-B for Hypoplastic Left Heart Syndrome (HLHS):
? The ELPIS II trial (Phase 2a) continues to enroll infants in the 38-patient,
2-arm, parallel design, randomized (1:1), blinded, controlled trial intended to
evaluate the safety and efficacy of Lomecel-B injection into the right
ventricle of children born with HLHS who are undergoing Stage II reconstructive
cardiac surgery. All seven planned clinical sites have now been activated for
screening and enrollment, and we are continuing to monitor timelines for the
trial as patients continue to be enrolled.
? A manuscript detailing the full Phase 1 ("ELPIS I") trial results (the top-line
data having been previously announced on
the pre-print server MedRxiv and is in the submission process at peer-reviewed
journal(s), with acceptance and publication currently anticipated in the fourth
quarter of 2022.
Lomecel-B for Aging Frailty:
? In collaboration with Dr.
Geriatrics and Gerontology (NCGG) in
investigator-initiated Japan Aging Frailty Phase 2 trial, we have focused the
strategy in
Regenerative Medicine (ASRM). The trial initiated in October of 2022 and the
first patient is expected to be enrolled before the end of 2022. This trial is
a 3-arm, parallel design, randomized (1:1:1), placebo-controlled, double-blind
single infusion study of two different dose levels of Lomecel-B being conducted
by our clinical partners at the NCGG (
(
? A manuscript detailing the full Phase 2b Aging Frailty trial results (the
top-line data having been previously announced on was on
in the submission process at peer-reviewed journal(s), with acceptance and
publication currently anticipated in 2022
Lomecel-B for Alzheimer's disease:
? In
design, randomized (1:1:1:1) Phase 2a clinical trial of Lomecel-B infusion in
patients with mild Alzheimer's disease. This study is intended to evaluate the
safety of single and multiple administrations of Lomecel-B compared to placebo
according to the following treatment groups:
o Group 1 (n=12): Placebo infusion (zero cells) on day 0, weeks 4, 8 and 12
o Group 2 (n=12): Lomecel-B infusion (25 million cells) on day 0, followed by
placebo infusions at Weeks 4, 8 and 12
o Group 3 (n=12): Lomecel-B infusion (25 million cells) on day 0, weeks 4, 8,
and 12
o Group 4 (n=12): Lomecel-B infusion (100 million cells) on day 0, weeks 4, 8,
and 12
? Other endpoints in the Phase 2a trial include brain volumetry by MRI,
biomarkers relevant to inflammation and endothelial/vascular systems, and
measures of cognitive function. We have activated 10 of a total of 12 clinical
sites to facilitate enrollment and have now successfully enrolled 48 out of the
48 planned patients. We completed the full enrollment of this study in October
2022. Further details about the trial design can be found on clinicaltrials.gov
by entering trial identifier NCT05233774.
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Lomecel-B for Acute Respiratory Distress Syndrome (ARDS) caused by either Covid-19 or Influenza Infection:
? The two-cohort, 70 patient (35 patients per cohort) Phase 1 trial has been
discontinued due to changes in the landscape of this disease resulting in a
lack of patients suffering from the condition resulting in an inability to
enroll patients into this study.
Components of Our Results of Operations
Revenue
We have generated revenue from three sources:
? Grant awards. Extramural grant award funding, which is non-dilutive, has been a
core strategy for supporting our ongoing clinical research. Since 2016 our
clinical programs have received over
grant awards (
recognized as revenue when the performance obligations are met) from the
? The Bahamas Registry Trial. Participants in The Bahamas Registry Trial pay us a
fee to receive Lomecel-B, imported into The
two private medical clinics in
investigational product in The
the
participation in the Registry Trial. The fee is recognized as revenue and is
used to pay for the costs associated with manufacturing and testing of
Lomecel-B, administration, shipping and importation fees, data collection and
management, biological sample collection and sample processing for biomarkers
and other data, and overall management of the Registry, including personnel
costs. Lomecel-B is considered an investigational treatment in The
is not licensed for commercial sale.
? Contract development and manufacturing services. From time to time, we enter
into fee-for-service agreements with third parties for our product development
and manufacturing capabilities.
Cost of Revenues
We record cost of revenues based on expenses directly related to revenue. For grants we record allocated expenses for Research and development costs to a grant as a cost of revenues. For the clinical trial revenue, directly related expenses for that program are allocated and accrued as incurred. These expenses are similar to those described under "Research and development expense" below.
Selling and Marketing Expenses
Selling and marketing expenses consist primarily of royalty and license fees
associated with our agreements with the
Research and Development Expenses
Research and development costs are charged to expense when incurred in
accordance with
We currently do not carry any inventory for our product candidates, as we have yet to launch a product for commercial distribution. Historically our operations have focused on conducting clinical trials, product research and development efforts, and improving and refining our manufacturing processes, and accordingly, manufactured clinical doses of product candidates were expensed as incurred, consistent with the accounting for all other research and development costs. Once we begin commercial distribution, all newly manufactured approved products will be allocated either for use in commercial distribution, which will be carried as inventory and not expensed, or for research and development efforts, which will continue to be expensed as incurred.
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We expect that our research and development expenses will increase in the future as we increase our headcount to support increased research and development activities relating to our clinical programs, as well as incur additional expenses related to our clinical trials.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, business development and administrative functions. General and administrative expenses also include public company related expenses; legal fees relating to corporate matters; insurance costs; professional fees for accounting, auditing, tax and consulting services; 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 expect that our general and administrative expenses will increase in the
future as we increase our headcount to support increased administrative
activities relating to our becoming a public company. We also expect to incur
additional expenses associated with being a public company, including costs of
accounting, audit, legal, regulatory and tax-related services associated with
maintaining compliance with Nasdaq and
Other Income and Expenses
Interest income consists of interest earned on cash equivalents and short-term investments. We expect our interest income to increase due to the current cash and short-term investment balances. Other income consists of funds earned that are not part of our normal operations. In past years they have been primarily a result of tax refunds received for social security taxes as part of a research and development tax credit program.
Income Taxes
As of
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED
The following table summarizes our results of operations for the three months
ended
Three Months Ended September 30, Increase 2022 2021 (Decrease) Revenues$ 265 $ 232 $ 32 Cost of revenues 173 68 105 Gross profit 92 164 (72 ) Expenses General and administrative 2,074 2,996 (922 ) Research and development 2,960 2,048 912 Selling and marketing 245 25 220 Total operating expenses 5,279 5,069 210 Loss from operations (5,187 ) (4,905 ) (283 ) Interest expense - (1 ) 1 Other (expense) income (57 ) 51 (108 ) Net loss$ (5,244 ) $ (4,855 ) $ (389 )
Revenues, Cost of Revenues and Gross Profit:Revenues for the three months ended
22
Related cost of revenues was approximately
General and Administrative Expense: General and administrative expenses for the
three months ended
Research and Development Expenses: Research and development expenses for the
three months ended
Three Months EndedSeptember 30, 2022 2021
Clinical trial expenses-statistics, monitoring, labs, sites, etc.
287 100 Employee compensation and benefits 569 360 Equity-based compensation 101 878 Depreciation 184 182 Amortization 56 55 Travel 16 18 Other activities 10 -$ 2,960 $ 2,048
Selling and Marketing Expenses: Selling and marketing expenses for the three
months ended
Other (Expense) Income: Other expense for the three months ended
Net Loss: Net loss increased to approximately
COMPARISON OF THE NINE MONTHS ENDED
The following table summarizes our results of operations for the nine months endedSeptember 30, 2022 and 2021, together with the changes in those items in dollars (in thousands): Nine Months Ended September 30, Increase 2022 2021 (Decrease) Revenues$ 1,101 $ 1,097 $ 4 Cost of revenues 549 576 (27 ) Gross profit 552 521 31 Expenses General and administrative 6,481 8,454 (1,973 ) Research and development 6,107 5,359 748 Selling and marketing 766 132 634 Total operating expenses 13,354 13,945 (591 ) Loss from operations (12,802 ) (13,424 ) 622 Non-operating Lawsuit expense (1,398 ) - (1,398 ) Forgiveness of Paycheck Protection Program loan - 300 (300 ) Interest expense (1 ) (3 ) 3 Other (expense) income (177 ) 151 (328 ) Net loss$ (14,378 ) $ (12,976 ) $ (1,401 ) 23
Revenues, Cost of Revenues and Gross Profit:Revenues for each of the nine months
ended
Related cost of revenues was approximately
General and Administrative Expense: General and administrative expenses for the
nine months ended
Research and Development Expenses: Research and development expenses for the
nine months ended
Nine Months EndedSeptember 30, 2022 2021
Clinical trial expenses-statistics, monitoring, labs, sites, etc.
532 362 Employee compensation and benefits 1,579 860 Equity-based compensation 298 2,097 Depreciation 501 545 Amortization 156 138 Travel 57 46 Other activities 117 97$ 6,107 $ 5,359
Selling and Marketing Expenses: Selling and marketing expenses for the nine
months ended
Non-operating Lawsuit expense: Non-operating Lawsuit expense for the nine months
ended
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Forgiveness of Paycheck Protection Program loan: Forgiveness of the Paycheck
Protection Program loan for the nine months ended
Other (Expense) Income: Other expense for the nine months ended
Net Loss: Net loss increased to approximately
Cash Flows The following table summarizes our sources and uses of cash for the period presented (in thousands): Nine Months Ended September 30, 2022 2021 Net cash used in operating activities$ (11,661 ) $ (8,355 ) Net cash provided by investing activities (107 ) (9,381 )
Net cash (used in) provided by financing activities (316 ) 26,658 Change in cash and cash equivalents
$ (12,084 ) $ 8,922
Operating Activities. We have incurred losses since inception. Net cash used in
operating activities for the nine months ended
Investing Activities. Net cash provided by investing activities for the nine
months ended
Financing Activities. Net cash used in financing activities for the nine months
ended
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses as we advance the preclinical and clinical development of our programs. We expect that our sales, research and development and general and administrative costs will increase in connection with conducting additional preclinical studies and clinical trials for our current and future programs and product candidates, contracting with CROs to support preclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.
To date, we have financed our operations primarily through our IPO, private
placement equity financings, grant awards, and fees generated from the Bahamas
Registry Trial and contract manufacturing services. Since we were formed, we
have raised approximately
Grant Awards
From inception through
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Terms and Conditions of Grant Awards
Grant projects are typically divided into periods (e.g., a three-year grant may have three one-year periods), and the total amount awarded is divided according to the number of periods. At pre-specified time points, which are detailed in the grant award notifications, we are required to submit interim financial and scientific reports to the granting agency totaling funds spent, and in some cases, detailing use of proceeds and progress made during the reporting period. After funding the initial period, receipt of additional grant funds is contingent upon satisfactory submission of our interim reports to the granting agency.
Grant awards arise from submitting detailed research proposals to granting agencies and winning a highly competitive and rigorous application review and process that is judged on the merits of the proposal. There are typically multiple applicants applying and competing for a finite amount of funds. As such we cannot be sure that we will be awarded grant funds in the future despite our past success in receiving such awards.
Funding Requirements
Our operating costs will continue to increase substantially for the foreseeable future in connection with our ongoing activities. In past years we have been able to fund a large portion of our clinical programs and our administrative overhead with the use of grant funding.
Specifically, our expenses will increase as we:
? advance the clinical development of Lomecel-B for the treatment of several disease states and indications; ? pursue the preclinical and clinical development of other current and future research programs and product candidates; ? in-license or acquire the rights to other products, product candidates or technologies; ? maintain, expand and protect our intellectual property portfolio; ? hire additional personnel in research, manufacturing and regulatory and clinical development as well as management personnel; ? seek regulatory approval for any product candidates that successfully complete clinical development; and ? expand our operational, financial and management systems and increase personnel, including personnel to support our operations as a public company.
We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through the first half of 2024. We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect.
Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates, it is difficult to estimate with certainty the amount of our working capital requirements. Our future funding requirements will depend on many factors, including:
? the progress, costs and results of our clinical trials for our programs for our cell-based therapies; ? the progress, costs and results of additional research and preclinical studies in other research programs we initiate in the future; ? the costs and timing of process development and manufacturing scale-up activities associated with our product candidates and other programs we advance through preclinical and clinical development; ? our ability to establish and maintain strategic collaborations, licensing or other agreements and the financial terms of such agreements; ? the extent to which we in-license or acquire rights to other products, product candidates or technologies; and ? the costs and timing of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property-related claims.
Further, our operating results may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans. Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of equity offerings, debt financings, grant awards, collaboration agreements, other third-party funding, strategic alliances, licensing arrangements and marketing and distribution arrangements.
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We currently have no credit facility or committed sources of capital. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product candidates development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
In order to meet our operational goals, we will need to obtain additional capital, which we will likely obtain through a variety of means, including through public or private equity, debt financings or other sources, including up-front payments and milestone payments from strategic collaborations. To the extent that we raise additional capital through the sale of convertible debt or equity securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Such financing will likely result in dilution to stockholders, and may result in imposition of debt covenants, increased fixed payment obligations or other restrictions that may affect our business. If we raise additional funds through up-front payments or milestone payments pursuant to strategic collaborations with third parties, we may have to relinquish valuable rights to our product candidates or grant licenses on terms that are not favorable to us. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
Contractual Obligations and Commitments
As of
We have not included milestone or royalty payments or other contractual payment obligations if the timing and amount of such obligations are unknown or uncertain.
Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of financial condition, results of
operations and liquidity are based on our financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
While our significant accounting policies are described in more detail in the notes to our financial statements included in the 2021 10-K, we believe that the following accounting policies are those most critical due to the judgments and estimates used in the preparation of our financial statements.
Intangible assets. Intangible assets include payments on license agreements with our co-founder and CSO and UM and legal costs incurred related to patents and trademarks. License agreements have been recorded at the value of cash consideration and/or estimated value of membership units transferred to the respective parties when acquired. Payments on license agreements are amortized using the straight-line method over the estimated useful life of 20 years. Patents are amortized over their estimated useful life, once issued. We consider trademarks to have an indefinite useful life and evaluate them for impairment on an annual basis. Amortization expense is recorded in the research and development line of the Statement of Operations as the assets are primarily related to our clinical programs.
Impairment of Long-Lived Assets. We evaluate long-lived assets for impairment,
including property and equipment and intangible assets, when events or changes
in circumstances indicate that the carrying value of such assets may not be
recoverable. Upon the occurrence of a triggering event, the asset is reviewed to
assess whether the estimated undiscounted cash flows expected from the use of
the asset plus the residual value from the ultimate disposal exceeds the
carrying value of the asset. If the carrying value exceeds the estimated
recoverable amounts, the asset is written down to the estimated fair value. Any
resulting impairment loss is reflected on the statements of operations.
Management determined that there was no impairment of long-lived assets during
the three months ended
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Deferred revenue. The unearned portion of advanced grant funds and prepayments
for Clinical trial revenue, which will be recognized as revenue when the Company
meets the respective performance obligations, has been presented as deferred
revenue in the accompanying balance sheets. For the nine months ended
Revenue recognition. Effective
We recognize revenue when performance obligations related to respective revenue streams are met. For grant revenue, we consider the performance obligation met when the grant related expenses are incurred or supplies and materials are received. For clinical trial revenue, we consider the performance obligation met when the participant has received the therapy. For contract manufacturing revenue, we consider the performance obligation met when the contractual obligation and/or statement of work has been satisfied.
Cost of revenues. We record cost of revenues based on expenses directly related to revenue. For grant revenue, we record allocated expenses for research and development costs to a grant as a cost of revenues. Expenses directly related to clinical trial revenue are allocated and accrued as incurred. These expenses are similar to those described in the "Research and development expense" section of the Notes to the Condensed Financial Statements in this 10-Q.
Research and development expense. Research and development costs are charged to expense when incurred in accordance with FASB ASC 730, Research and Development. Research and development include costs such as clinical trial expenses, contracted research and license agreement fees with no alternative future use, supplies and materials, salaries, share-based compensation, employee benefits, property and equipment depreciation and allocation of various corporate costs. We accrue for costs incurred by external service providers, including contract research organizations and clinical investigators, based on estimates of service performed and costs incurred. These estimates include the level of services performed by the third parties, subject enrollment in clinical trials, administrative costs incurred by the third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.
Equity-based compensation. We account for equity-based compensation expense by the measurement and recognition of compensation expense for unit-based awards based on estimated fair values on the date of grant. The fair value of incentive awards is estimated at the date of the grant using a Black-Scholes option-pricing model.
The Black-Scholes option-pricing model requires the input of highly subjective assumptions, the most significant of which are the expected unit price volatility, the expected life of the option award, the risk-free rate of return, and dividends during the expected term. Because the option-pricing model is sensitive to changes in the input assumptions, different determinations of the required inputs may result in different fair value estimates for the incentive awards.
The Company estimates the fair value of its units by using the Black-Scholes
option-pricing model. Volatility is a measure of the amount by which a financial
variable, such as a unit price, has fluctuated (historical volatility) or is
expected to fluctuate (expected volatility) during a period. Given the Company's
limited historical data, the Company utilizes the average historical volatility
of publicly traded companies that are similar in the same industry. The
risk-free interest rate is the average
Emerging Growth Company Status
We are an "emerging growth company," as defined in the Jumpstart Our Business
Startups Act, or JOBS Act, which is a law intended to encourage funding of small
businesses in the
We will remain an "emerging growth company" until the earliest of (1) the last
day of the fiscal year in which we have total annual gross revenues of
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Recent Accounting Pronouncements
A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our audited financial statements included in Item 1 of this 10-Q.
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