RENEO PHARMACEUTICALS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and notes thereto and the related Management's Discussion and Analysis of Financial Condition and Results of Operations included in our prospectus datedApril 8, 2021 that forms a part of our Registration Statement on Form S-1 (File No. 333-254534), as filed with theSecurities and Exchange Commission (SEC) pursuant to Rule 424(b) under the Securities Act of 1933, as amended (the Securities Act), onApril 9, 2021 (Prospectus). Unless otherwise indicated, all references in this Quarterly Report on Form 10-Q to "Reneo," the "company," "we," "our," "us" or similar terms refer toReneo Pharmaceuticals, Inc. and its subsidiary.
Forward-Looking Statements
In addition to historical financial information, this discussion contains
forward-looking statements based upon current expectations that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth in the section titled "Risk Factors" under Part II,
Item 1A below. In some cases, you can identify forward-looking statements by
terminology such as "anticipate," "believe," "continue," "could," "estimate,"
"expect," "intend," "may," "plan," "potentially," "predict," "should," "will" or
the negative of these terms or other similar expressions.
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In addition, statements that "we believe" and similar statements reflect our
beliefs and opinions on the relevant subject. These statements are based upon
information available to us as of the date of this Quarterly Report on Form
10-Q, and while we believe such information forms a reasonable basis for such
statements, such information may be limited or incomplete, and our statements
should not be read to indicate that we have conducted an exhaustive inquiry
into, or review of, all potentially available relevant information. These
statements are inherently uncertain and investors are cautioned not to unduly
rely upon these statements.
Overview
We are a clinical-stage pharmaceutical company focused on the development and
commercialization of therapies for patients with rare genetic mitochondrial
diseases, which are often associated with the inability of mitochondria to
produce adenosine triphosphate (ATP). Our lead product candidate, REN001, is a
potent and selective agonist of the peroxisome proliferator-activated receptor
delta (PPAR?). REN001 has been shown to increase transcription of genes involved
in mitochondrial function and increase fatty acid oxidation, and may increase
production of new mitochondria.
The PPAR family of nuclear hormone receptors, PPARa, PPARb, and PPAR?, control
the transcription of genes critical for regulating energy metabolism and
homeostasis. PPAR? is highly expressed in muscle, kidney, brain, and liver
tissue. Activation of PPAR? results in changes in the expression of genes
involved with multiple aspects of energy metabolism including uptake of fatty
acids, utilization of fatty acids as an energy source, and mitochondrial
biogenesis.
Increases in PPAR? activity also correlate with a shift in muscle tissue towards
oxidative, fat-consuming type I fibers that are associated with endurance as
opposed to glycolytic, type II fibers. In preclinical and clinical studies,
increased PPAR? activity through transgenic overexpression or pharmacological
activation increases muscular strength and endurance across a variety of
functional measures. REN001 was studied in healthy volunteers with one leg
immobilized to produce muscle atrophy. Compared to placebo, administration of
REN001 resulted in statistically significant increases in the expression of
genes involved in mitochondrial oxidative phosphorylation, and statistically
significant improvements in muscle strength.
As a PPAR? agonist, REN001 may benefit patients with genetic mitochondrial
myopathies who experience weakness, fatigue, and/or deterioration in muscle due
to impaired mitochondrial energy production. We are initially developing REN001
in three rare genetic diseases that typically present with myopathy and have
high unmet medical needs: primary mitochondrial myopathies (PMM), long-chain
fatty acid oxidation disorders (LC-FAOD), and McArdle disease. Patients with
these diseases are unable to perform many everyday activities, and can
experience cardiomyopathy and other organ dysfunction. Patients with PMM or
LC-FAOD also typically have a reduced life expectancy.
We completed an open-label Phase 1b clinical trial in patients with PMM to
assess the safety and tolerability of REN001, and to measure changes in
functional tests such as walk distance and exercise capacity, as well as
patient-reported symptoms. REN001 was well-tolerated in this trial. Compared to
baseline, patients receiving REN001 once-daily for 12 weeks experienced an
average increase in a 12-minute walk test (12MWT) of 104 meters, and an average
increase of 1.7mL/kg/min in oxygen consumption (VO2), as well as a reduction in
patient-reported fatigue and pain.
Based on these results, we initiated the STRIDE study, a global, randomized,
double-blind, placebo-controlled Phase 2b clinical trial of REN001 in patients
with PMM. In July 2021 , we announced that the first patient was dosed in the
STRIDE study, and we expect to announce topline results from this study in 2023.
We also plan to conduct an open-label, long-term safety trial outside the United
States in a subset of patients from the STRIDE
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study, with preliminary data anticipated to be available in 2023. Following our interactions with theU.S. Food and Drug Administration (FDA) and several European regulatory agencies, we believe that positive results from these trials could support the registration of REN001 for PMM in boththe United States
and inEurope .
We are also conducting two exploratory, open-label Phase 1b clinical trials of REN001 in patients with LC-FAOD and with McArdle disease. We completed enrollment of the McArdle study inJuly 2021 , and expect to announce results in the first quarter of 2022. The LC-FAOD study is continuing to enroll patients, and we also expect to announce results from this study in the first half of 2022. We are also enrolling an observational, non-international study of REN001 in patients with LC-FAOD to better understand disease characteristics of patients through exercise tests and symptom questionnaires (FORWARD study). The FORWARD study will also include work for validation of a new Reneo-developed patient questionnaire focused on muscle symptoms in LC-FAOD, which we plan to use in future trials. We anticipate the results of this study in the second half of 2022. Since our inception in 2014, our operations have focused on raising capital, establishing and protecting our intellectual property portfolio, organizing and staffing our company, business planning, and conducting preclinical and clinical development of and manufacturing development for REN001. We do not have any product candidates approved for sale, have not generated any revenue from product sales, and do not expect to generate revenues from the commercial sale of our product candidate for at least several years, if ever. Since inception, we have incurred significant operating losses. Our net losses were$16.4 million and$19.5 million for the six months endedJune 30, 2021 and the year endedDecember 31, 2020 , respectively. As ofJune 30, 2021 , we had an accumulated deficit of$61.4 million , and cash, cash equivalents and short-term investments of$167.3 million . We have funded our operations primarily through the issuance and sale of equity securities. From our inception throughJune 30, 2021 , we have raised an aggregate of$230.6 million in net proceeds primarily through equity financings, including the net proceeds from our initial public offering (IPO). We expect to continue to incur net operating losses for at least the next several years, and we expect our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase as we conduct our ongoing and planned clinical trials and preclinical studies, engage in other research and development activities, seek regulatory approvals for any product candidates that successfully complete clinical trials, incur development milestone payments related to our research and development activities, prepare for commercialization, hire additional personnel, protect our intellectual property and incur additional expenses as a result of operating as a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities. As a result, we will need to raise additional capital. Until such time as we can generate significant revenue from sales of our product candidate, if ever, we expect to finance our operations through public or private equity offerings or debt financings, credit or loan facilities, collaborations, strategic alliances, licensing arrangements or a combination of one or more of these funding sources. Additional funds may not be available to us on acceptable terms or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and disruptions to, and volatility in, the credit and financial markets inthe United States and worldwide resulting from the ongoing COVID-19 pandemic. If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. Based upon our current operating plan, we believe that our cash, cash equivalents, and short-term investments as ofJune 30, 2021 will enable us to fund our operating expenses and capital expenditure requirements through our planned near-term clinical milestones. We do not own or operate manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of REN001 for preclinical studies and clinical trials, as well as for commercial manufacturing if REN001 obtains marketing approval. We also rely, and expect to continue to rely, on third parties to manufacture, package, label, store, and distribute REN001, if marketing approval is obtained. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of REN001. 20 Table of Contents COVID-19
The COVID-19 pandemic continues to evolve, and we will continue to monitor the COVID-19 situation closely. The extent of the impact of the COVID-19 on our business, operations and clinical development timelines and plans remains uncertain, and will depend on certain developments, including the duration and spread of the pandemic, including new variants of the virus, and its impact on our clinical trial enrollment, trial sites, contract research organizations, third-party manufacturers, and other third parties with whom we do business, as well as its impact on regulatory authorities and our key scientific and management personnel. For example, our Phase 1b clinical trial of REN001 in PMM patients was closed early as a result of COVID-19, and we may face future clinical trial disruptions. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. As a result of COVID-19, we have taken precautionary measures in order to minimize the risk of the virus to our employees and the communities in which we operate. To date, there has been a minimal disruption in our ability to ensure the effective operation of our business. We will continue to actively monitor the rapidly evolving situation related to COVID-19 and may take further actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. At this point, the extent to which the COVID-19 pandemic may affect our business, operations and clinical development timelines and plans, including the resulting impact on our expenditures and capital needs, remains uncertain.
License Agreement
InDecember 2017 , we entered into a License Agreement with vTv Therapeutics (the vTv License Agreement), under which we obtained an exclusive, worldwide, sublicensable license under certain vTv Therapeutics intellectual property to develop, manufacture and commercialize PPAR? agonists and products containing such PPAR? agonists, including REN001, for any therapeutic, prophylactic or diagnostic application in humans. Under the terms of the vTv License Agreement, we paid vTv Therapeutics an initial upfront license fee payment of$3.0 million and issued to vTv Therapeutics shares of our common stock subject to antidilution provisions under the agreement. Upon the achievement of certain pre-specified development and regulatory milestones, we are also required to pay vTv Therapeutics up to an aggregate of$64.5 million . We are also required to pay vTv Therapeutics up to$30.0 million in total sales-based milestones upon achievement of certain sales thresholds of the licensed product. In addition, we are obligated to pay vTv Therapeutics tiered royalty payments at mid-single digit to low teen percentage royalty rates, based on tiers of annual net sales of licensed products, subject to certain customary reductions. InJuly 2021 , a milestone under the vTv License Agreement was achieved, and we became obligated to make a payment of$2.0 million to vTv Therapeutics.
Components of Our Results of Operations
Operating Expenses
Research and Development Expenses
To date, our research and development expenses have related primarily to preclinical and clinical development of REN001. Research and development expenses include:
? personnel expenses, including salaries, benefits, and stock-based compensation
expense;
external expenses incurred under agreements with contract research
? organizations (CROs), investigative sites and consultants to conduct and
support our preclinical studies and clinical trials;
laboratory supplies related to manufacturing our product candidate for clinical
? trials and preclinical studies, including fees paid to third-party
manufacturers;
? expenses related to regulatory activities, including filing fees paid to
regulatory agencies;
? facility costs including rent, depreciation, and maintenance expenses; and
? fees for maintaining licenses under our third-party licensing agreements.
Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. Costs for certain
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activities, such as manufacturing and preclinical studies and clinical trials,
are generally recognized based on an evaluation of the progress to completion of
specific tasks using information and data provided to us by our vendors and
collaborators. We expense amounts paid to acquire licenses associated with
products under development when the ultimate recoverability of the amounts paid
is uncertain and the technology has no alternative future use when acquired. The
following table summarizes our research and development expenses for the three
and six months ended June 30, 2021 and 2020:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2021 2020 2021 2020
(in thousands) (in thousands)
Nonclinical $ 765 $ 1,551 $ 1,328 $ 2,425
Contract manufacturing cost 1,224 1,409 2,465 2,365
Clinical and regulatory 3,839 1,242 7,111 3,006
Research and development-other 451 (1,385) 847 (1,401)
Total $ 6,279 $ 2,817 $ 11,751 $ 6,395
We expect our research and development expenses to increase substantially for
the foreseeable future as we advance our product candidate into and through
clinical trials, continue to conduct preclinical studies and pursue regulatory
approval of our product candidate. The process of conducting the necessary
clinical research to obtain regulatory approval is costly and time-consuming.
The actual probability of success for our product candidate may be affected by a
variety of factors including: the safety and efficacy of our product candidate,
early clinical data, investment in our clinical program, competition,
manufacturing capability and commercial viability. We may never succeed in
achieving regulatory approval for our product candidate. As a result of the
uncertainties discussed above, 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 and obtain regulatory approval for our
product candidate. Our research and development costs may vary significantly
based on factors such as:
? the scope, rate of progress, expense and results of clinical trials and
preclinical studies; ? per patient trial costs;
? the number of trials required for approval;
? the number of sites included in the trials;
? the countries in which the trials are conducted;
? the number of patients that participate in the trials;
? uncertainties in patient enrollment or drop out or discontinuation rates,
particularly in light of the current COVID-19 pandemic environment;
? potential additional safety monitoring requested by regulatory agencies;
? the duration of patient participation in the trials and follow-up;
? the safety and efficacy of our product candidate;
? the cost and timing of manufacturing our product candidates; and
? the extent to which we establish strategic collaborations or other
arrangements.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel expenses,
including salaries, benefits, and stock- based compensation expense, for
personnel in executive, finance, accounting, compliance and human resource and
other administrative functions. General and administrative expense also includes
corporate facility costs not otherwise included in research and development
expenses, legal fees related to intellectual property and corporate matters,
insurance costs and fees for accounting and consulting services.
We expect our general and administrative expenses to increase significantly for
the foreseeable future to support continued research and development activities,
including our ongoing and planned research and development of our product
candidate for multiple indications. We also anticipate incurring additional
expenses associated with operating as a public company, including increased
expenses related to audit, legal, regulatory, and tax-related services
associated
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with maintaining compliance with the rules and regulations of the
Other Income
Other income consists of interest income on our cash, cash equivalents and short-term investments.
Results of Operations
Comparison of Three and Six Months Ended
The following table summarizes our results of operations for the three and six
months ended
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2021 2020 CHANGE 2021 2020 CHANGE
Operating expenses:
Research and development $ 6,279 $ 2,817 $ 3,462 $ 11,751 $ 6,395 $ 5,356
General and administrative 2,949 882 2,067 4,691 1,807 2,884
Total operating expenses 9,228 3,699 5,529 16,442 8,202 8,240
Loss from operations (9,228) (3,699) (5,529) (16,442) (8,202) (8,240) Other income 12 12 - 14 84 (70) Net loss$ (9,216) $ (3,687) $ (5,529) $ (16,428) $ (8,118) $ (8,310) Operating Expenses
Research and Development Expenses
Research and development expenses for the three months endedJune 30, 2021 were$6.3 million , compared to$2.8 million for the three months endedJune 30, 2020 . This increase of$3.5 million was primarily due to an increase of$2.3 million related to clinical trial costs associated with the launch of our STRIDE and FORWARD studies as well as the restart of our Phase 1b clinical trials of LC-FAOD and McArdle disease and$0.4 million in employee and personnel related costs due to additional headcount required to support our clinical and CMC programs, offset by a$0.7 million decrease in expense related to completion of preclinical studies. The net increase was further offset by a reduction in credits to research and development expenses related to tax rebates paid in cash by theUnited Kingdom (UK ) government, as we did not receive a credit in the three months endedJune 30, 2021 , but received a$1.5 million tax rebate in the three months endedJune 30, 2020 . Research and development expenses for the six months endedJune 30, 2021 were$11.8 million , compared to$6.4 million for the six months endedJune 30, 2020 . This increase of$5.4 million was primarily due to an increase of$3.8 million related to clinical trial costs associated with the launch of our STRIDE and FORWARD studies as well as the restart of our Phase 1b clinical trials of LC-FAOD and McArdle disease and$1.5 million in employee and personnel related costs due to additional headcount required to support our clinical and CMC programs, offset by a$0.9 million decrease in expense related to completion of preclinical studies and a net decrease of$0.5 million in various other expense items. The net increase was further offset by a reduction in credits to research and development expenses related to tax rebates paid in cash by theUK government, as we received a$32,000 tax rebate in the six months endedJune 30, 2021 , as compared to a$1.5 million tax rebate received in the six months endedJune 30, 2020 . 23 Table of Contents
General and Administrative Expenses
General and administrative expenses for the three months endedJune 30, 2021 were$2.9 million , compared to$0.9 million during the three months endedJune 30, 2020 . This increase of$2.0 million was primarily attributable to an increase of$1.0 million in employee and personnel related expenses, an increase of$0.4 million of directors and officers insurance premiums following our IPO, an increase of$0.4 million of compensation expense related to the Performance Award (Note 7), and a net increase of$0.2 million of various other expense items. General and administrative expenses for the six months endedJune 30, 2021 were$4.7 million , compared to$1.8 million during the six months endedJune 30, 2020 . This increase of$2.9 million was primarily attributable to an increase of$1.9 million in employee and personnel related expenses, an increase of$0.4 million of directors and officers insurance premiums following our IPO, an increase of$0.4 million of compensation expense related to the Performance Award (Note 7), and a net increase of$0.2 million of various other expense items.
Other Income
Other income for the three months ended
Other income for the six months endedJune 30, 2021 was$14,000 compared to$84,000 during the six months endedJune 30, 2020 . This decrease of$70,000 was primarily attributable to lower interest income earned on deposits in money market accounts indexed to the federal funds rates, which declined significantly during the six months endedJune 30, 2021 .
Liquidity and Capital Resources
Overview
To date, we have incurred operating losses and negative cash flows from
operations. As of
We anticipate that we will continue to incur net losses for the foreseeable future as we continue research efforts and the development of our product candidates, hire additional staff, including clinical, scientific, operational, financial and management personnel, and incur additional costs associated with being a public company. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses. OnApril 13, 2021 , we completed our IPO and issued an aggregate of 6,250,000 shares of common stock at a price of$15.00 per share. We received net proceeds of$84.6 million , after deducting underwriting discounts, commissions and offering expenses. ThroughJune 30, 2021 , we have raised net cash proceeds of approximately$230.6 million primarily through equity financings, including the net proceeds from our IPO. As ofJune 30, 2021 , we had cash, cash equivalents and short-term investments of$167.3 million . We expect our cash, cash equivalents and short-term investments as ofJune 30, 2021 will be sufficient to fund our operations through our planned near-term clinical milestones. 24 Table of Contents Cash Flows The following table summarizes our cash flows for the six months endedJune 30, 2021 and 2020: SIX MONTHS ENDED JUNE 30, 2021 2020 (in thousands) Net cash used in operating activities$ (18,290) $
(7,384)
Net cash (used in) provided by investing activities (27,020) 6,199 Net cash provided by financing activities
132,065 26
Net increase (decrease) in cash and cash equivalents
Operating Activities Net cash used in operating activities for the six months endedJune 30, 2021 was$18.3 million , consisting primarily of our net loss of$16.4 million and a$3.6 million net decrease in operating assets and liabilities, partially offset by$1.7 million in non-cash charges primarily consisting of stock-based compensation expense. Net cash used in operating activities for the six months endedJune 30, 2020 was$7.4 million , consisting primarily of our net loss of$8.1 million and a$0.5 million net increase in operating assets and liabilities, partially offset by$0.2 million of stock-based compensation expense.
Investing Activities
Net cash used in investing activities for the six months endedJune 30, 2021 was$27.0 million consisting primarily of purchase of available-for-sale short-term investments.
Net cash provided by investing activities for the six months ended
Financing Activities
Net cash provided by financing activities for the six months endedJune 30, 2021 was$132.1 million , consisting primarily of$93.8 million of gross proceeds, net of issuance costs of$9.2 million paid during the six months endedJune 30, 2021 , raised from our IPO,$47.2 million of proceeds from the issuance of shares of Series B convertible preferred stock, and$0.2 million of proceeds from the exercise of stock options.
Net cash provided by financing activities for the six months ended
Funding Requirements
To date, we have not generated any revenue from product sales. We do not expect
to generate revenue from product sales unless and until we obtain regulatory
approval and commercialize REN001 or any future product candidates, and we do
not know when, or if at all, that will occur. We will continue to require
additional capital to develop REN001 and fund operations for the foreseeable
future. Our primary uses of cash are to fund our operations, which consist
primarily of research and development expenses related to our clinical
development programs, and to a lesser extent, general and administrative
expenses. We expect our expenses to continue to increase in connection with our
ongoing activities as we continue to advance REN001 through clinical development
and regulatory approval. Furthermore, we expect to incur additional costs
associated with operating as a public company. Our net losses may fluctuate
significantly from quarter-to-quarter and year-to-year, depending on the timing
of our clinical trials and our expenditures on other research and development
activities.
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We will need to raise additional capital through public or private equity
offerings or debt financings, credit or loan facilities, collaborations,
strategic alliances, licensing arrangements or a combination of one or more of
these funding sources. Additional funds may not be available to us on acceptable
terms or at all. Our ability to raise additional funds may be adversely impacted
by potential worsening global economic conditions and disruptions to, and
volatility in, the credit and financial markets in the United States and
worldwide resulting from the ongoing COVID-19 pandemic. If we fail to obtain
necessary capital when needed on acceptable terms, or at all, it could force us
to delay, limit, reduce or terminate our product development programs,
commercialization efforts or other operations.
Our future capital requirements will depend on many factors, including:
? the scope, progress, results and costs of clinical trials and preclinical
studies for REN001;
? the scope, prioritization and number of our research and clinical indications
we pursue;
? the costs and timing of manufacturing for our product candidates;
? the costs, timing, and outcome of regulatory review of REN001;
? the timing and amount of the milestone or other payments we must make to vTv
Therapeutics and any future licensors;
? the terms and timing of establishing and maintaining collaborations, licenses
and other similar arrangements;
the costs of preparing, filing and prosecuting patent applications, maintaining
? and enforcing our intellectual property rights and defending intellectual
property-related claims;
? the extent to which we acquire or in-license other product candidates and
technologies;
? the costs of securing manufacturing arrangements for commercial production;
our ability to achieve sufficient market acceptance, coverage and adequate
? reimbursement from third-party payors and adequate market share and revenue for
any approved products; and
? the costs of establishing or contracting for sales and marketing capabilities
if we obtain regulatory approvals to market any product candidates.
InDecember 2020 andMarch 2021 , we raised total gross proceeds of$94.8 million from the sale of Series B convertible preferred stock. InApril 2021 , we raised net proceeds of approximately$84.6 million in connection with our IPO. As ofJune 30, 2021 , we had$167.3 million in cash, cash equivalents and short-term investments. We believe, based upon our current operating plan, that our cash, cash equivalents and short-term investments as ofJune 30, 2021 will be sufficient to fund our operations through our planned near-term clinical milestones. Identifying potential product candidates and conducting preclinical studies and clinical trials is a time-consuming, expensive, and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidate, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of a product candidate that we do not expect to be commercially available for many years, if at all. Until such time as we can generate significant revenue from sales of our product candidate, if ever, we expect to finance our operations through public or private equity offerings or debt financings, credit or loan facilities, collaborations, strategic alliances, licensing arrangements or a combination of one or more of these funding sources. 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 these securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. If we raise funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidate that we would otherwise prefer to develop and market ourselves. 26 Table of Contents
Contractual Obligations & Commitments
During the six months endedJune 30, 2021 , there were no material changes to our contractual obligations as set forth in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Prospectus, except the following: InJune 2021 , we began leasing 5,137 square feet of office space for ourU.S. headquarters inIrvine, California under a non-cancelable operating lease with terms throughNovember 2026 . The lease provides for a 3% annual rent increase, five months of abated rent and a tenant improvement allowance of$6.50 per square foot. The total minimum lease payments over the life of the lease is
$1.6 million .
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have any off-balance sheet arrangements, as defined in the rules and regulations of theSEC .
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance withU.S. 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, expenses, and the disclosure of our contingent liabilities in our condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods. 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. Our critical accounting policies are described in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in the Prospectus and the notes to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. During the three months endedJune 30, 2021 , there were no material changes to our critical accounting policies from those discussed in the Prospectus.
Recent Accounting Pronouncements
See Note 2. to our condensed consolidated financial statements for a description of recent accounting pronouncements applicable to our condensed consolidated financial statements.
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