SHATTUCK LABS, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed financial statements and related notes appearing in this Quarterly Report on Form 10-Q, as well as the audited financial statements, notes and Management's Discussion and Analysis of Financial Condition and Results of Operations, included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report entitled "Risk Factors." You should carefully read the "Cautionary Note About Forward-Looking Statements" of this Quarterly Report on Form 10-Q and "Risk Factors" sections of our Annual Report on Form 10-K to gain an understanding of the important factors that could cause actual results to differ materially from the results described below. Overview We are an innovative clinical-stage biotechnology company pioneering the development of dual-sided fusion proteins as an entirely new class of biologic medicine. We believe our approach has the potential to fundamentally transform the therapeutic modulation of the immune system. We have created a novel approach to immune-modulation by designing biologics with structural characteristics that are not achievable by existing therapeutic modalities. Compounds derived from our proprietary ARC® platform simultaneously inhibit checkpoint molecules and activate costimulatory molecules within a single therapeutic. Our initial product candidates are designed to be differentiated therapeutics addressing molecular targets that are well characterized and scientifically validated in immuno-oncology but are underexploited by current treatment modalities. Our lead, wholly-owned product candidate, SL-172154, has been rationally designed to simultaneously inhibit the CD47/SIRP? checkpoint interaction to restore an anti-tumor immune response and to activate the CD40 costimulatory receptor to bolster an immune response. We are currently conducting a Phase 1 clinical trial evaluating SL-172154 in patients with ovarian cancer, and we expect to announce initial data from the dose-escalation portion of this trial in the fourth quarter of 2021. We are also conducting a second Phase 1 trial evaluating SL-172154 in patients with cutaneous squamous cell carcinoma, or CSCC, or head and neck squamous cell carcinoma, or HNSCC, and we expect to announce initial data from the dose-escalation portion of this trial in the first half of 2022. Additionally, we intend to initiate Phase 1 clinical trials in certain hematologic malignancies, and we anticipate filing an Investigational New Drug Application for such clinical trials in the fourth quarter of 2021. Our second product candidate, SL-279252, which is being developed in collaboration with Takeda, has been rationally designed to simultaneously inhibit the PD-1/PD-L1 interaction and activate the OX40 receptor. We are evaluating SL-279252 in a Phase 1 clinical trial in patients with advanced solid tumors and lymphoma, and we expect to announce initial data from the dose-escalation portion of this trial in the fourth quarter of 2021. In addition to our clinical-stage ARC product candidates, we possess a deep pipeline of preclinical immuno-oncology product candidates. We anticipate nominating an additional ARC-derived product candidate for clinical development in the second half of 2021, with an associated regulatory filing anticipated in 2022. Longer-term, we are pursuing additional disease areas, including autoimmune diseases, where we believe our dual-sided fusion protein platforms may provide advantages over current treatment modalities. Since our inception in 2016, we have devoted substantially all of our resources to developing and perfecting our intellectual property rights, conducting research and development activities, including undertaking preclinical 16 -------------------------------------------------------------------------------- studies of our product candidates, conducting clinical trials of our most advanced product candidates, manufacturing our product candidates, organizing and staffing our company, business planning and raising capital. We do not have any products approved for sale, and we have not generated any revenue from product sales. We have funded our operations as of the filing date of this Quarterly Report on Form 10-Q through the net proceeds from our IPO of approximately$213.5 million , the sale of redeemable convertible preferred stock for approximately$152.9 million , the issuance of convertible notes for approximately$10.5 million and payments received pursuant to our collaboration agreement with Takeda for approximately$81.5 million . For the six months endedJune 30, 2021 and 2020, our net loss was$35.4 million and$12.8 million , respectively. We have not been profitable since inception, and as ofJune 30, 2021 , we had an accumulated deficit of$107.5 million and$304.8 million in cash and cash equivalents and short-term investments, respectively. We expect to continue to incur significant expenses and increasing operating losses in the near term. We expect our expenses will increase substantially in connection with our ongoing activities, as we: •continue to advance the preclinical and clinical development of our clinical-stage product candidates, SL-172154 and SL-279252; •initiate preclinical studies and clinical trials for additional product candidates that we may identify in the future; •expand our operational, financial and management systems; •increase personnel and infrastructure to support our clinical development, research and manufacturing efforts; •build out and expand our in-house process development and manufacturing capabilities; •continue to develop, perfect and defend our intellectual property portfolio; and •incur additional legal, accounting or other expenses in operating our business, including the additional costs associated with operating as a public company. We do not expect to generate significant product revenue unless and until we successfully complete development and obtain regulatory and marketing approval of, and begin to sell, one or more of our product candidates, which we expect will take several years. We expect to spend a significant amount in development and marketing costs prior to such time. We may never succeed in achieving regulatory and marketing approval for our product candidates. We may obtain unexpected results from our preclinical and clinical trials. We may elect to discontinue, delay or modify preclinical and clinical trials of our product candidates. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. Accordingly, until such time as we can generate significant product revenue, if ever, we expect to continue to seek private or public equity and debt financing to meet our capital requirements. There can be no assurance that such funding may be available to us on acceptable terms, or at all, or that we will be able to commercialize our product candidates. In addition, we may not be profitable even if we commercialize any of our product candidates. COVID-19 Pandemic There is significant uncertainty as to the future effects of the ongoing COVID-19 pandemic, which may, among other things, materially impact our business, including our ongoing and planned clinical trials. We have experienced, and expect to continue to experience, delays in our SL-172154 and SL-279252 clinical trials as a result of the ongoing pandemic. Our manufacturing operations have been impacted by the ongoing pandemic, including delays with our third-party manufacturer and difficulties in obtaining raw materials needed to manufacture material for our clinical trials. Additionally, we have experienced, and expect to continue to experience, delays in enrolling patients, missed treatments for enrolled patients, and performance delays from certain third-party vendors supporting the SL-172154 and SL-279252 clinical trials, although the significance of any future delays is difficult to predict. Further, due to public health guidance measures, we have in the past and may in the future implement a work-from-home policy for our employees, excluding those necessary to maintain minimum basic operations, which may 17 -------------------------------------------------------------------------------- negatively impact productivity, or disrupt, delay or otherwise adversely impact our business. For example, some of our research activities that require our personnel to be in our laboratories may be delayed. We may also experience delays or disruptions to our operations if and when our employees need to take time off work due to illness or other COVID-19-related impacts to our workforce. Due to the impact of the COVID-19 pandemic and work-from-home policies and other operational limitations mandated by federal, state and local governments as a result of the pandemic, certain of our research and development activities, including the conduct of preclinical studies, have been delayed and may be further delayed and other aspects of our business, such as the conduct of various corporate functions and the ability of our Board and management to provide oversight and guidance may be adversely impacted until such operational limitations are lifted. The COVID-19 pandemic or local outbreaks associated with the COVID-19 pandemic could result in difficulty manufacturing our product candidates, securing clinical trial site locations, CROs, and/or trial monitors and other critical vendors and consultants supporting our clinical trials. In addition, outbreaks or the perception of an outbreak near a clinical trial site location could impact our ability to enroll patients or to complete all scheduled physician visits for currently enrolled patients. These situations, or others associated with COVID-19 pandemic, could cause delays in our clinical trial plans and could increase expected costs, all of which could have a material adverse effect on our business and its financial condition. At the current time, we are unable to quantify the potential effects of the COVID-19 pandemic on our future operations. Collaboration Agreement OnAugust 8, 2017 , we entered into a Collaboration Agreement withMillennium Pharmaceuticals, Inc. , or Takeda, a wholly-owned subsidiary of Takeda Pharmaceutical Company, Ltd., or the Collaboration Agreement. The Collaboration Agreement was subsequently amended inApril 2018 ,October 2018 , andMarch 2020 . Pursuant to the Collaboration Agreement, we are required to use our commercially reasonable efforts to conduct preclinical and Phase 1 clinical trials for two molecules, SL-279252 and SL-115154, and Takeda has an exclusive option to license one or both of these clinical-stage ARC molecules for a specified amount of time up to and following the conclusion of each respective Phase 1 trial. While we are currently evaluating SL-279252 in a Phase 1 clinical trial, we have not yet conducted a Phase 1 clinical trial for SL-115154. During the development phase of the Collaboration Agreement, we may not, by ourselves or through a third party, develop or commercialize a compound, molecule or product that targets both PD-1 and OX40L, or a compound, molecule or product that targets both CSF1R and CD40L. Additionally, under the Collaboration Agreement, Takeda is granted a right of first negotiation to enter into licenses for each molecule within a specified class of ARC molecules. As ofJune 30, 2021 , under the Collaboration Agreement, we have received approximately$81.5 million in option payments, milestone payments, and expense reimbursements from Takeda, which includes an$11.3 million non-refundable up-front payment applied to the license fee for SL-279252. Pursuant to the Collaboration Agreement, we are eligible to receive up to an additional$33.8 million if Takeda exercises options to enter into license agreements for SL-279252 and$45.0 million if Takeda exercises options to enter into license agreements for SL-115154. If Takeda exercises its exclusive option to license one or both of the clinical-stage ARC molecules (SL-279252 and SL-115154), each license agreement would, among other things, require Takeda to be solely responsible to use its commercially reasonable efforts, at its cost, to develop, manufacture, and commercialize the licensed ARC molecules. If both ARC molecules are licensed, we would be entitled to additional payments of up to an aggregate of$450 million in clinical, regulatory, and sales milestone payments. In addition, we would be eligible for tiered royalty payments on net sales of licensed products at percentages ranging from the high single digits to sub-teens, subject to specified reductions, during the royalty term. Unless sooner terminated, the Collaboration Agreement will continue until the later of (a) the earlier of (i) the 90th day following delivery of a report detailing certain results of the SL-279252 Phase 1 clinical trial and (ii) the exercise by Takeda of its right to an exclusive license with respect to SL-279252, and (b) the earlier of (i) the 90th day following delivery of a report detailing certain results of the SL-115154 Phase 1 clinical trial and (ii) the exercise by Takeda of its right to an exclusive license with respect to SL-115154. Either party may terminate the Collaboration Agreement prior to expiration upon the insolvency or uncured material breach of the other party. 18 -------------------------------------------------------------------------------- Components of our Results of Operation Collaboration Revenue We have no products approved for commercial sale, and we have not generated any revenue from commercial product sales. Our total revenue to date has been generated solely from our Collaboration Agreement with Takeda. We expect to continue to recognize revenue under this agreement as development work is performed. We expect that any collaboration revenue we generate from our Collaboration Agreement with Takeda and any future collaboration partners will fluctuate from period to period. We have received cash of$3.0 million and$11.3 million for the six months endedJune 30, 2021 and 2020, respectively, from Takeda under the Collaboration Agreement. We have recognized total aggregate revenue of$50.0 million throughJune 30, 2021 under the Collaboration Agreement. Operating Expense Research and Development Our research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. These expenses include: •expenses incurred under agreements with contract research organizations, or CROs, as well as investigative sites and consultants that conduct our preclinical studies and clinical trials; •manufacturing and development expenses and the costs of acquiring and manufacturing preclinical study and clinical trial materials; •analysis of manufacturing processes for optimization; •employee-related expenses, including salaries, benefits and stock-based compensation; •fees paid to consultants who assist with research and development activities; •expenses relating to regulatory activities, including filing fees paid to regulatory agencies; •laboratory materials and supplies used to support our research activities; and •allocated expenses for facility-related costs. The following table summarizes our research and development expenses by product candidate: Six Months Ended June 30, (in thousands) 2021 2020 (unaudited) SL-172154$ 7,189 $ 6,701 SL-279252 5,614 2,765 Other pipeline candidates 5,171 2,445
Internal costs, including personnel related benefits, facilities and depreciation
7,245 3,981
$ 25,219 $ 15,892
Research and development activities are central to our business model. Product
candidates in later stages of clinical development generally have higher
development costs than those in earlier stages of clinical development,
primarily due to the increased size and duration of later-stage clinical trials.
We expect our research and development expenses to increase significantly over
the next several years as we conduct additional preclinical studies and clinical
trials, including later-stage clinical trials, for our current and future
product candidates and as we pursue regulatory approval of our product
candidates.
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The process of conducting the necessary preclinical and clinical research to
obtain regulatory approval is costly and time consuming. The actual probability
of success for our product candidates may be affected by a variety of factors
including:
•the safety and efficacy of our product candidates;
•early clinical data for our product candidates;
•investment in our clinical programs;
•the ability of collaborators to successfully develop our licensed product
candidates;
•competition;
•manufacturing capability; and
•commercial viability.
We may never succeed in achieving regulatory approval for any of our product
candidates due to the uncertainties discussed above. We are unable to determine
the duration and completion costs of our research and development projects or
when and to what extent we will generate revenue from the commercialization and
sale of our product candidates, if ever.
General and Administrative Expense
General and administrative expense consists primarily of personnel expenses,
including salaries, benefits and stock-based compensation expense, for employees
and consultants in executive, finance, accounting, legal, information technology
and human resource functions. General and administrative expense also includes
corporate facility costs, including rent, utilities, depreciation and
maintenance, not otherwise included in research and development expense, as well
as legal fees related to intellectual property and corporate matters and fees
for accounting and consulting services.
We expect that our general and administrative expense will increase in the
future to support our growing research and development activities and as a
result of the increased costs of operating as a public company. These increases
will likely include increased costs related to the hiring of additional
personnel and fees to outside consultants, lawyers and accountants, among other
expenses. Additionally, we anticipate increased costs associated with being a
public company, including expenses related to services associated with
maintaining compliance with the requirements of Nasdaq and the Securities and
Exchange Commission , or SEC , insurance, and investor relations costs. If any of
our current or future product candidates obtains regulatory approval, we expect
that we would incur significantly increased expenses associated with building a
sales and marketing team.
Interest Income
Interest income consists of interest earned on our cash, cash equivalents and
short-term investments, which consists of amounts held in a money market fund
and, at various times, in short-term government and corporate obligations.
Income Taxes
Since our inception, we have not recorded any income tax benefits for the net
operating losses, or NOLs, we have incurred or for our research and development
tax credits, as we believe, based upon the weight of available evidence, that it
is more likely than not that all of our NOLs and tax credits will not be
realized. Our NOLs and tax credit carryforwards will begin to expire in 2036. We
have recorded a full valuation allowance against our deferred tax assets at each
balance sheet date.
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Results of Operations
Comparison of the Three Months Ended June 30, 2021 and 2020
The following table sets forth our results of operations for the three months
ended June 30, 2021 and 2020.
Three Months Ended June 30, Change
(in thousands) 2021 2020 Dollar Percentage
(unaudited)
Collaboration revenue $ (4,231) $ 3,181 $ (7,412) (233.0) %
Operating expenses:
Research and development 14,882 7,755 7,127 91.9 %
General and administrative 5,399 1,746 3,653 209.2 %
Loss from operations (24,512) (6,320) (18,192) 287.8 %
Other income (expense):
Interest income 1,000 138 862 624.6 %
Other (86) (26) (60) 230.8 %
Net loss $ (23,598) $ (6,208) $ (17,390) 280.1 %
Collaboration Revenue
Collaboration revenue decreased by $7.4 million , or (233.0)%, to $(4.2) million
for the three months ended June 30, 2021 from $3.2 million for the three months
ended June 30, 2020 . We recognize revenue related to the development of
SL-279252 under the Collaboration Agreement on a cost-based input method. In the
second quarter of 2021, in connection with our modifications to the SL-279252
clinical development plan and our intention to expand the dose escalation
portion of the ongoing Phase 1 clinical trial, the expected program costs
related to the SL-279252 development program increased. The increase in the
expected total cost of the development program, or the denominator in the
cost-based input method, resulted in a one-time negative revenue adjustment.
Actual consideration received and total revenue expected to be recognized in
accordance with the development of SL-279252 under the Collaboration Agreement
remain unchanged.
Research and Development Expense
Research and development expenses increased by $7.1 million , or 91.9%, to
$14.9 million for the three months ended June 30, 2021 from $7.8 million for the
three months ended June 30, 2020 . The increase was primarily due to an increase
of $3.7 million in manufacturing costs as a result of the manufacturing of
clinical materials and expanded process development, an increase of $1.6 million
in compensation costs as a result of an increase in headcount and expansion of
our manufacturing and clinical development capabilities and an increase of $1.2
million in preclinical pipeline costs.
General and Administrative Expense
General and administrative expenses increased by $3.7 million , or 209.2%, to
$5.4 million for the three months ended June 30, 2021 from $1.7 million for the
three months ended June 30, 2020 . The increase was primarily due to an increase
of $2.2 million in personnel-related costs driven by higher employee headcount
needed to support our growing research and development activities and an
increase of $1.1 million of costs associated with being a public company.
Interest Income
Interest income increased by $0.9 million to $1.0 million for the three months
ended June 30, 2021 from $0.1 million for the three months ended June 30, 2020 .
The increase was primarily due to an increase in short-term investments in 2021
compared to 2020.
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Results of Operations
Comparison of the Six Months Ended
Six Months Ended June 30, Change
(in thousands) 2021 2020 Dollar Percentage
(unaudited)
Collaboration revenue $ (1,961) $ 6,157 $ (8,118) (131.8) %
Operating expenses:
Research and development 25,219 15,892 9,327 58.7 %
General and administrative 9,755 3,346 6,409 191.5 %
Loss from operations (36,935) (13,081) (23,854) 182.4 %
Other income (expense):
Interest income 1,696 387 1,309 338.2 %
Other (172) (68) (104) 152.9 %
Net loss $ (35,411) $ (12,762) $ (22,649) 177.5 %
Collaboration Revenue
Collaboration revenue decreased by $8.1 million , or (131.8)%, to $(2.0) million
for the six months ended June 30, 2021 from $6.2 million for the six months
ended June 30, 2020 . We recognize revenue related to the development of
SL-279252 under the Collaboration Agreement on a cost-based input method. In the
second quarter of 2021, in connection with our modifications to the SL-279252
clinical development plan and our intention to expand the dose escalation
portion of the ongoing Phase 1 clinical trial, the expected program costs
related to the SL-279252 development program increased. The increase in the
expected total cost of the development program, or the denominator in the
cost-based input method, resulted in a one-time negative revenue adjustment.
Actual consideration received and total revenue expected to be recognized in
accordance with the development of SL-279252 under the Collaboration Agreement
remain unchanged.
Research and Development Expense
Research and development expenses increased by $9.3 million , or 58.7%, to
$25.2 million for the six months ended June 30, 2021 from $15.9 million for the
six months ended June 30, 2020 . The increase was primarily due to an increase of
$3.1 million in manufacturing costs as a result of the manufacturing of clinical
materials and expanded process development, an increase of $2.7 million in
compensation costs as a result of an increase in headcount and expansion of our
manufacturing and clinical development capabilities, an increase of $1.7 million
in preclinical pipeline and facilities related costs and an increase of $1.2
million in clinical trial costs.
General and Administrative Expense
General and administrative expenses increased by $6.4 million , or 191.5%, to
$9.8 million for the six months ended June 30, 2021 from $3.3 million for the
six months ended June 30, 2020 . The increase was primarily due to an increase of
$3.6 million in personnel-related costs driven by higher employee headcount
needed to support our growing research and development activities and an
increase of $2.3 million of costs associated with being a public company.
Interest Income
Interest income increased by $1.3 million to $1.7 million for the six months
ended June 30, 2021 from $0.4 million for the six months ended June 30, 2020 .
The increase was primarily due to an increase in short-term investments in 2021
compared to 2020.
Liquidity and Capital Resources
Since our inception, our primary sources of liquidity have been generated
through our Collaboration Agreement with Takeda and by sales of our preferred
stock and common stock, including our IPO. As of June 30 ,
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2021, we had an accumulated deficit of $107.5 million and $304.8 million of cash
and cash equivalents and short-term investments.
Capital Resources and Funding Requirements
Our primary uses of cash and cash equivalents and short-term investments are to
fund our operations, which consist primarily of research and development
expenditures related to our programs, product development costs, research
expenses, administrative support, capital expenditures related to bringing
in-house certain process development and manufacturing capabilities and working
capital requirements. We anticipate incurring additional net losses and negative
cash flows from operations in the near future until such time, if ever, that we
can generate significant sales of our product candidates currently in
development. Our future funding requirements will depend on many factors,
including:
•the scope, timing, progress and results of discovery, preclinical development,
laboratory testing and clinical trials for our product candidates;
•the costs of manufacturing our product candidates for clinical trials and in
preparation for marketing approval and commercialization;
•the extent to which we enter into collaborations or other arrangements with
additional third parties in order to further develop our product candidates;
•the costs of preparing, filing and prosecuting patent applications, maintaining
and enforcing our intellectual property rights and defending other intellectual
property-related claims;
•the costs and fees associated with the discovery, acquisition or in-license of
additional product candidates or technologies;
•our ability to establish additional collaborations on favorable terms, if at
all;
•the costs required to scale up our clinical, regulatory and manufacturing
capabilities;
•the costs of future commercialization activities, if any, including
establishing sales, marketing, manufacturing, distribution and storage
capabilities, for any of our product candidates for which we receive marketing
approval; and
•revenue, if any, received from commercial sales of our product candidates,
should any of our product candidates receive marketing approval.
Until we obtain regulatory approval to market our product candidates, if ever,
we cannot generate revenues from sales of our products. Even if we are able to
sell our products, we may not generate a sufficient amount of product revenues
to finance our cash requirements. Accordingly, we may seek to raise additional
capital through equity offerings and/or debt financings or from other potential
sources of liquidity, which may include new collaborations, licensing or other
commercial agreements for one or more of our development programs or patent
portfolios. There can be no assurance that such funding may be available to us
on acceptable terms, or at all. The issuance of equity securities may result in
dilution to stockholders and the issuance of debt securities may have rights,
preferences and privileges senior to those of our common stock and the terms of
any such debt securities could impose significant restrictions on our
operations. The failure to raise funds as and when needed could have a negative
impact on our financial condition and ability to pursue our business strategies.
Additionally, if additional funding is not secured when required, we may need to
delay or curtail our operations until such funding is received, which would have
a material adverse impact on our business prospects and results of operations.
We believe that our cash and cash equivalents and short-term investments as of
June 30, 2021 are sufficient to fund projected operations of the Company through
at least the end of 2024.
Cash Flows
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The following table shows a summary of our cash flows for the periods indicated:
Six Months Ended June 30,
(in thousands) 2021 2020
(unaudited)
Net cash used in operating activities $ (25,407) $ (8,268)
Net cash (used in) provided by investing activities (47,284) 15,179
Net cash provided by financing activities 1,287 117,120
Net increase (decrease) in cash and cash equivalents $
(71,404)
Net Cash Used in Operating Activities During the six months endedJune 30, 2021 , net cash used in operating activities was$25.4 million and primarily reflected our net loss of$35.4 million , offset by noncash charges of$2.9 million in stock-based compensation and$0.6 million in depreciation expense and a$6.5 million net decrease in our operating assets and liabilities. During the six months endedJune 30, 2020 , net cash used in operating activities was$8.3 million and primarily reflected our net loss of$12.8 million , partially offset by noncash charges of$0.3 million in stock-based compensation and$0.3 million in depreciation expense and$3.9 million net increase in our operating assets and liabilities.Net Cash (Used in) Provided by Investing Activities During the six months endedJune 30, 2021 , net cash used in investing activities was$47.3 million , of which$117.3 million was used to purchase short-term investments,$75.0 million was received from the sale of short-term investments and$5.0 million was used to purchase property and equipment, primarily attributable to our continued efforts to bring in-house certain process development, manufacturing and laboratory capabilities. During the six months endedJune 30, 2020 , net cash provided by investing activities was$15.2 million , of which$18.3 million was received from the sale and maturities of short-term investments,$2.7 million was used to purchase short-term investments and$0.4 million was used to purchase property and equipment. Net Cash Provided by Financing Activities During the six months endedJune 30, 2021 , net cash provided by financing activities was primarily from the exercise of stock options. During the six months endedJune 30, 2020 , net cash provided by financing activities was$117.0 million and was primarily from the sale of our Series B and Series B-1 redeemable convertible preferred stock. Contractual Obligations and Other Commitments There have been no material changes from the Contractual Obligations and Other Commitments disclosed in Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Off-Balance Sheet Arrangements During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in off-balance sheet financing arrangements. In addition, we do not engage in trading activities involving non-exchange traded contracts. We, therefore, believe that we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships. Critical Accounting Policies Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and 24 -------------------------------------------------------------------------------- expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, the accrual for research and development expenses, and the valuation of stock-based awards. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be 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. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our financial statements. We believe that the assumptions and estimates associated with our most critical accounting policies are those relating to revenue, accrued research and development costs and stock-based compensation. There have been no material changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Recent Accounting Pronouncements See Note 2 to our financial statements found elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements. Emerging Growth Company and Smaller Reporting Company Status We are an emerging growth company as defined in the JOBS Act. Under the JOBS Act, an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards and delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We have evaluated the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including without limitation exemptions to the requirements for (1) providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (2) complying with any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the completion of our initial public offering, (ii) in which we have total annual gross revenues of at least$1.07 billion or (iii) in which we are deemed to be a "large accelerated filer" under the rules of theSEC , which means the market value of our common stock that is held by non-affiliates exceeds$700.0 million as of the priorJune 30th or (b) the date on which we have issued more than$1.0 billion in non-convertible debt during the prior three-year period. We are also a "smaller reporting company" as defined under the Exchange Act. 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$250.0 million or (ii) our annual revenue is less than$100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than$700.0 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 on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation. 25
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