SPRINGWORKS THERAPEUTICS, INC. The following discussion of the financial condition and results of operations ofSpringWorks Therapeutics, Inc. should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and our consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 , or 2020 Form 10-K, filed with theSecurities and Exchange Commission , orSEC , onFebruary 25, 2021 . In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. We caution you that forward-looking statements are not guarantees of future performance, and that our actual results of operations, financial condition and liquidity, and the developments in our business and the industry in which we operate, may differ materially from the results discussed or projected in the forward-looking statements contained in this Quarterly Report. We discuss risks and other factors that we believe could cause or contribute to these potential differences elsewhere in this Quarterly Report, including under Item 1A. "Risk Factors" and under "Special Note Regarding Forward-Looking Statements". In addition, even if our results of operations, financial condition and liquidity, and the developments in our business and the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report, they may not be predictive of results or developments in future periods. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of theSEC to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. Overview We are a clinical-stage biopharmaceutical company applying a precision medicine approach to acquiring, developing and commercializing life-changing medicines for underserved patient populations suffering from devastating rare diseases and cancer. We have a differentiated portfolio of small molecule targeted oncology product candidates and are advancing two potentially registrational clinical trials in rare tumor types, as well as several other programs addressing highly prevalent, genetically defined cancers. Our strategic approach and operational excellence in clinical development have enabled us to rapidly advance our two lead product candidates into late-stage clinical trials while simultaneously entering into multiple shared-value partnerships with industry leaders to expand our portfolio. From this foundation, we are continuing to build a differentiated global biopharmaceutical company intensely focused on understanding patients and their diseases in order to develop transformative targeted medicines. Our most advanced product candidate, nirogacestat, is an oral, small molecule gamma secretase inhibitor currently in development for the treatment of desmoid tumors, a rare and often debilitating and disfiguring soft tissue tumor for which there are currently no therapies approved by theU.S. Food and Drug Administration , or FDA. We believe nirogacestat may address the significant limitations associated with existing treatment options and has the potential to become the first therapy approved by the FDA for both newly diagnosed and previously treated desmoid tumors. Since we licensed nirogacestat from Pfizer Inc., or Pfizer, inAugust 2017 , the FDA has granted us Orphan Drug Designation, Fast Track Designation and Breakthrough Therapy Designation for this indication, and theEuropean Commission granted Orphan Drug Designation to nirogacestat for the treatment of soft tissue sarcoma. InMay 2019 , we announced the initiation of the DeFi trial, a potentially registrational Phase 3 clinical trial of nirogacestat for adult patients with desmoid tumors, and inJuly 2020 , we announced full enrollment of the DeFi trial. The primary endpoint for the DeFi trial is progression free survival, defined as the time from randomization until the date of assessment of radiographic progression as measured by RECIST v1.1, the date of assessment of clinical progression or death by any cause. Radiographic or clinical progression are determined by blinded independent central review. The DeFi trial is an event-driven trial. We expect to reach the 51 events required for the study analysis by the end of the year. We expect to report topline data results from the study, after data validation and data analysis, by the end of the fourth quarter of 2021 or in early 2022. In addition to the ongoing DeFi trial, a Phase 2 clinical trial was initiated in collaboration with theChildren's Oncology Group , or COG, inSeptember 2020 , to evaluate nirogacestat for the treatment of pediatric patients with desmoid tumors. Our second product candidate is mirdametinib, an oral, small molecule MEK inhibitor currently in development for the treatment of neurofibromatosis type 1-associated plexiform neurofibromas, or NF1-PN, a rare tumor of the peripheral nerve sheath that causes significant pain and disfigurement, and that most often manifests in children. We believe that mirdametinib has the potential to offer a best-in-class profile in order to enable the long-term treatment required for this patient population, as compared to other MEK inhibitors. As with nirogacestat, we licensed mirdametinib from Pfizer inAugust 2017 ; since then, the FDA has granted mirdametinib both Orphan Drug Designation and Fast Track Designation for NF1-PN, and theEuropean Commission has granted mirdametinib Orphan Drug Designation for NF1. InOctober 2019 , we announced the initiation of the ReNeu trial, a potentially registrational Phase 2b clinical trial of mirdametinib for pediatric and adult patients with NF1-PN. In 17 -------------------------------------------------------------------------------- Table of ContentsFebruary 2021 , we reported interim clinical data from the first 20 adult patients enrolled in the Phase 2b ReNeu trial, and updated interim clinical data from these patients were presented inJune 2021 at theChildren's Tumor Foundation NF Conference . We expect to complete enrollment of the trial in the second half of 2021. In addition, a Phase 1/2 clinical trial of mirdametinib for pediatric, adolescent and young adult patients with low-grade glioma was initiated bySt. Jude Children's Research Hospital , or St. Jude, pursuant to a research agreement that we entered into with St. Jude, whereby St. Jude is sponsoring the trial and we are providing partial funding, study drug and other non-financial support. In addition, a Phase 1b/2a platform clinical trial designed to evaluate mirdametinib both as a monotherapy and as a combination therapy in advanced solid tumors harboring MAPK-activating mutations was initiated byMemorial Sloan Kettering Cancer Center , or MSK. MSK is the sponsor of the study, and we are responsible for funding the study and for supplying mirdametinib for use in the study. In addition to our late-stage programs in rare oncology indications, we have expanded our portfolio to develop targeted therapies for the treatment of highly prevalent hematologic malignancies and genetically defined metastatic solid tumors. To advance this strategy, we are taking a precision medicine approach in collaboration with industry leaders. In hematologic malignancies, we have announced collaborations with GlaxoSmithKline, or GSK,Janssen Biotech, Inc. , Pfizer, Allogene Therapeutics, Inc., Precision BioSciences, Inc. and Seagen Inc., or Seagen, to develop novel combination regimens of nirogacestat alongside our collaborators' B-cell maturation antigen, or BCMA, directed therapies for the treatment of multiple myeloma. InOctober 2021 , we announced an update from our ongoing clinical collaboration with GSK evaluating nirogacestat in combination with BLENREP (belantamab mafodotin-blmf) in patients with relapsed or refractory multiple myeloma. In addition to our industry collaborations with leading BCMA-directed therapy developers, we are working with theFred Hutchinson Cancer Research Center to further explore nirogacestat's ability to potentiate BCMA-directed therapies as part of a sponsored research agreement. In genetically defined metastatic solid tumors, our most advanced efforts center on the mitogen activated protein kinase, or MAPK, pathway. In collaboration with BeiGene, Ltd., or BeiGene, we are exploring the combination of mirdametinib with BeiGene's lifirafenib in RAS mutated and other MAPK aberrant cancers. In addition, we are exploring the use of BGB-3245 in a distinct set of genetically defined BRAF mutated tumors viaMapKure, LLC , or MapKure, an entity jointly owned by us and BeiGene. Together, we believe that our portfolio provides multiple opportunities for value creation across three distinct categories of oncology programs, each of which has the potential to provide meaningful clinical benefit to patients suffering from severe rare diseases and cancer. In our late-stage rare oncology programs, we believe that our two potentially registrational trials with nirogacestat and mirdametinib each have best-in-class potential for the patient populations in which they are being advanced. In our malignant hematology programs, we believe that nirogacestat has the potential to become a cornerstone of BCMA combination therapy in multiple myeloma and we are seeking to achieve this goal by working with partners developing BCMA-targeted agents across modalities. In our biomarker defined metastatic solid tumor programs, we believe that our precision medicine approach to cancers harboring mutations in key MAPK pathway genes, such as RAS and BRAF, provides the opportunity for meaningful clinical benefit for biomarker defined patient populations. Furthermore, we intend to continue to expand our portfolio by licensing additional programs with strong biological rationales and validated mechanisms of action, such as the TEA Domain, or TEAD, inhibitor program that we in-licensed from Katholieke Universiteit Leuven, or KU Leuven, and theFlanders Institute for Biotechnology , or VIB, and the portfolio of epidermal growth factor receptor, or EGFR, small molecule inhibitors that we in-licensed fromDana-Farber Cancer Institute , or Dana-Farber, as referenced in 'Recent Developments' below. We also plan to continue using shared-value partnerships to maximize the potential of our therapies to serve patients. We continue to invest in building leading preclinical development, clinical development and commercial capabilities and have focused on structuring innovative partnerships that seek to align incentives and optimize business outcomes for each party involved. We believe that this approach will continue to allow us to expand our shared-value relationships with innovators, maximize the potential of our existing and future portfolio, and support the building of a scalable and sustainable business focused on the efficient advancement and commercialization of product candidates that hold the potential to transform the lives of patients living with severe rare diseases and cancer. Recent Developments InMay 2021 , we entered into an exclusive worldwide license agreement with KU Leuven and VIB, pursuant to which we in-licensed a portfolio of novel small molecule inhibitors of the TEAD family of transcription factors, designed for the potential treatment of biomarker-defined solid tumors driven by aberrant Hippo pathway signaling. Under the terms of the agreement, we made an upfront payment of$11 million to KU Leuven and VIB. Pursuant to the terms of the agreement, KU Leuven and VIB are also eligible to receive up to$285 million in development, regulatory and commercial milestones, and tiered single-digit percentage royalties based on any future net sales of products developed based on the in-licensed technology. InJune 2021 , we entered into a clinical collaboration with Seagen to evaluate nirogacestat in combination with SEA-BCMA, Seagen's investigational monoclonal antibody targeting BCMA in patients with relapsed or refractory multiple myeloma. Pursuant to the terms of the agreement, other than the manufacturing of nirogacestat and certain expenses related to intellectual 18 -------------------------------------------------------------------------------- Table of Contents property rights, Seagen is responsible for the conduct and expenses of the collaboration, which is governed by a joint development committee with equal representation from each party. InJune 2021 , a Phase 1/2 clinical trial of mirdametinib for pediatric, adolescent and young adult patients with low-grade glioma was initiated by St. Jude, pursuant to a research agreement that we entered into with St. Jude, whereby St. Jude is sponsoring the trial and we are providing partial funding, study drug and other non-financial support. InAugust 2021 , we announced a collaboration with MSK to conduct a Phase 1b/2a platform clinical trial designed to evaluate mirdametinib both as a monotherapy and as a combination therapy in advanced solid tumors harboring MAPK-activating mutations. MSK is the sponsor of the study, and we are responsible for funding the study and for supplying mirdametinib for use in the study. The trial initiated enrollment inSeptember 2021 and will initially explore mirdametinib in two patient cohorts: the first in combination with fulvestrant, a selective estrogen receptor degrader, in patients with estrogen receptor positive metastatic breast cancer with concurrent MAPK pathway alterations, and the second as a monotherapy in advanced solid tumors harboring oncogenic MEK1 or MEK2 mutations. InAugust 2021 , we entered into a research collaboration with Dana-Farber to further investigate nirogacestat in combination with BCMA-targeting agents in a variety of preclinical multiple myeloma models. SpringWorks will be responsible for funding the work and will retain an option to exclusively license any new intellectual property emerging from the research collaboration. InOctober 2021 , we entered into an exclusive worldwide license agreement with Dana-Farber and a sponsored research agreement with Stanford Medicine for a portfolio of novel small molecule inhibitors of Epidermal Growth Factor Receptor, or EGFR, designed for the treatment of EGFR-mutant cancers. Under the terms of the agreement, the Company is required to make an upfront payment to Dana-Farber and Dana-Farber will be eligible to receive development and commercial milestones and royalties based on any future net sales. InOctober 2021 , we announced an update from our ongoing collaboration with GSK evaluating nirogacestat in combination with BLENREP, GSK's antibody-drug conjugate targeting BCMA, in patients with relapsed or refractory multiple myeloma. The nirogacestat and BLENREP combination is being evaluated as a sub-study of GSK's ongoing Phase 1/2 DREAMM-5 platform trial. The first combination dose level that evaluated 0.95 mg/kg Q3W BLENREP plus nirogacestat has been expanded based on encouraging preliminary data observed in the dose exploration Phase 1 portion of the nirogacestat DREAMM-5 sub-study. This first dose level has advanced to a randomized Phase 2 cohort expansion and is now enrolling additional patients to further explore the safety and efficacy profile compared to a 2.5 mg/kg Q3W BLENREP monotherapy control arm, which is the same as the FDA approved monotherapy dose and schedule of BLENREP. In parallel, additional dose levels and schedules of BLENREP plus nirogacestat continue to be evaluated in the Phase 1 portion of the study. In addition, two new sub-studies will evaluate the BLENREP plus nirogacestat combination with standard-of-care multiple myeloma therapies in the DREAMM-5 trial. These two new sub-studies will explore BLENREP plus nirogacestat in combination with pomalidomide and dexamethasone and in combination with lenalidomide plus dexamethasone. Data from these sub-studies may enable future clinical trials in earlier lines of multiple myeloma. COVID-19 Impact InDecember 2019 , a novel strain of coronavirus, severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, was identified inWuhan, China . OnMarch 11, 2020 , theWorld Health Organization designated the outbreak of COVID-19, the disease associated with SARS-CoV-2, as a global pandemic. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including, but not limited to, shelter- in-place orders, quarantines, significant restrictions on travel, as well as restrictions that prohibit many employees from going to work. Since the onset of the COVID-19 pandemic, we have undertaken a number of business continuity measures to mitigate potential disruption to our operations and in order to preserve the integrity of our research and development programs. To date, we have not experienced any material disruptions to the execution of the research and development activities that we currently have underway; however, as a result of the pandemic, or any impacts of emerging variant strains of the COVID-19 virus, we may experience disruptions that could impact our research and development timelines and outcomes. We will continue to evaluate the impact of the ongoing COVID-19 pandemic, along with the impact of emerging variants, on our business. While the extent to which COVID-19 impacts our future results will depend on future developments, including the duration, spread and intensity of the pandemic (including any resurgences), the impact of emerging variant strains of the COVID-19 virus and the rollout of COVID-19 vaccines, all of which remain uncertain and difficult to predict, it is possible that the global pandemic and its associated economic impacts could result in a material impact to our business, future financial condition, results of operations and cash flows. 19 -------------------------------------------------------------------------------- Table of Contents Based on our cash, cash equivalents and marketable securities balance as ofSeptember 30, 2021 of$480.6 million , management estimates that its current liquidity position will enable it to meet operating expenses through at least 2022. For further details on our liquidity position, see the "Results of Operations." Components of our results of operations Revenue We have not generated, and do not expect to generate in the near future, any commercial revenue from the sale of products, if at all. If our development efforts for our current product candidates or additional product candidates that we may develop in the future are successful and can be commercialized, we may generate revenue in the future from product sales. We may enter into collaboration and license agreements from time to time that provide for certain payments due to us. Accordingly, we may generate revenue from such collaboration or license agreements in the future. Operating expenses Research and development expenses Our research and development expenses consist of expenses incurred in connection with the development of our product candidates. These expenses include: •employee-related expenses, which include salaries, benefits and stock-based compensation for our research and development personnel; •fees paid to consultants for services directly related to our research and development programs; •expenses incurred under agreements with third-party contract research organizations, or CROs, investigative clinical trial sites, academic institutions and consultants that conduct research and development activities on our behalf or in collaboration with us; •costs associated with preclinical studies and clinical trials; •costs associated with the manufacture of drug substance and finished drug product for preclinical testing and clinical trials; •costs associated with technology and intellectual property licenses; and •an allocated portion of facilities and facility-related costs, which include expenses for rent and other facility-related costs and other supplies. A significant portion of our research and development expenses are external costs, which we track on a program-by-program basis after a clinical product candidate has been identified. Other research and development expenses include internal research and development costs, such as compensation-related costs for our research and development employees, as well as depreciation and other indirect costs, which we do not track on a program-by-program basis. Expenditures for clinical development, including upfront licensing fees and milestone payments associated with our product candidates, are charged to research and development expense as incurred. These expenses consist of expenses incurred in performing development activities, including salaries and benefits, materials and supplies, preclinical expenses, clinical trial and related clinical manufacturing expenses, depreciation of equipment, contract services and other outside expenses. Costs for certain development activities, such as manufacturing and clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using either time-based measures or data such as information provided to us by our vendors on actual activities completed or costs incurred. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in activities related to developing our product candidates and our preclinical programs, and as certain product candidates advance into later stages of development, including our ongoing potentially registrational Phase 3 clinical trial for nirogacestat, or the DeFi trial, and our ongoing potentially registrational Phase 2b clinical trial for mirdametinib, or the ReNeu trial. The process of conducting the necessary clinical trials to obtain regulatory approval is costly and time consuming, and the successful development of our product candidates is highly uncertain. As a result, 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 any of our product candidates. General and administrative expenses 20 -------------------------------------------------------------------------------- Table of Contents General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, corporate, commercial, business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the continued development of our product candidates and expand operations to support the organization. Interest and other income Interest and other income consists primarily of interest income. Interest income consists of interest earned on our cash, cash equivalents and available-for-sale marketable securities. Equity investment loss The equity investment loss represents the Company's share of the losses from the MapKure investment, which is accounted for using the equity method of accounting. Results of Operations Comparison of the three months endedSeptember 30, 2021 and 2020 The following table summarizes our results of operations for the three months endedSeptember 30, 2021 andSeptember 30, 2020 : Three Months Ended September 30, (in thousands) 2021 2020 $ Change % Change Operating Expenses: Research and development$ 22,866 $ 13,923 $ 8,943 64 % General and administrative 18,029 7,669 10,360 135 % Total operating expenses 40,895 21,592 19,303 89 % Loss from operations (40,895) (21,592) (19,303) 89 % Interest and other income: Interest income, net 179 63 116 184 % Other income (loss) (58) - (58) 100 % Total interest and other income$ 121 $ 63 $ 58 92 % Equity investment loss (267) (130) (137) 105 % Net loss$ (41,041) $ (21,659) $ (19,382) 89 % Research and Development Research and development expense increased by$8.9 million to$22.9 million for the three months endedSeptember 30, 2021 from$13.9 million for the three months endedSeptember 30, 2020 , an increase of 64%. The increase in research and development expense was attributable to a$6.6 million increase in internal costs driven by the growth in employee costs associated with increases in the number of personnel and an increase in stock-based compensation expense and a$2.1 million increase in external costs related to drug manufacturing and trial costs. General and Administrative General and administrative expense was$18.0 million for the three months endedSeptember 30, 2021 , an increase of$10.4 million or 135% from$7.7 million for the three months endedSeptember 30, 2020 . 21 -------------------------------------------------------------------------------- Table of Contents The increase in general and administrative expense was primarily attributable to the hiring of additional personnel in our general and administrative functions, as we continued to expand our operations to support the organization, including commercialization preparation efforts that are underway, and an increase in stock-based compensation expense. In addition, general and administrative expense included an increase of$3.1 million in information technology costs, and consulting and professional services, including legal, regulatory and compliance. Comparison of the nine months endedSeptember 30, 2021 and 2020 The following table summarizes our results of operations for the nine months endedSeptember 30, 2021 andSeptember 30, 2020 : Nine Months Ended September 30, (in thousands) 2021 2020 $ Change % Change Operating Expenses: Research and development$ 72,332 $ 36,597 $ 35,735 98 % General and administrative 45,340 20,946 24,394 116 % Total operating expenses 117,672 57,543 60,129 104 % Loss from operations (117,672) (57,543) (60,129) 104 % Other income: Interest income, net 617 1,156 (539) (47) % Other income (loss) (96) - (96) 100 % Total other income, net$ 521 $ 1,156 $ (635) (55) % Equity investment loss (687) (459) (228) 50 % Net loss$ (117,838) $ (56,846) $ (60,992) 107 % Research and Development Research and development expense increased by$35.7 million to$72.3 million for the nine months endedSeptember 30, 2021 from$36.6 million for the nine months endedSeptember 30, 2020 , an increase of 98%. The increase in research and development expense was attributable to a$13.3 million increase in internal costs driven by the growth in employee costs associated with increases in the number of personnel and an increase in stock-based compensation expense, the$11.0 million nonrefundable upfront payment to KU Leuven and VIB for the in-licensing of the TEAD inhibitor program, and an increase of$11.2 million in external costs related to drug manufacturing and trial costs. General and Administrative General and administrative expense was$45.3 million for the nine months endedSeptember 30, 2021 , an increase of$24.4 million or 116% from$20.9 million for the nine months endedSeptember 30, 2020 . The increase in general and administrative expense was primarily attributable to the hiring of additional personnel in our general and administrative functions, as we continued to expand our operations to support the organization, including commercialization preparation efforts that are underway, and an increase in stock-based compensation expense. In addition, general and administrative expense included an increase of$4.7 million in information technology costs, and consulting and professional services, including legal, regulatory and compliance. Interest and Other Income The decrease in interest and other income was driven by a decrease in interest income, net, for the nine months endedSeptember 30, 2021 as compared to the nine months endedSeptember 30, 2020 . This decrease was attributable to a significant decline in interest rates which drove a lower return on cash, cash equivalents and marketable securities for the nine months endedSeptember 30, 2021 . Liquidity and Capital Resources Sources of Liquidity 22 -------------------------------------------------------------------------------- Table of Contents We have incurred operating losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the foreseeable future. Our net loss was$117.8 million and$56.8 million for the nine months endedSeptember 30, 2021 and 2020, respectively. We had an accumulated deficit of$236.4 million and$118.6 million as ofSeptember 30, 2021 andDecember 31, 2020 , respectively. Based on our cash, cash equivalents and marketable securities balances as ofSeptember 30, 2021 , management estimates that our liquidity position will enable it to meet operating expenses through at least twelve months after the date that this Quarterly Report is filed. Our marketable securities consist of high-quality, highly liquid available-for-sale debt securities including corporate debt securities,U.S. Government securities and commercial paper. Cash Flows The following table provides information regarding our cash flows for the nine months endedSeptember 30, 2021 andSeptember 30, 2020 : Nine Months Ended September 30, (in thousands) 2021 2020 Net cash used in operating activities (81,561) (47,257) Net cash provided by (used in) investing activities 27,411 (196,051) Net cash provided by financing activities 913 512 Net increase in cash and cash equivalents (53,237) (242,796) Cash and cash equivalents, beginning of period 147,654 328,192 Cash and cash equivalents, end of period $
94,417
Net Cash Used in Operating Activities Net cash used in operating activities was$81.6 million for the nine months endedSeptember 30, 2021 , which was driven by a net loss of$117.8 million offset by stock-based compensation expense of$26.6 million , a net increase from changes in operating assets and liabilities of$7.9 million , non-cash operating lease expense of$0.8 million and an equity investment loss of$0.7 million . Net cash used in operating activities was$47.3 million for the nine months endedSeptember 30, 2020 , driven by a net loss of$56.8 million offset by stock compensation of$7.0 million , a net increase from changes in operating assets and liabilities of$1.1 million , non-cash operating lease expense of$0.8 million and an equity investment loss of$0.5 million . Net Cash Provided by (Used in) Investing Activities Net cash provided by investing activities was$27.4 million for the nine months endedSeptember 30, 2021 and net cash used in investing activities was$196.1 million for the nine months endedSeptember 30, 2020 . Net cash provided by investing activities for the nine months endedSeptember 30, 2021 related to the sale and maturity of available-for-sale debt securities of$246.8 million , partially offset by the purchase of available-for-sale debt securities of$218.9 million and capital expenditures of$0.5 million . Net cash used in investing activities for the nine months endedSeptember 30, 2020 was driven by the purchase of available-for-sale debt securities of$192.0 million , theJune 2020 investment in MapKure of$3.5 million and capital expenditures of$0.6 million . Net Cash Provided by Financing Activities Net cash provided by financing activities for the nine months endedSeptember 30, 2021 andSeptember 30, 2020 consisted of proceeds from stock option exercises. Funding Requirements Our primary use of cash is to fund operating expenses, including our research and development 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, accrued expenses and prepaid expenses. Our future funding requirements will depend on many factors, including the following: •the initiation, progress, timing, costs and results of preclinical studies and clinical trials for our product candidates, including the DeFi trial and the ReNeu trial; 23 -------------------------------------------------------------------------------- Table of Contents •the clinical development plans we establish for our product candidates; •the number and characteristics of product candidates that we develop; •the outcome, timing and cost of meeting regulatory requirements established by the FDA, theEuropean Medicines Agency , or EMA, and other comparable foreign regulatory authorities; •the terms of our existing and any future license or collaboration agreements we may choose to enter into, including the amount of upfront, milestone and royalty obligations; •the other costs associated with in-licensing new technologies, such as any increased costs of research and development and personnel; •the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights; •the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates; •the effect of competing technological and market developments; •the cost and timing of completion of commercial-scale outsourced manufacturing activities; •the cost of establishing sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own; and •the degree of commercial success achieved following the successful completion of development and regulatory approval activities for a product candidate. We will need additional funds to meet operational needs and capital requirements for clinical trials, other research and development expenditures, and business development activities. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, current ownership interests will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect rights of common stockholders. 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 acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. Contractual Obligations During the nine months endedSeptember 30, 2021 , there were no material changes to our contractual obligations and commitments from those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations" in our 2020 Form 10-K. We enter into contracts in the normal course of business for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore we believe that our non-cancelable obligations under these agreements are not material. 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 under applicableSEC rules. Critical Accounting Policies and Use of Estimates This management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, research and development expense and the valuation of stock-based compensation awards. We base our estimates on historical experience, 24 -------------------------------------------------------------------------------- Table of Contents known trends and other market-specific or relevant factors that we believe to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions. On an ongoing basis, we evaluate our estimates, and adjust those estimates and assumptions when facts or circumstances change. Changes in estimates are recorded in the period in which they become known.Accrued Research and Development Expenses Research and development expenditures for clinical development, including upfront licensing fees and milestone payments associated with products that have not yet been approved by the FDA, are charged to research and development expense as incurred. These expenses consist of expenses incurred in performing development activities, including salaries and benefits, stock-based compensation expense, preclinical expenses, clinical trial and related clinical manufacturing expenses, contract services and other outside expenses. Expenses incurred for certain research and development activities, including expenses associated with particular activities performed by CROs, investigative sites in connection with clinical trials and contract manufacturing organizations, are recognized based on an evaluation of the progress or completion of specific tasks using either time-based measures or data such as information provided to us by our vendors for actual activities completed or costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of expense recognition. Expenses for research and development activities incurred that have yet to be invoiced by the vendors that perform the related activities are reflected in the consolidated financial statements as accrued research and development expenses. Advance payments for goods or services to be received in the future for research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed. We do not expect our estimates to be materially different from amounts actually incurred. For the periods presented, we have experienced no material differences between amounts accrued and actual expenses. Coronavirus Aid, Relief, and Economic Security Act, or CARES Act The CARES Act, which was enacted onMarch 27, 2020 , and related notices include several significant provisions, including delaying certain payroll tax payments and estimated income tax payments. We do not currently expect the CARES Act to have a material impact on our financial results, including on our annual estimated effective tax rate, or on our liquidity. American Rescue Plan As a follow-up to the CARES Act, the American Rescue Plan Act of 2021, or ARP Act, was signed into law onMarch 11, 2021 and includes several provisions intended to shore up the Patient Protection and Affordable Care Act, as amended, or ACA, including lower premiums for insurance purchased through the exchange marketplace, premium tax credits for insurance purchased by individuals on the exchange marketplace and providing significant subsidies for states that have not yet expanded their Medicaid programs under the ACA. These changes as well as other administrative changes such as extending enrollment periods for 2021 and increasing navigator funding for 2021 may decrease the uninsured patient populations while increasing enrollment from higher reimbursed commercial insurance to lower reimbursed exchange marketplace coverage. Although it is too early to determine the likely cumulative effect of these changes, such changes could impact our revenue depending on the number of covered individuals. We will continue to monitor and assess the impact the ARP Act, CARES Act and similar legislation may have on our business and financial results. Item 3. Quantitative and Qualitative Disclosure About Market Risk The primary objectives of our investment activities are to ensure liquidity and to preserve capital. We are exposed to market risks in the ordinary course of our business. These risks include interest rate sensitivities. We had cash, cash equivalents and marketable securities of$480.6 million and$561.8 million as ofSeptember 30, 2021 andDecember 31, 2020 , respectively, which consisted of bank deposits, highly liquid money market funds and investments in high-quality, highly liquid available-for-sale debt securities. Historical fluctuations in interest rates have not had a significant impact on our financial position, results of operations or cash flows. We had no outstanding debt as ofSeptember 30, 2021 . Due to the short-term maturities of our cash equivalents and the high-quality, highly liquid nature of our available-for-sale marketable securities, an immediate one percentage point change in interest rates would not have a material effect on the fair market value of our cash equivalents. To minimize the risk in the future, we intend to maintain our portfolio of cash equivalents and marketable securities in institutional market funds that are composed ofU.S. Treasury andU.S. Treasury -backed repurchase agreements, short-termU.S. Treasury securities and investments in high-quality, highly liquid available-for-sale debt securities including corporate debt securities, 25 -------------------------------------------------------------------------------- Table of Contents government-sponsored enterprise securities and commercial paper. We do not believe that inflation, interest rate changes or exchange rate fluctuations had a significant impact on our results of operations for any periods presented herein. Item 4. Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective at a reasonable assurance level in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission's rules and forms; and (ii) accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 26
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