TOURMALINE BIO, INC. You should read the following discussion and analysis of our financial condition and results of operations together with the "Selected Financial Data" section of this Quarterly Report on Form 10-Q (this "Quarterly Report") and our financial statements and the related notes appearing elsewhere in this Quarterly Report. This discussion and other parts of this Quarterly Report contain forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, intentions and projections. 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 "Risk Factors" section of this Quarterly Report.
Overview
We are a late-clinical stage, cell therapy company developing an innovative method of allogeneic hematopoietic stem cell transplantation ("allo-HSCT") that we believe has the potential to transform the standard of care in solid organ transplantation, certain severe autoimmune diseases and certain severe non-malignant blood, immune and metabolic disorders. In the organ transplant setting, which is our initial focus, we believe our proprietary therapeutic approach, which we call Facilitated Allo-HSCT Therapy, could prevent organ rejection without the morbidity and mortality that has been associated with the use of lifelong immunosuppression. Beyond the organ transplant setting, our Facilitated Allo-HSCT Therapy also has the potential to treat a range of severe non-malignant blood, immune and metabolic disorders, in each case with potential for similar outcomes to what has previously been observed with HSCT, while mitigating the toxicities, morbidities and extended hospital stay associated with the fully myeloablative conditioning typically required by HSCT. We believe that these indications, individually and collectively, represent a significant unmet need and commercial opportunity.
We were incorporated as
Since our inception, we have devoted substantially all of our resources to
developing our lead product candidate, FCR001, building our intellectual
property portfolio, business planning, raising capital and providing general and
administrative support for these operations. To date, we have principally
financed our operations through private placements of convertible preferred
stock, payments under a former research collaboration with
We have incurred significant operating losses since inception. Our ability to
generate product revenue sufficient to achieve profitability will depend heavily
on the successful development and eventual commercialization of our product and
any future product candidates. Our net loss was
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
Based upon our current operating plan, we believe that our existing cash and
cash equivalents and marketable securities of
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2025. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. To finance our operations beyond that point we will need to raise additional capital, which cannot be assured.
Impact of COVID-19 on Our Business
The worldwide COVID-19 pandemic and recent emergence of variants of the virus have affected and may affect in the future our ability to initiate and complete preclinical studies, delay the initiation and completion of our current and planned clinical trials, disrupt regulatory activities or have other adverse effects on our business, results of operations, financial condition and prospects. In addition, the pandemic has caused substantial disruption in the financial markets and may adversely impact economies worldwide, both of which could adversely affect our business, operations and ability to raise funds to support our operations.
We are following, and plan to continue to follow, recommendations from federal,
state and local governments regarding workplace policies, practices and
procedures. In response to the direction from state and local governmental
authorities, we have limited the access to our facility to those individuals who
are not performing critical research and laboratory support activities that must
be completed on site, limited the total number of such people that can be
present at our facility at any one time and required any employees working in
our facility to receive negative COVID-19 tests before entering site. Timely
enrollment in planned clinical trials is dependent upon clinical trial sites
which have been adversely affected by global health matters, such as COVID-19.
For example, screening and enrollment in our ongoing FREEDOM-1 Phase 3 clinical
trial in
We cannot be certain what the overall impact of the COVID-19 pandemic will be on our business, and it has the potential to adversely affect our business, financial condition, results of operations and prospects.
License Agreement
In
In addition, upon execution of the ULRF License Agreement, we granted contingent
equity consideration equal to 65,186 shares of common stock to ULRF. Pursuant to
the ULRF License Agreement, on or prior to our first underwritten public
offering or any transaction that is treated as a deemed liquidation event, we
are required to either issue to ULRF the 65,186 shares in common stock or make a
cash payment equal to the 65,186 shares of common stock multiplied by either the
price per share of common stock in the underwritten public offering or by the
price per share of common stock received in connection with such deemed
liquidation event. Coincident with the completion of our IPO in
Components of Our Results of Operations
Revenue
We have not generated any revenue since our inception and do not expect to generate any revenue from the sale of products in the future, if at all. If our product candidates we are currently developing and that we may develop in the future are successful and result in marketing approval or if we enter into collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements.
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Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the development and research of our novel cell therapy, as well as unrelated discovery program expenses. We expense research and development costs as incurred. These expenses include:
• employee-related expenses, including salaries, related benefits and
stock-based compensation expense, for employees engaged in research and
development functions;
• external research and development expenses incurred under arrangements with
third parties, such as CROs, investigational sites, and consultants;
• the cost of acquiring, developing, and manufacturing clinical study
materials;
• costs associated with preclinical and clinical activities and regulatory
operations;
• costs incurred in development of intellectual property; and
• an allocated portion of facilities and other infrastructure costs associated
with our research and development activities.
The Company enters into consulting, research, and other agreements with commercial entities, researchers, universities, and others for the provision of goods and services. Such arrangements are generally cancelable upon reasonable notice and payment of costs incurred. Costs are considered incurred based on an evaluation of the progress to completion of specific tasks under each contract using information and data provided by the respective vendors, including the Company's clinical sites. These costs consist of direct and indirect costs associated with specific projects, as well as fees paid to various entities that perform certain research on behalf of the Company. Depending upon the timing of payments to the service providers, the Company recognizes prepaid expenses or accrued expenses related to these costs. These accrued or prepaid expenses are based on management's estimates of the work performed under service agreements, milestones achieved, and experience with similar contracts. The Company monitors each of these factors and adjusts estimates accordingly.
The successful clinical development and subsequent commercialization of product candidates is highly uncertain. This is due to the numerous risks and uncertainties with product development and commercialization, including significant variations in our clinical development costs as well as the following factors:
• 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 length of time required to enroll eligible patients;
• the number of patients that participate in the trials;
• the length of hospitalization of patients in our clinical trials
• the drop-out or discontinuation rates of patients;
• potential additional safety monitoring requested by regulatory agencies;
• the duration of patient participation in the trials and follow-up;
• the cost and timing of manufacturing our product candidates;
• the phase of development of our product candidates;
• the efficacy and safety profile of our product candidates. the timing and
progress of nonclinical and clinical development activities;
• the number and scope of preclinical and clinical programs we decide to
pursue;
• raising necessary additional funds;
• the progress of the development efforts of parties with whom we may enter
into collaboration arrangements;
• our ability to maintain our current development program and to establish new
ones;
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• our ability to establish new licensing or collaboration arrangements;
• the successful initiation and completion of clinical trials with safety,
tolerability and efficacy profiles that are satisfactory to the FDA or any
comparable foreign regulatory authority;
• the receipt and related terms of regulatory approvals from applicable
regulatory authorities;
• the availability of drug substance and drug product for use in production of
our product candidate;
• the development of commercial scale manufacturing and distribution processes
for our product candidates;
• establishing and maintaining agreements with third-party manufacturers for
commercial manufacturing, if we pursue a third party manufacturing strategy
outside of the United States , and if our product candidate is approved;
• our ability to obtain and maintain patents, trade secret protection and
regulatory exclusivity, both in the United States and internationally;
• our ability to protect our rights in our intellectual property portfolio;
• the commercialization of our product candidate, if and when approved;
• obtaining and maintaining third-party insurance coverage and adequate
reimbursement;
• the acceptance of our product candidate, if approved, by patients, the
medical community and third-party payors;
• competition with other products; and
• a continued acceptable safety profile of our therapies following approval.
We may never succeed in obtaining regulatory approval for any of our current and future product candidates, including FCR001. We may obtain unexpected results from our preclinical studies and clinical trials including FREEDOM-1, FREEDOM-2, and FREEDOM-3. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials for FCR001 beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of any of our preclinical studies or execution or enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development. A change in the outcome of any of these variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates.
Research and development activities account for a significant portion of our operating expenses. We expect our research and development expenses to increase for the foreseeable future as we continue to implement our business strategy, which includes advancing FCR001 through clinical development of FREEDOM-1, FREEDOM-2 and FREEDOM-3 as well as other product candidates into clinical development, expanding our research and development efforts, including hiring additional personnel to support our research efforts, our clinical and product development efforts, and seeking regulatory approvals for our product candidates that successfully complete clinical trials.
We use our personnel and infrastructure resources across multiple research and development programs directed toward identifying and developing product candidates. Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, including fees paid to consultants, contractors and CROs in connection with our development activities and the cost of acquiring, developing, and manufacturing clinical study materials. At this time, we do not fully allocate personnel costs to individual programs as many of our personnel are deployed across multiple programs.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for personnel in executive, finance, corporate and business development, and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters, professional fees for accounting, auditing, tax and administrative consulting services, insurance costs and other operating costs, including an allocated portion of facilities and other infrastructure costs associated with our general and administrative activities.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support development of our product candidates and our continued research activities. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with being a public company.
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Other Income (Expense), Net
Other income (expense), net is comprised of interest income earned on cash reserves in our operating account and on our marketable securities, amortization expense and accretion income on our marketable securities and expense incurred in relation to the change in fair value of our contingent stock liability with ULRF.
Results of Operations
Comparison of Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three months ended June 30,
2021 2020 Change
(in thousands)
Operating expenses
Research and development $ 7,570 $ 3,402 $ 4,168
General and administrative 3,487 1,335 2,152
Total operating expenses 11,057 4,737 6,320
Loss from operations (11,057 ) (4,737 ) (6,320 )
Interest and other income (expense), net (295 ) 74 (369 )
Net loss $ (11,352 ) $ (4,663 ) $ (6,689 ) Research and development expenses
Three months ended June 30,
2021 2020 Change
(in thousands)
Direct research and development program
expenses:
FCR001 clinical and pre-clinical programs $ 1,940 $ 744 $ 1,196
Indirect research and development expenses:
Personnel related (including stock-based
compensation) 4,062 2,012 2,050
Facilities and other operating costs 1,568 646 922
Total research and development expenses
Research and development activities are central to our business model. We expect that our research and development expenses will continue to increase substantially for the foreseeable future as we advance FCR001 through clinical trials, including our FREEDOM- 1 Phase 3 clinical trial, and we continue to develop additional product candidates.
Research and development expenses were
• An increase of$2.1 million in personnel costs related to the need for additional staff to conduct our FREEDOM-1 Phase 3 clinical trial, progress start-up activities in our FREEDOM-2 and FREEDOM-3 Phase 2 clinical trials, advance pre-clinical activities, including those related to our deceased donor program, and support medical affairs and patient recruitment activities, as well as increases in stock-based compensation expense related to the increased value of our common stock; • An increase of$1.2 million in FCR001 clinical program expenses related to increased activity in our FREEDOM-1 Phase 3 trial as additional clinical sites are activated and additional subjects are enrolled, as compared to the same quarter in 2020 when COVID-19 related delays limited such activity, and start-up activities of our FREEDOM-2 and FREEDOM-3 Phase 2 clinical trials; and • An increase of$0.9 million in other unallocated costs related to consulting, research collaborations, recruitment of additional staff and other services in support of ongoing and planned clinical trials. 23
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General and Administrative Expenses
The following table summarizes our general and administrative expenses to support our business activities for the three months endedJune 30, 2021 and 2020 Three months ended June 30, 2021 2020 Change (in thousands) Personnel related (including stock-based compensation)$ 1,470 $ 435$ 1,035 Professional and consulting fees 460 395 65 Facility-related and other 1,557 505 1,052
Total general and administrative expenses
General and administrative expenses were
• An increase of$1.0 million in personnel costs primarily due to the hiring of additional personnel in our general and administrative functions as we continued to expand our operations to support the organization, and increased stock compensation expense stemming from additional grants as well as higher valuations for grants; • An increase of$1.1 million in facility-related and other expenses primarily due to increased director and officer insurance expense following our IPO inMay 2021 ; and • An increase of$0.1 million in professional and consulting fees related to increased accounting fees in support of additional quarterly and annual reporting requirements.
Other Income (Expense), Net
Other income (expense), net in the three months ended
Comparison of Six Months Ended
The following table summarizes our results of operations for the six months
ended
Six months ended June 30,
2021 2020 Change
(in thousands)
Operating expenses
Research and development $ 14,473 $ 6,932 $ 7,541
General and administrative 5,589 2,779 2,810
Total operating expenses 20,062 9,711 10,351
Loss from operations (20,062 ) (9,711 ) (10,351 )
Interest and other income (expense), net (589 ) 200 (789 )
Net loss $ (20,651 ) $ (9,511 ) $ (11,140 ) Research and development expenses
Six months ended June 30,
2021 2020 Change
(in thousands)
Direct research and development program
expenses:
FCR001 clinical and pre-clinical programs $ 3,789 $ 1,927 $ 1,862
Indirect research and development expenses:
Personnel related (including stock-based
compensation) 7,836 3,862 3,974
Facilities and other operating costs 2,848 1,143 1,705
Total research and development expenses
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Research and development expenses were
• An increase of$4.0 million in personnel costs related to the need for additional staff to conduct our FREEDOM-1 Phase 3 clinical trial, progress start-up activities in our FREEDOM-2 and FREEDOM-3 Phase 2 clinical trials, advance pre-clinical activities, including those related to our deceased donor program, and support medical affairs and patient recruitment, as well as increases in stock-based compensation expense related to the increased value of our common stock; • An increase of$1.9 million in FCR001 clinical program expenses related to increased activity in our FREEDOM-1 Phase 3 trial as additional clinical sites are activated and additional subjects are enrolled, as compared to the same period in 2020 when COVID-19 related delays limited such activity from March to June, and start-up activities of our FREEDOM-2 and FREEDOM-3 Phase 2 clinical trials; and • An increase of$1.7 million in other unallocated costs related to consulting, research collaborations, recruitment of additional staff and other services in support of ongoing and planned clinical trials.
General and Administrative Expenses
The following table summarizes our general and administrative expenses to
support our business activities for the six months ended
Six months ended June 30,
2021 2020 Change
(in thousands)
Personnel related (including stock-based
compensation) $ 2,408 $ 1,128 $ 1,280
Professional and consulting fees 1,181 653 528
Facility-related and other 2,000 998 1,002
Total general and administrative expenses
General and administrative expenses were
• An increase of$1.3 million in personnel costs primarily due to the hiring of additional personnel in our general and administrative functions as we continued to expand our operations to support the organization, and increased stock compensation expense stemming from additional grants as well as higher valuations for grants; • An increase of$1.0 million in facility-related and other costs primarily due to increased director and officer insurance expense following our IPO inMay 2021 ; and • An increase of$0.5 million of professional fees primarily due to increased legal fees and increased accounting fees in support of additional quarterly and annual reporting requirements.
Other Income (Expense), Net
Other income (expense), net in the six months ended
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We have not
yet commercialized any products and we do not expect to generate revenue from
sales of products for several years, if at all. Since 2018, we have funded our
operations primarily with proceeds from the sale of our convertible preferred
stock and our IPO in
Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. 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
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timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
As of June 30 ,
2021, we had cash and cash equivalents of
Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Six months ended June 30,
2021 2020 Change
(in thousands)
Net cash used in operating activities $ (20,029 ) $ (8,736 ) $ (11,293 ) Net cash provided used in investing activities (98,802 ) (15,889 ) (82,913 ) Net cash provided by financing activities
137,539 24 137,515
Net increase (decrease) in cash and cash
equivalents and restricted cash $ 18,708 $ (24,601 ) $ 43,309 Cash Flow from Operating Activities
During the six months ended
During the six months ended
Cash Flow from Investing Activities
During the six months ended
During the six months ended
Cash Flow from Financing Activities
During the six months ended
During the six months ended
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Future Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the late-stage clinical development of our product candidates. In addition, we expect to incur additional costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on:
• the initiation, progress, timing, costs and results of preclinical studies
and clinical trials for our product candidates or any future product
candidates we may develop;
• the outcome, timing and cost of seeking and obtaining regulatory approvals
from the FDA and comparable foreign regulatory authorities, including the
potential for such authorities to require that we perform more preclinical
studies or clinical trials than those that we currently expect or change
their requirements on studies that had previously been agreed to;
• the cost to establish, maintain, expand, enforce and defend the scope of our
intellectual property portfolio, including the amount and timing of any
payments we may be required to make, or that we may receive, in connection
with licensing, preparing, filing, prosecuting, defending and enforcing any
patents or other intellectual property rights;
• the effect of competing technological and market developments;
• the costs of continuing to grow our business, including hiring key personnel
and maintaining or acquiring operating space;
• market acceptance of any approved product candidates, including product
pricing, as well as product coverage and the adequacy of reimbursement by
third-party payors;
• the cost of acquiring, licensing or investing in additional businesses,
products, product candidates and technologies;
• the cost and timing of selecting, auditing and potentially validating or
expanding a manufacturing site for commercial-scale manufacturing;
• the cost of establishing sales, marketing and distribution capabilities for
any product candidates for which we may receive regulatory approval and that
we determine to commercialize; and
• our need to implement additional internal systems and infrastructure,
including financial and reporting systems.
We believe that our existing cash and cash equivalents and marketable securities
as of
Developing pharmaceutical products, including conducting preclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any product candidates or generate revenue from the sale of any product candidate for which we may obtain marketing approval. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of drugs that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.
Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, royalty-based financings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing, royalty-based financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through royalty-based financings, collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish
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valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations
The following table summarizes our contractual obligations as of
Payments due by period
Less More
than 1 to 3 3 to 5 than
Total 1 year years years 5 years
(in thousands)
Operating lease commitments(1)
$ 2,910 $ 951 $ 1,792 $ 167 $ -
(1) Represents our future minimum lease obligation under our non-cancelable
operating leases for our manufacturing facility in Louisville, KY , office
space in Wellesley, MA , laboratory space in Houston, TX and additional
corporate space in Louisville, KY .
Apart from the contracts with payment commitments that we have reflected in the table, we have entered into other contracts in the normal course of business with certain CROs and other third parties for nonclinical research studies and testing, as well as clinical trials. These contracts do not contain any minimum purchase commitments and are cancelable by us upon prior notice and, as a result, are not included in the table of contractual obligations and commitments above. Payments due upon cancellation consist only of payments for services provided and expenses incurred, including non-cancelable obligations of our service providers, up to the date of cancellation.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance with generally accepted
accounting principles ("GAAP") in
While our significant accounting policies are described in more detail in Note 2 to our financial statements appearing at the beginning of this Quarterly Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Research and Development Contract Costs and Accruals
As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:
• vendors in connection with clinical development activities; and
• CROs and investigative sites in connection with pre-clinical, non-clinical,
and human clinical trials
We base the expense recorded related to external research and development on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CROs that supply, conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows.
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There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Stock-Based Compensation Expense
We measure stock-based awards granted to employees, directors, and nonemployees based on their fair value on the date of the grant and recognize compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. For stock-based awards with service-based vesting conditions, we recognize compensation expense using the straight-line method. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option, and our expected dividend yield. The fair value of each option to purchase common stock award is estimated on the date of grant based on the fair value of our common stock on that same date.
Determination of the Fair Value of Common Stock
As there had been no public market for our common stock prior to the closing of our IPO, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant with input from management, considering our most recently available third-party valuations of common stock, and our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These independent third-party valuations of our equity instruments were performed contemporaneously with identified value inflection points. Our common stock valuation was prepared using the option-pricing method ("OPM"), which used a market approach to estimate our enterprise value, as well as the probability-weighted expected return method ("PWERM") and the hybrid method, a combination of OPM and PWERM.
These third-party valuations were performed in accordance with the guidance
outlined in the
The OPM treats common stock and preferred stock as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company's securities changes. Under this method, the common stock has value if the funds available for distribution to stockholders exceed the value of the liquidation preferences at the time of a liquidity event, such as a strategic sale or merger. The common stock is modeled as a call option on the underlying equity value at a predetermined exercise price. In the model, the exercise price is based on a comparison with the total equity value rather than, as in the case of a regular option, a comparison with a per share stock price. Thus, common stock is considered to be a call option with a claim on the enterprise at an exercise price equal to the remaining value immediately after the preferred stock liquidation preference is paid. The OPM uses the Black-Scholes option pricing model to price the call options. This model defines the fair value of securities as functions of the current fair value of a company and uses assumptions such as the anticipated timing of a potential liquidity event and the estimated volatility of the equity securities.
The PWERM is a scenario-based analysis that estimates the value per share of
common stock based on the probability-weighted present value of expected future
investment returns, considering each of the possible outcomes considered by the
Company, as well as the economic and control rights of each share class. The
OPM, PWERM and/or the hybrid methods were used for our
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The assumptions used to determine the fair values of stock options granted to employees and directors during the six months endedJune 30, 2021 and 2020, are presented as follows: June 30, June 30, 2021 2020 Fair value of common stock$5.72 -$16.80 $ 0.96 Dividend yield - - Volatility 80.60% - 91.25% 72.80% Risk-free interest rate 0.50% - 1.07% 0.44% - 1.46% Expected term (years) 6.25 6.25
The assumptions underlying these valuations were highly complex and subjective and represented management's best estimates, which involved inherent uncertainties and the application of management's judgment. As a result, if we had used significantly different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could be materially different.
Once a public trading market for our common stock was established in connection with the completion of our IPO, our board of directors no longer have to estimate the fair value of our common stock in connection with our accounting for granted stock options and other such awards we may grant, as the fair value of our common stock is now determined based on the quoted market price of our common stock.
Grant of Stock-Based Awards
The following table sets forth by grant date the number of shares subject to
options granted between
Fair value Black-
Number of per Scholes
shares Per share common value
subject exercise share on per share
options price of grant on grant
Grant date granted options date date
January 2021 58,876 $ 5.72 $ 5.72 $ 3.95
February 2021-March 2021 678,443 $ 6.79 $ 6.79 $ 4.80
June 2021 81,503 $ 16.80 $ 16.80 $ 12.67 Emerging Growth Company and Smaller Reporting Status
In
We will remain an emerging growth company until the earliest to occur of:
(1) the last day of the fiscal year in which we have more than
We are also a "smaller reporting company" meaning that the market value of our
stock held by non-affiliates is less than
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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 the
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our financial statements appearing at the beginning of this Quarterly Report.
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