You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the final prospectus for our initial public offering filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act, with theSecurities and Exchange Commission , orSEC , onOctober 16, 2020 . Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage biopharmaceutical company translating genetic insights into the development of therapies for central nervous system, or CNS, disorders characterized by neuronal imbalance. Normal brain function requires a delicate balance of excitation and inhibition in neuronal circuits, which, when dysregulated, leads to abnormal function and disease. We are applying insights into the genetic mutations that drive excitation-inhibition imbalance in diseases to select biological targets for severe pediatric epilepsies and more broadly for prevalent psychiatric diseases and neurologic disorders. We apply a deliberate and pragmatic precision approach, leveraging a suite of translational tools including novel transgenic and predictive translational animal models and electrophysiology markers, to enable an efficient path to proof-of-concept in patients. Through this approach, we have established a broad portfolio, including five disclosed programs across multiple CNS disorders, including depression, epilepsy, movement disorders and pain syndromes, with three clinical-stage product candidates. We expect multiple topline clinical trial readouts from all three programs within the next 18 months and anticipate the launch of a new clinical development program in 2021. We intend to develop differentiated therapies that can deliver long-term benefits to human health by meaningfully impacting patients and society. Our most advanced programs,PRAX -114 andPRAX -944, are currently in Phase 2 development.PRAX -114 is being developed for the treatment of major depressive disorder and perimenopausal depression. Together, these conditions affect more than 22 million patients inthe United States .PRAX -944 is a selective small molecule inhibitor of T-type calcium channels for the treatment of essential tremor, a progressive and debilitating movement disorder affecting up to seven million people inthe United States . In addition, we have initiated a Phase 1 trial ofPRAX -562, a persistent sodium current blocker, for the treatment of a broad range of rare, devastating CNS disorders, such as severe pediatric epilepsy and adult cephalgia. In addition to our clinical programs, we have two disclosed preclinical product candidates in development for severe genetic epilepsies. We were incorporated in 2015 and commenced operations in 2016. Since inception, we have devoted substantially all of our resources to developing our preclinical and clinical product candidates, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. We employ a "virtual" research and development model, relying heavily upon external consultants, collaborators and contract research organizations to conduct our preclinical and clinical activities. Since inception, we have financed our operations primarily with proceeds from the issuance of convertible debt, sales of our Series A redeemable convertible preferred stock, Series B redeemable convertible preferred stock, Series B-1 redeemable convertible preferred stock, Series C redeemable convertible preferred stock and Series C-1 redeemable convertible preferred stock and the closing of our initial public offering, or IPO. OnOctober 20, 2020 , we completed our IPO in which we issued and sold 11,500,000 shares of our common stock at a public offering price of$19.00 per share, including 1,500,000 shares of common stock sold pursuant to the underwriters' exercise of their option to purchase additional shares of common stock, for aggregate gross proceeds of$218.5 million . We raised approximately$199.9 million in net proceeds after deducting underwriting discounts and commissions and offering expenses payable by us. Upon the closing of the IPO, all of the outstanding shares of our Series A redeemable convertible preferred stock, Series B redeemable convertible preferred stock, Series B-1 redeemable convertible preferred stock, Series C redeemable convertible preferred stock and Series C-1 redeemable convertible preferred stock automatically converted into 25,067,977 shares of common stock. Subsequent to the closing of the IPO, there were no shares of preferred stock outstanding. In connection with the closing of the IPO, we filed an Amended and Restated Certificate of Incorporation to change the authorized capital stock to 150,000,000 shares of common stock and 10,000,000 shares of undesignated preferred stock. 16
--------------------------------------------------------------------------------
Table of Contents
We are a development stage company and we have not generated any revenue from product sales, and do not expect to do so for several years, if at all. All of our programs are still in preclinical and clinical development. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our product candidates, if approved. We have incurred recurring operating losses since inception, including a net loss of$36.1 million for the nine months endedSeptember 30, 2020 . As ofSeptember 30, 2020 , we had an accumulated deficit of$123.3 million . We expect to incur significant expenses and operating losses for the foreseeable future as we expand our research and development activities. In addition, our losses from operations may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:
• advance our lead product candidates,
clinical trials; • advance ourPRAX -562 product candidate to Phase 2 clinical trials; • advance our preclinical programs to clinical trials; • further invest in our pipeline; • further invest in our manufacturing capabilities; • seek regulatory approval for our investigational medicines;
• maintain, expand, protect and defend our intellectual property portfolio;
• acquire or in-license technology; • secure facilities to support continued growth in our research, development and commercialization efforts;
• increase our headcount to support our development efforts and to expand
our clinical development team; and
• incur additional costs and headcount associated with our transition to
becoming a public company.
In addition, as we progress toward marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions. 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. As ofSeptember 30, 2020 , we had cash and cash equivalents of$114.8 million . We believe that our existing cash and cash equivalents, combined with the net proceeds from our IPO, will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2022. 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. See "-Liquidity and Capital Resources."
COVID-19 Business Update
With the global spread of the ongoing COVID-19 pandemic in 2020, we have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our employees and our business, including our preclinical studies and clinical trials. Our operations are considered an essential business and we are continuing to operate during this period. We have taken measures to secure our research and development activities. While we are experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition and results of operations could be materially adversely affected. We continue to closely monitor the COVID-19 pandemic as we evolve our business continuity plans, clinical development plans and response strategy. 17
--------------------------------------------------------------------------------
Table of Contents
In addition, while we have taken and are continuing to take steps to mitigate against possible delays, our planned clinical trials may be affected by the COVID-19 pandemic, including (i) delays or difficulties in enrolling and retaining patients in our planned clinical trials, including patients that may not be able or willing to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services; (ii) delays or difficulties in clinical site initiation, including difficulties in recruiting and retaining clinical site investigators and clinical site staff; (iii) diversion or prioritization of healthcare resources away from the conduct of clinical trials and towards the COVID-19pandemic, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials, and because, who, as healthcare providers, may have heightened exposure to COVID-19 and adversely impact our clinical trial operations; (iv) interruption of our future clinical supply chain or key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal, state/provincial or municipal governments, employers and others; and (v) limitations in outsourced third-party resources that would otherwise be focused on the conduct of our planned clinical trials, including because of sickness of third-party personnel or their families, or the desire of third-party personnel to avoid contact with large groups of people. Financial Operations Overview Revenue We have not generated any revenue since inception and do not expect to generate any revenue from the sale of products for several years, if at all. If our development efforts for our current or future product candidates are successful and result in marketing approval or collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from collaboration or license agreements that we may enter into with third parties.
Operating Expenses
Research and Development Expense
The nature of our business and primary focus of our activities generate a significant amount of research and development costs. Research and development expenses represent costs incurred by us for the following:
• costs to develop our portfolio; • discovery efforts leading to development candidates; • clinical development costs for our programs; and • costs to develop our manufacturing technology and infrastructure.
The costs above comprise the following categories:
• personnel-related expenses, including salaries, benefits and stock-based
compensation expense; • expenses incurred under agreements with third parties, such as
consultants, investigative sites and contract research organizations, or
CROs, that conduct our preclinical and clinical studies and in-licensing
arrangements; • costs incurred to maintain compliance with regulatory requirements;
• costs incurred with third-party contract manufacturing organizations, or
CMOs, to acquire, develop and manufacture materials for preclinical and
clinical studies; and • depreciation, amortization and other direct and allocated expenses,
including rent, insurance and other operating costs, incurred as a result
of our research and development activities.
We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated balance sheets as prepaid expenses or accrued research and development expenses. Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized, even when there is no alternative future use for the research and development. The capitalized amounts are expensed as the related goods are delivered or the services are performed. A significant portion of our research and development costs have been external costs. We track direct external research and development expenses to specific programs upon commencement. Due to the number of ongoing programs and our ability to use resources across several projects, indirect or shared operating costs incurred for our research and development programs, such as personnel, facility costs and certain consulting costs, are not recorded or maintained on a program-specific basis. 18
--------------------------------------------------------------------------------
Table of Contents
Our major programs,PRAX -114,PRAX -944 andPRAX -562, are those for which we have initiated clinical activities. Our discovery-stage programs are those which are at an earlier point in the development process. The following table reflects our research and development expenses, including direct program-specific expenses summarized by major program, discovery-stage program costs and indirect or shared operating costs recognized as research and development expenses during each period presented (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 PRAX-114$ 4,077 $ 1,241 $ 9,137 $ 6,122 PRAX-944 1,707 862 3,284 3,641 PRAX-562 885 873 2,527 3,132 Discovery-stage programs 2,154 4,294 4,050 5,024 Personnel-related (including stock-based compensation) 3,098 1,405 7,443 3,946 Other indirect research and development expenses 865 671
2,263 1,993
Total research and development expenses$ 12,786 $ 9,346
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 that our research and development expenses will continue to increase in the foreseeable future as we advance our product candidates through the development phase, and as we continue to discover and develop additional product candidates, build manufacturing capabilities and expand into additional therapeutic areas. At this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from sales or licensing of our product candidates. This is due to the numerous risks and uncertainties associated with drug development, including the uncertainty of:
• our ability to add and retain key research and development personnel;
• the timing and progress of preclinical and clinical development activities;
• the number and scope of preclinical and clinical programs we decide to
pursue; • our ability to successfully complete clinical trials with safety,
tolerability and efficacy profiles that are satisfactory to the
and
authority; • our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize, our product candidates; • our successful enrollment in and completion of clinical trials; • the costs associated with the development of any additional product
candidates we identify in-house or acquire through collaborations;
• our ability to discover, develop and utilize biomarkers to demonstrate
target engagement, pathway engagement and the impact on disease progression of our product candidates;
• our ability to establish and maintain agreements with third-party
manufacturers for clinical supply for our clinical trials and commercial
manufacturing, if our product candidates are approved;
• the terms and timing of any collaboration, license or other arrangement,
including the terms and timing of any milestone payments thereunder;
• our ability to obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates if and when approved;
• our receipt of marketing approvals from applicable regulatory authorities;
• our ability to commercialize products, if and when approved, whether alone or in collaboration with others; and 19
--------------------------------------------------------------------------------
Table of Contents
• the continued acceptable safety profiles of the product candidates
following approval.
A change in any of these variables with respect to the development of any of our product candidates would significantly change the costs, timing and viability associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time to complete our clinical development activities. We may never obtain regulatory approval for any of our product candidates. Drug commercialization will take several years and millions of dollars in development costs.
General and Administrative Expense
General and administrative expenses consist primarily of personnel-related costs, including salaries, benefits and stock-based compensation, for personnel in our executive, finance, legal, business development and administrative functions. General and administrative expenses also include legal fees relating to 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 office rent and other operating costs. These costs relate to the operation of the business, unrelated to the research and development function, or any individual program. Costs to secure and defend our intellectual property, or IP, are expensed as incurred and are classified as general and administrative expenses. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support the expected growth in our research and development activities and the potential commercialization of our product candidates. We also expect to incur increased expenses associated with being a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing andSEC requirements, director and officer insurance costs and investor and public relations costs. We also expect to incur additional IP-related expenses as we file patent applications to protect innovations arising from our research and development activities.
Other Income
Interest Income
Interest income consists of interest earned on our cash and cash equivalents.
Income Taxes
Since our inception, we have not recorded anyU.S. federal or state income tax benefits for the net losses we have incurred in each year or for our earned research and development tax credits, due to our uncertainty of realizing a benefit from those items. Income taxes are determined at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences. Our income tax provision may be significantly affected by changes to our estimates. The income tax benefit recognized for the nine months endedSeptember 30, 2020 related to income tax associated with our operations inAustralia . 20
--------------------------------------------------------------------------------
Table of Contents
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our consolidated statements of operations for each period presented (in thousands):
Three Months Ended September 30, Change 2020 2019 Operating expenses: Research and development$ 12,786 $ 9,346 $ 3,440 General and administrative 3,431 1,308 2,123 Total operating expenses 16,217 10,654 5,563 Loss from operations (16,217 ) (10,654 ) (5,563 ) Other income: Interest income 1 48 (47 ) Total other income 1 48 (47 ) Net loss$ (16,216 ) $ (10,606 ) $ (5,610 )
Research and Development Expense
The following table summarizes our research and development expenses for each period presented, along with the changes in those items (in thousands):
Three Months Ended September 30, Change 2020 2019 PRAX-114$ 4,077 $ 1,241 $ 2,836 PRAX-944 1,707 862 845 PRAX-562 885 873 12 Discovery-stage programs 2,154 4,294 (2,140 ) Personnel-related (including stock-based compensation) 3,098 1,405 1,693 Other indirect research and development expenses 865 671 194 Total research and development expenses$ 12,786
Research and development expenses increased approximately
•
by a
increase in manufacturing spend both related to our ongoing Phase 2a clinical trial for this program;
•
•
primarily by a
ongoing Phase 2a clinical trial;
•
expenses, primarily driven by an increase in facility, office, software
and other overhead costs due to increased research and development
headcount; and •$2.1 million offsetting decrease in expense related to our
discovery-stage programs, primarily driven by a
research and development spend for discovery program assets acquired in the prior year. 21
--------------------------------------------------------------------------------
Table of Contents
General and Administrative Expense
General and administrative expenses increased$2.1 million from$1.3 million for the three months endedSeptember 30, 2019 to$3.4 million for the three months endedSeptember 30, 2020 . The increase in general and administrative expenses was primarily attributable to the following:
•
services, driven by a
prepared for our IPO, a
related to intellectual property filings as we expand our research and
development activities, and a$0.2 million increase in corporate development-related work; and
•
headcount. Other Income
Other income for the three months ended
Comparison of the Nine Months Ended
The following table summarizes our consolidated statements of operations for each period presented (in thousands):
Nine Months Ended September 30, Change 2020 2019 Operating expenses: Research and development$ 28,704 $ 23,858 $ 4,846
General and administrative 7,552 4,437
3,115
Total operating expenses 36,256 28,295
7,961 Loss from operations (36,256 ) (28,295 ) (7,961 ) Other income: Interest income 134 171 (37 ) Total other income 134 171 (37 )
Loss before benefit from income taxes (36,122 ) (28,124 )
(7,998 )
Benefit from income taxes (8 ) -
(8 ) Net loss$ (36,114 ) $ (28,124 ) $ (7,990 )
Research and Development Expense
The following table summarizes our research and development expenses for each period presented, along with the changes in those items (in thousands):
Nine Months Ended September 30, Change 2020 2019 PRAX-114$ 9,137 $ 6,122 $ 3,015 PRAX-944 3,284 3,641 (357 ) PRAX-562 2,527 3,132 (605 ) Discovery-stage programs 4,050 5,024 (974 ) Personnel-related (including stock-based compensation) 7,443 3,946 3,497 Other indirect research and development expenses 2,263
1,993 270
Total research and development expenses$ 28,704 $ 23,858 $ 4,846 22
--------------------------------------------------------------------------------
Table of Contents
Research and development expenses increased$4.8 million from$23.9 million for the nine months endedSeptember 30, 2019 , to$28.7 million for the nine months endedSeptember 30, 2020 . The increase in research and development expenses was primarily attributable to the following: •$3.5 million increase in personnel-related costs due to increased headcount; •$3.0 million increase expense related to ourPRAX -114 program, driven
primarily by a
ongoing Phase 2a clinical trial for this program, partially offset by a
nine months endedSeptember 30, 2019 ;
•
expenses, primarily driven by an increase in facility, office, software
and other overhead costs due to increased research and development
headcount; •$1.0 million offsetting decrease in discovery-stage program expense,
driven by a
acquired in the prior year and a
other discovery-stage programs;
•
the nine months ended
candidate, offset by a
and a
clinical trial for this program; and •$0.4 million offsetting decrease in expense related to our
performed during the nine months ended
our Phase 2a clinical trial and a
product manufacturing campaign that was executed during the nine months
endedSeptember 30, 2019 , offset by a$1.3 million increase in clinical-related spend for our ongoing Phase 2 clinical trial for this program.
General and Administrative Expense
General and administrative expenses increased approximately$3.1 million from$4.4 million for the nine months endedSeptember 30, 2019 to$7.6 million for the nine months endedSeptember 30, 2020 . The increase in general and administrative expenses was primarily attributable to the following:
•
services, driven by a
including
the IPO and$0.3 million of increased corporate development spend to support commercial assessments of our clinical-stage programs, and a
property filings as we expand our research and development activities;
•
headcount; and •$0.1 million increase in facilities, office and other general and administrative expenses to support the increase in our operating activities. Total Other Income Total other income for the nine months endedSeptember 30, 2020 and 2019 was$0.1 million and$0.2 million , respectively, comprised of interest income on our cash and cash equivalents.
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have incurred significant losses in each period. We have not yet commercialized any of our product candidates, which are in various phases of preclinical and clinical development, and we do not expect to generate revenue from sales of any products for several years, if at all. To date, we have financed our operations primarily with proceeds from sales of our redeemable convertible preferred stock, the issuance of convertible debt and the closing of our IPO. Prior to our IPO, we raised an aggregate of$206.7 million in proceeds from the sale of our redeemable convertible preferred stock and$4.0 million in proceeds from the issuance of convertible promissory notes. As ofSeptember 30, 2020 , we had cash and cash equivalents of$114.8 million . OnOctober 20, 2020 , we completed our IPO for approximately$199.9 million in net proceeds after deducting underwriting discounts and commissions and offering expenses payable by us. 23
--------------------------------------------------------------------------------
Table of Contents
Historical Cash Flows
The following table provides information regarding our cash flows for each period presented (in thousands):
Nine Months Ended September 30, 2020 2019 Net cash provided by (used in): Operating activities$ (32,395 ) $ (23,466 ) Investing activities - (103 ) Financing activities 102,352 9,939 Net increase (decrease) in cash, cash equivalents and restricted cash$ 69,957 $ (13,630 ) Operating Activities Our cash flows from operating activities are greatly influenced by our use of cash for operating expenses and working capital requirements to support the business. We have historically experienced negative cash flows from operating activities as we have invested in developing our portfolio, drug discovery efforts and related infrastructure. The cash used in operating activities resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital, which are primarily the result of increased expenses and timing of vendor payments. During the nine months endedSeptember 30, 2020 , net cash used in operating activities of$32.4 million was primarily due to our$36.1 million net loss, partially offset by$1.9 million of non-cash charges and$1.8 million in changes in operating assets and liabilities. During the nine months endedSeptember 30, 2019 , net cash used in operating activities of$23.5 million was primarily due to our$28.1 million net loss, partially offset by$1.0 million of non-cash charges and$3.6 million in changes in operating assets and liabilities.
Investing Activities
There were no cash flows from investing activities during the nine months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2019 , net cash used in investing activities related to the purchase of property and equipment.
Financing Activities
During the nine months endedSeptember 30, 2020 , net cash provided by financing activities of$102.4 million consisted of net proceeds from the issuance of our Series C redeemable convertible preferred stock and Series C-1 redeemable convertible preferred stock and exercise of stock options, offset by the cash paid for the repurchase of our Series C redeemable convertible preferred stock and cash paid for initial public offering costs incurred. During the nine months endedSeptember 30, 2019 , net cash provided by financing activities of$9.9 million consisted of net proceeds from the issuance of our Series B-1 redeemable convertible preferred stock.
Plan of Operation and Future Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing research and development activities, particularly as we advance the preclinical activities and clinical trials of our product candidates. In addition, we expect to incur additional costs associated with operating as a public company. As a result, we expect to incur substantial operating losses and negative operating cash flows for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:
• advance the clinical development of our
product candidates; • advance the development of any additional product candidates;
• conduct research and continue preclinical development of potential
product candidates; • make strategic investments in manufacturing capabilities; 24
--------------------------------------------------------------------------------
Table of Contents • maintain our current intellectual property portfolio and opportunistically acquire complementary intellectual property; • seek to obtain regulatory approvals for our product candidates;
• potentially establish a sales, marketing and distribution infrastructure
and scale-up manufacturing capabilities to commercialize any products for
which we may obtain regulatory approval; • add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our
product development and potential future commercialization efforts and to
support our transition to a public company; and • experience any delays or encounter any issues with any of the above, including but not limited to failed studies, complex results, safety issues or other regulatory challenges. We are unable to estimate the exact amount of our working capital requirements, but based on our current operating plan, we believe that our existing cash and cash equivalents, combined with the cash proceeds from our IPO, will enable us to fund our operating expenses and capital expenditure requirements into the fourth quarter of 2022. However, we have based this estimate on assumptions that may prove to be wrong and we could exhaust our capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with product development, and because the extent to which we may enter into collaborations with third parties for the development of our product candidates is unknown, we may incorrectly estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our product candidates. Our funding requirements and timing and amount of our operating expenditures will depend on many factors, including, but not limited to: • the scope, progress, results and costs of preclinical studies and clinical trials for our programs and product candidates; • the number and characteristics of programs and technologies that we develop or may in-license; • the costs and timing of future commercialization activities, including
manufacturing, marketing, sales and distribution, for any of our product
candidates for which we receive marketing approval; • the costs necessary to obtain regulatory approvals, if any, for products
in
post-marketing studies that could be required by regulatory authorities
in jurisdictions where approval is obtained; • the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
• the continuation of our existing licensing arrangements and entry into
new collaborations and licensing arrangements; • the costs we incur in maintaining business operations; • the costs associated with being a public company; • the revenue, if any, received from commercial sales of any product candidates for which we receive marketing approval; • the effect of competing technological and market developments;
• the impact of any business interruptions to our operations or to those of
our manufacturers, suppliers or other vendors resulting from the COVID-19
pandemic or similar public health crisis; and
• the extent to which we acquire or invest in businesses, products and
technologies, including entering into licensing or collaboration arrangements for product candidates, although we currently have no commitments or agreements to complete any such acquisitions or investments in businesses. Identifying potential product candidates and conducting preclinical testing 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 and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of products 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. 25
--------------------------------------------------------------------------------
Table of Contents
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. Market volatility resulting from the COVID-19 pandemic or other factors could also adversely impact our ability to access capital as and when needed. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of holders of our common stock. Additional debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends and may require the issuance of warrants, which could potentially result in dilution to the holders of our common stock. If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit or terminate our product development programs or any future commercialization efforts or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves. Contractual Obligations There have been no changes to our contractual obligations from those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations and Commitments" in our final prospectus filed with theSEC pursuant to Rule 424(b)(4) onOctober 16, 2020 .
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSEC .
Critical Accounting Policies and Significant Judgments and Estimates
Our 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 generally accepted accounting principles inthe United States , or GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no changes to our critical accounting policies from those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Significant Judgments and Estimates" included in our final prospectus filed with theSEC pursuant to Rule 424(b)(4) onOctober 16, 2020 .
InApril 2012 , the JOBS Act was enacted. As an emerging growth company, or EGC, under the JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited financial statements in a registration statement for an initial public offering, an exemption from the requirement to provide an auditor's report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, an exemption from any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation and less extensive disclosure about our executive compensation arrangements. Additionally, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of the extended transition period and, therefore, while we are an EGC we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not EGCs, unless we choose to early adopt a new or revised accounting standard. We will remain classified as an EGC until the earlier of: (i) the last day of our first fiscal year in which we have total annual gross revenues of$1.07 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of completion of our IPO, (iii) the date on which we have issued more than$1.0 billion of non-convertible debt instruments during the previous three fiscal years or (iv) the date on which we are deemed a "large accelerated filer" under the rules of theSEC . 26
--------------------------------------------------------------------------------
Table of Contents
We are also a "smaller reporting company" as defined in the Securities Exchange Act of 1934, as amended. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies until the fiscal year following the determination that our voting and non-voting common stock held by non-affiliates is more than$250 million measured on the last business day of our second fiscal quarter, or our annual revenues are less than$100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is more than$700 million measured on the last business day of our second fiscal quarter.
Recently Issued Accounting Pronouncements
We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, such standards will not have a material impact on our condensed consolidated financial statements or do not otherwise apply to our current operations.
© Edgar Online, source