ICOSAVAX, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

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The following discussion and analysis and the unaudited condensed consolidated
financial statements included in this Quarterly Report on Form 10-Q (Quarterly
Report) should be read in conjunction with the financial statements and notes
thereto for the year ended December 31, 2021 and the related Management's
Discussion and Analysis of Financial Condition and Results of Operations, both
of which are contained in the Annual Report on Form 10-K (Annual Report), filed
with the Securities and Exchange Commission (SEC), on March 30, 2022.

Forward-looking statements

This Quarterly Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the Securities Act), and
Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange
Act). All statements other than statements of historical facts contained in this
Quarterly Report, including statements regarding our future results of
operations and financial position, business strategy, research and development
plans, the potential of our technology, the anticipated timing, costs, design,
conduct and results of our ongoing and

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planned preclinical studies and clinical trials for our vaccine candidates, the
timing and likelihood of regulatory filings and approvals for our vaccine
candidates, our ability to commercialize our vaccine candidates, if approved,
the pricing and reimbursement of our vaccine candidates, if approved, the
potential benefits of strategic collaborations and our intent to enter into any
strategic arrangements, the timing and likelihood of success, plans and
objectives of management for future operations, and future results of
anticipated vaccine development efforts, are forward-looking statements. These
statements involve known and unknown risks, uncertainties and other important
factors that may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as
"may," "will," "should," "expect," "plan," "anticipate," "could," "intend,"
"target," "project," "contemplates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of these terms or other similar
expressions. The forward-looking statements in this Quarterly Report are only
predictions. We have based these forward-looking statements largely on our
current expectations and projections about future events and financial trends
that we believe may affect our business, financial condition and results of
operations. These forward-looking statements speak only as of the date of this
Quarterly Report and are subject to a number of risks, uncertainties and
assumptions, including those described in Part II, Item 1A, "Risk Factors" of
this Quarterly Report. The events and circumstances reflected in our
forward-looking statements may not be achieved or occur and actual results could
differ materially from those projected in the forward-looking statements.
Moreover, we operate in an evolving environment. New risk factors and
uncertainties may emerge from time to time, and it is not possible for
management to predict all risk factors and uncertainties. Except as required by
applicable law, we do not plan to publicly update or revise any forward-looking
statements contained herein, whether as a result of any new information, future
events, changed circumstances or otherwise.

Insight

We are a biopharmaceutical company leveraging our innovative virus-like particle
(VLP) platform technology to develop vaccines against infectious diseases, with
an initial focus on life-threatening respiratory diseases. Our VLP platform
technology is designed to enable multivalent, particle-based display of complex
viral antigens, which we believe will induce broad, robust, and durable
protection against the specific viruses targeted. Our pipeline includes vaccine
candidates targeting some of the most prevalent viral causes of pneumonia. We
are developing these candidates for older adults, a patient population with high
unmet need. Our vaccine candidate IVX-A12 is a bivalent candidate, or a mixture
of two different VLP candidates. IVX-A12 combines IVX-121, a vaccine candidate
designed to target respiratory syncytial virus (RSV), and IVX-241, a vaccine
candidate designed to target human metapneumovirus (hMPV). There are currently
no vaccines approved for either RSV or hMPV, which are two common causes of
pneumonia in older adults.

In June 2022, we announced positive topline interim results from our Phase 1/1b
clinical trial of IVX-121 in young and older adults. These topline interim data
showed that IVX-121 induced a robust immune response, consistent across both
young and older adult groups, and including at the lowest non-adjuvanted dose
tested and was generally well-tolerated across all dosage groups. We plan to
submit an investigational new drug application (IND) for IVX-A12 to the U.S.
Food and Drug Administration (FDA) and thereafter initiate a Phase 1 clinical
trial in the second half of 2022, with topline interim data expected in
mid-2023. We also plan to conduct a Phase 1b extension study for IVX-121, in
which a subset of older adults from the Phase 1b cohort will be followed out to
12 months to assess durability of response, with 6-month immunogenicity data
expected by early 2023, and 12-month immunogenicity data expected in mid-2023.

We are developing additional vaccine candidates as part of our strategy to
develop combination VLP vaccines targeting the viral causes of pneumonia in
older adults. In March 2022, we reported interim results on a Phase 1/2 clinical
trial of our coronavirus disease 2019 (COVID-19) candidate IVX-411 in Australia.
Overall, although an immune response was observed and the initial reactogenicity
data were favorable, the level of immunogenicity response was below our
expectations. In July 2022, we reported the results of our drug product
investigation, which showed that the Receptor Binding Domain (RBD) antigen of
IVX-411 becomes unstable during manufacturing and subsequent storage and that
the immunogenicity response observed in the Phase 1/2 clinical trial was likely
attributable to the stability issue with the RBD antigen. As a result, we
currently do not intend to conduct further development of IVX-411. We now plan
to focus on a bivalent strategy for our COVID-19 vaccine candidate development,
with optionality to include such a candidate as a potential component of our
combination VLP vaccines. We have also licensed the rights to develop and
commercialize an influenza VLP vaccine from the University of Washington (UW)
and have an emerging flu program.

We commenced our operations in 2017 and have devoted substantially all of our
resources to date to organizing and staffing our company, business planning,
raising capital, in-licensing intellectual property rights, developing vaccine
candidates, scaling up manufacturing of vaccine candidates, and preparing for
and conducting preclinical studies and

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clinical trials. Our operations to date have been funded primarily through the
sale and issuance of convertible preferred stock and our common stock,
generating net proceeds of $340.2 million. In August 2021, we completed our
initial public offering (IPO) with the sale of 13,953,332 shares of common stock
at an IPO price of $15.00 per share with net proceeds of $190.7 million, which
included the exercise in full by the underwriters of their option to purchase
1,819,999 additional shares. Prior to our IPO, we had funded our operations
primarily through the sale of convertible preferred stock and had previously
raised $149.5 million in net proceeds. As of June 30, 2022, we had cash, cash
equivalents, restricted cash, and short-term investments of $243.9 million.

We have incurred significant operating losses since inception. Our net loss for
the six months ended June 30, 2022 was $46.2 million. As of June 30, 2022, we
had an accumulated deficit of $140.2 million. Our net losses may fluctuate
significantly from quarter-to-quarter and year-to-year, depending on the timing
of our clinical development activities, other research and development
activities and capital expenditures. We expect to continue to incur significant
expenses and increasing operating losses for the foreseeable future. We
anticipate our expenses will increase substantially as we seek to advance our
vaccine candidates through preclinical and clinical development, expand our
research and development activities, develop new vaccine candidates, complete
clinical trials, seek regulatory approval and, if we receive regulatory
approval, commercialize our products, as well as hire additional personnel, and
protect our intellectual property.

Based on our current operating plan, we believe that our existing cash and
restricted cash will be sufficient to fund our operations through at least 2024.
We have never generated any revenue from product sales and do not expect to
generate any revenues from product sales unless and until we successfully
complete development of and obtain regulatory approval for our vaccine
candidates, which will not be for multiple years, if ever. 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 sales of our vaccine candidates, if ever, we expect to finance our
cash needs through equity offerings, debt financings or other capital sources,
including potential collaborations, licenses, and other similar arrangements.
However, we may not be able to raise additional funds or enter into such other
arrangements when needed or on favorable terms, or at all. If we are unable to
raise additional capital or enter into such arrangements when needed, we could
be forced to delay, limit, reduce or terminate our research and development
programs or future commercialization efforts, or grant rights to develop and
market our vaccine candidates to third parties where we might otherwise prefer
to develop and market such vaccine candidates ourselves.

Components of operating results

Grant revenue

To date, we have not generated any revenues from the commercial sale of approved
products, and we do not expect to generate revenues from the commercial sale of
our vaccine candidates for at least the foreseeable future, if ever. For the
three and six months ended June 30, 2022 and 2021, revenue was derived from the
September 2020 grant agreement (the Grant Agreement) with the Bill & Melinda
Gates Foundation (BMGF), pursuant to which BMGF awarded a grant totaling up to
$10.0 million in support of our development of our IVX-411 COVID-19 vaccine for
pandemic use. The Grant Agreement terminated in accordance with its terms on
March 31, 2022.

Operating Expenses

Research and Development

Research and development expenses consist primarily of external and internal
costs related to the development of vaccine candidates. Research and development
expenses are recognized as incurred and payments made prior to the receipt of
goods or services to be used in research and development are capitalized until
the goods or services are received.

External costs include:
•
expenses incurred in connection with outsourced research and preclinical
studies;
•
expenses incurred in connection with conducting clinical trials and site
payments for time and pass-through expenses and expenses incurred under
agreements with CROs, other vendors, or service providers engaged to conduct our
trials;
•
expenses incurred in connection with manufacturing of our vaccine candidates and
related intermediates under agreements with contract development and
manufacturing organizations or other service providers;

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the cost of consultants engaged in research and development related services and
the cost to manufacture vaccine candidates for use in our preclinical studies
and clinical trials;
•
costs related to regulatory compliance; and
•
the cost of annual license fees and milestone payments under our license
agreements.

Internal costs include:
•
employee-related expenses, including salaries, related benefits, travel and
stock-based compensation expenses for employees engaged in research and
development functions;
•
facilities, depreciation and other expenses, which include allocated expenses
for rent and maintenance of facilities, insurance, laboratory consumables and
supplies.

Research and development activities are central to our business model. There are
numerous factors associated with the successful development and regulatory
approval of any of our vaccine candidates, including future trial design and
various regulatory requirements, as well as the safety, immunogenicity and
efficacy of our vaccine candidates, which cannot be determined with accuracy at
this time. We may never succeed in obtaining regulatory approval for any of our
vaccine candidates. Vaccine 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. At this time, we cannot reasonably estimate or know the nature,
timing and costs of the efforts that will be necessary to complete the
preclinical and clinical development of any of our vaccine candidates. In
addition, we cannot forecast which vaccine candidates may be subject to future
collaborations, when such arrangements will be secured, if at all, and to what
degree such arrangements would affect our development plans and capital
requirements. However, we expect that our research and development expenses will
increase substantially in connection with our planned preclinical and clinical
development activities in the near term and in the future.

Our future development costs may vary significantly based on factors such as:
•
the number and scope of preclinical and regulatory filing-enabling studies;
•
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 subjects;
•
the number of subjects that participate in the trials;
•
the number of doses evaluated in the trials;
•
the costs and timing of manufacturing our vaccine candidates;
•
the drop-out or discontinuation rates of clinical trial subjects;
•
potential additional safety monitoring requested by regulatory agencies;
•
the duration of subject participation in the trials and follow-up;
•
the phase of development of the vaccine candidate;
•
the impact of any interruptions to our operations or to those of the third
parties with whom we work due to the COVID-19 pandemic and any associated supply
chain disruption and staffing shortages; and
•
the immunogenicity, efficacy and safety profile of the vaccine candidate.

General and administrative

General and administrative expenses consist of personnel-related costs,
including salaries, payroll taxes, employee benefits, and stock-based
compensation charges for personnel in executive, finance and other
administrative functions. Other significant costs include facility-related
costs, legal fees relating to intellectual property and corporate matters,
professional fees for accounting and consulting services, and insurance costs.
We anticipate that our general and administrative expenses will increase
substantially for the foreseeable future to support our continued research and
development activities, pre-commercial preparation activities for our vaccine
candidates, and, if any vaccine candidate receives marketing approval,
commercialization activities. We also anticipate increased expenses related to
audit, legal, regulatory, and tax-related services associated with maintaining
compliance with exchange listing and SEC requirements, director and officer
insurance premiums, and investor relations costs associated with operating as a
growing public company.

Change in fair value of derivative liability

We issued a convertible promissory note in August 2020. We bifurcated certain
embedded features that were required to be accounted for separately as a single
derivative liability. The initial recognition of the fair value of the

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derivative resulted in a reduction to the carrying value of the convertible
promissory note, a discount which is then amortized to interest expense over the
term of the note. We adjusted the carrying value of the derivative liability to
its estimated fair value at each reporting date, with any related changes in
fair value recorded as change in fair value of derivative liability in our
statements of operations and comprehensive loss. The convertible promissory note
converted into 2,805,850 shares of our Series B-2 convertible preferred stock in
March 2021.

Prior to the conversion of the convertible promissory note into our Series B-2
convertible preferred stock in March 2021, the fair value of the derivative
liability was estimated using a scenario-based analysis comparing the
probability-weighted present value of the convertible promissory note payoff at
maturity with and without the bifurcated features, considering possible outcomes
available to the noteholders, including various financing dissolution scenarios.

Loss on extinction of a convertible promissory note

We recorded a loss on extinguishment of convertible promissory note of $0 and
$0.8 million during the three and six months ended June 30, 2021, respectively,
in connection with the conversion of our convertible promissory note issued in
August 2020. See Note 7 to the unaudited condensed financial statements included
in this Quarterly Report for more information on this transaction.

Interest and other income (expenses)

Interest income includes interest income earned on interest-bearing demand accounts.

Interest expense consisted of interest on our outstanding convertible promissory
note at a per annum interest rate of 6.0% and non-cash interest expense related
to discount amortization prior to its conversion into shares of our Series B-2
convertible preferred stock in March 2021.

Operating results

Comparison of three and six month periods ended June 30, 2022 and 2021

The following table summarizes our operating results for the three and six months ended June 30, 2022 and 2021 (in thousands):

                                      Three Months Ended                         Six Months Ended
                                           June 30,                                  June 30,
                                       2022          2021        Change         2022          2021         Change
Grant revenue                       $        -     $  1,904     $  (1,904 )   $     582     $   3,905     $  (3,323 )
Operating expenses:
Research and development                15,820        8,277         7,543        33,733        13,830        19,903
General and administrative               7,311        2,221         5,090        13,633         3,312        10,321
Total operating expenses                23,131       10,498        12,633        47,366        17,142        30,224
Loss from operations                   (23,131 )     (8,594 )     (14,537 )     (46,784 )     (13,237 )     (33,547 )
Other income (expense)
Change in fair value of embedded
derivative liability                         -            -             -             -          (205 )         205
Loss on extinguishment of
convertible promissory note                  -            -             -             -          (754 )         754
Interest and other                         495           42           453           615          (207 )         822
Total other income (expense)               495           42           453           615        (1,166 )       1,781
Net loss                            $  (22,636 )   $ (8,552 )   $ (14,084 )   $ (46,169 )   $ (14,403 )   $ (31,766 )



Grant Revenue

We recognized revenue from the Grant Agreement of $0 and $0.6 million for the
three and six months ended June 30, 2022, respectively, compared to $1.9 million
and $3.9 million for the three and six months ended June 30, 2021, respectively.
We had received the full $10.0 million in funding under the Grant Agreement as
of December 31, 2021, and through June 30, 2022, we have recognized $10.0
million in revenue since the inception of the Grant Agreement.


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Research and development costs

Research and development expenses were $15.8 million for the three months ended
June 30, 2022, compared to $8.3 million for the three months ended June 30,
2021. The increase of $7.5 million was due to a $2.5 million increase in direct
costs related to preclinical development and manufacturing, a $1.8 million
increase related to non-cash stock-based compensation expense, a $1.6 million
increase in personnel related expenses due to increased headcount to support our
development activities, a $1.3 million increase in direct costs related to
clinical development and manufacturing, and a $0.5 million increase in other
expenses.

For the six months ended June 30, 2022, research and development expenses were
$33.7 million, compared to $13.8 million for the six months ended June 30, 2021.
The increase of $19.9 million was due to a $9.8 million increase in direct costs
related to preclinical development and manufacturing, a $3.3 million increase
related to non-cash stock-based compensation expense, a $3.2 million increase in
personnel related expenses due to increased headcount to support our development
activities, a $2.7 million increase in direct costs related to clinical
development and manufacturing, and a $0.8 million increase in other expenses.

We track outsourced development, outsourced personnel costs, and other external research and development costs for specific programs. We do not track our internal research and development costs on a program-by-program basis.

Research and development expenses are summarized by program in the table below
(in thousands):

                                    Three Months Ended               Six Months Ended
                                         June 30,                        June 30,
                                   2022            2021            2022            2021
RSV-hMPV                       $      5,136     $     3,054     $    13,592     $     5,671
SARS-CoV-2                            3,642           3,450           6,988           5,442
Unallocated research and
development expense                   7,042           1,773          13,153           2,717
Total research and
development expense            $     15,820     $     8,277     $    33,733     $    13,830


General and administrative expenses

General and administrative expenses were $7.3 million for the three months ended
June 30, 2022, compared to $2.2 million for the three months ended June 30,
2021. The increase of $5.1 million consisted of increased non-cash stock-based
compensation expense of $2.4 million, increased personnel-related expenses of
$1.2 million, increased insurance costs of $0.6 million, increased professional
services, including audit and legal fees, of $0.6 million, and increased other
expenses of $0.3 million.

For the six months ended June 30, 2022, general and administrative expenses were
$13.6 million, compared to $3.3 million for the six months ended June 30, 2021.
The increase of $10.3 million consisted of increased non-cash stock-based
compensation expense of $5.1 million, increased personnel-related expenses of
$2.1 million, increased professional services, including audit and legal fees,
of $1.4 million, increased insurance costs of $1.1 million, and increased other
expenses of $0.6 million

Other Income (Expense)

Other income (expense) was income of $0.5 million for the three months ended
June 30, 2022, compared to a negligible amount of income for the three months
ended June 30, 2021. The $0.5 million change was the result of higher net
interest income.

Other income (expense) was income of $0.6 million for the six months ended June
30, 2022, compared to $1.2 million of expense for the six months ended June 30,
2021. The $1.8 million change was the result of a loss on extinguishment of
convertible promissory note of $0.8 million in 2021, a loss recognized on the
change in fair value of derivative liability of $0.2 million, and net interest
income of $0.6 million compared to net interest expense of $0.2 million.

Cash and capital resources

We have incurred significant operating losses since our inception and anticipate
we will continue to incur significant operating losses for the foreseeable
future as we continue to develop our current and future vaccine candidates, and
may

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never become profitable. Since our inception, we have funded our operations
primarily through the sale of our convertible preferred stock and common stock.
In August 2021, we completed our IPO with the sale of 13,953,332 shares of
common stock, which included the exercise in full by the underwriters of their
option to purchase 1,819,999 additional shares, at an IPO price of $15.00 per
share with net proceeds of $190.7 million. Prior to our IPO, we had funded our
operations primarily through the sale of convertible preferred stock and had
previously raised $149.5 million in net proceeds. As of June 30, 2022, we had
cash, cash equivalents, restricted cash, and short-term investments of $243.9
million and an accumulated deficit of $140.2 million.

Funding needs

Based on our current operating plan we believe that our existing cash and
restricted cash will be sufficient to meet our anticipated operating expenses
and capital expenditures through at least 2024. However, our forecast of the
period of time through which our financial resources will be adequate to support
our operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary materially. We have based this
estimate on assumptions that may prove to be wrong, and we could deplete our
capital resources sooner than we expect. Additionally, the process of testing
vaccine candidates in clinical trials is costly, and the timing of progress and
expenses in these trials is uncertain.

Our future capital requirements will depend on many factors, including:
?
the initiation, type, number, scope, results, costs and timing of, our ongoing
and planned clinical trials and preclinical studies or clinical trials of other
potential vaccine candidates we may choose to pursue in the future, including
feedback received from regulatory authorities;
?
the costs and timing of manufacturing for current or future vaccine candidates,
including commercial scale manufacturing if any vaccine candidate is approved;
?
the costs, timing and outcome of regulatory review of current or future vaccine
candidates;
?
any delays and cost increases that may result from the COVID-19 pandemic and
associated supply chain and staffing issues;
?
the costs of obtaining, maintaining and enforcing our patents and other
intellectual property rights;
?
our efforts to enhance operational systems and hire additional personnel to
satisfy our obligations as a public company, including enhanced internal
controls over financial reporting;
?
the costs associated with hiring additional personnel and consultants as our
business grows, including additional executive officers and research, clinical
development and manufacturing personnel;
?
the terms and timing of establishing and maintaining collaborations, licenses
and other similar arrangements;
?
the timing and amount of the milestone or other payments we must make to current
and future licensors;
?
the costs and timing of establishing or securing sales and marketing
capabilities if a current or future vaccine candidate is approved;
?
our ability to achieve sufficient market acceptance, coverage and adequate
reimbursement from third-party payors and adequate market share and revenue for
any approved products;
?
patients' willingness to pay out-of-pocket for any approved products in the
absence of coverage and/or adequate reimbursement from third-party payors; and
?
costs associated with any products or technologies that we may in-license or
acquire.

Our existing cash and restricted cash will not be sufficient to complete the development of IVX-A12, a bivalent COVID-19 vaccine candidate, an influenza vaccine candidate or any other vaccine candidate. Therefore, we will need to secure additional funding to achieve our business goals.

Until such time, if ever, as we can generate substantial product revenues to
support our cost structure, we expect to finance our cash needs through equity
offerings, debt financings or other capital sources, including potential
collaborations, licenses, and other similar arrangements. However, we may be
unable to raise additional funds or enter into such other arrangements when
needed on favorable terms or at all. To the extent that we raise additional
capital through the sale of equity or convertible debt securities, the ownership
interest of our stockholders could be diluted, and the terms of these securities
may include liquidation or other preferences that adversely affect the rights of
our common stockholders. Debt financing and 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. If we raise funds through collaborations,
or other similar arrangements with third parties, we may have to relinquish
valuable rights to our technologies, future revenue streams, research programs
or vaccine candidates or grant licenses on terms that may not be favorable to us
and/or may reduce the value of our common stock. If we are unable to raise
additional funds through equity or debt financings when needed, we may be
required to delay, limit, reduce or terminate our product development or future
commercialization efforts or grant rights to develop and market our vaccine
candidates to third parties where we might otherwise prefer to develop and
market such vaccine candidates ourselves.

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Cash flow

The following table presents a summary of the net cash activity for each of the periods indicated below (in thousands):

                                                                Six Months Ended
                                                                    June 30,
                                                               2022          2021
Net cash (used in) provided by
Operating activities                                        $  (35,293 )   $ (16,178 )
Investing activities                                          (136,524 )        (568 )
Financing activities                                               499       113,012

Net change in cash, cash equivalents and restricted cash ($171,318) $96,266



Operating Activities

Net cash used in operating activities for the six months ended June 30, 2022 was
$35.3 million, consisting primarily of our net loss incurred during the period
of $46.2 million adjusted for $10.5 million of non-cash income and expenses and
$0.4 million for net changes in operating assets and liabilities. Non-cash
expenses consisted primarily of $10.1 million in stock-based compensation
expense. The net change in operating assets and liabilities consisted of a $1.2
million decrease in prepaids and other current assets, a $0.2 million decrease
in accounts payable and accrued and other current liabilities, and a $0.6
million decrease in deferred revenue.

Net cash used in operating activities for the six months ended June 30, 2021 was
$16.2 million, consisting primarily of our net loss incurred during the period
of $14.4 million adjusted for $4.7 million for net changes in operating assets
and liabilities, and $2.9 million of non-cash expenses. Non-cash expenses
consisted primarily of $1.7 million in stock-based compensation, $0.8 million
loss on extinguishment of convertible promissory note, $0.2 million non-cash
interest expense, and $0.2 million of non-cash expense recognized related to the
change in fair value of the derivative liability. The net change in operating
assets and liabilities consisted of a $3.5 million decrease in prepaid and other
current assets, and a $1.2 million decrease in deferred revenue.

Investing activities

Net cash used in investing activities for the six months ended June 30, 2022 was
$136.5 million, consisting of purchases of short-term investments of $134.6
million, $4.6 million of purchases of property and equipment, and $2.6 million
in proceeds from lease incentives.

Net cash used in investing activities for the six months ended June 30, 2021 has been
$0.6 million for the purchase of goods and equipment.

Fundraising activities

Net cash provided by financing activities for the six months ended June 30, 2022
has been $0.5 million consisting of the proceeds from the exercise of stock options.

Net cash provided by financing activities for the six months ended June 30, 2021
was $113.0 million consisting of $21.0 million in proceeds related to the
issuance of Series A-1 convertible preferred stock in February 2021, $92.6
million in proceeds related to the issuance of Series B-1 convertible preferred
stock in March 2021, $0.1 million proceeds from exercises of stock options,
including early exercises, offset by the payment of $0.7 million in deferred
offering costs.

Contractual obligations and commitments

As we describe in Note 8 of the accompanying unaudited condensed financial
statements, we have a lease agreement for corporate office and laboratory space
in Seattle, Washington. The lease agreement expires in December 2027 and
provides for a one-time option to extend for a period of five additional years.
We expect that lease payments will begin in January 2023, and the monthly base
rent will be $0.2 million for the first year and will increase by 3.0% per year
over the initial term. In addition, we are obligated to pay for common area
maintenance and other costs. The lease agreement provides us with an allowance
for tenant improvements of $5.3 million that will be reimbursed to us or paid on

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our behalf as construction of improvements occurs. Under the terms of the lease
agreement, we are required to maintain a standby letter of credit of $1.1
million at the execution of the lease agreement, reduced to $0.9 million at the
first anniversary, and further reduced to $0.7 million at the second anniversary
of the lease.

Under our license agreements, we have milestone payment obligations that are
contingent upon the achievement of specified development, regulatory, and
commercial sales milestones and are required to make certain royalty payments in
connection with the sale of products developed under the agreements. As of June
30, 2022 and December 31, 2021, we are unable to estimate the timing or
likelihood of achieving the milestones or making future product sales and,
therefore, any related payments are not reflected as contractual obligations
herein.

We enter into contracts in the normal course of business for contract research
services, contract manufacturing services, professional services and other
services and products for operating purposes. These contracts generally provide
for termination after a notice period, and, therefore, are cancelable contracts
and not included as contractual obligations herein.

See the descriptions of these agreements provided above and in the section of the Annual Report titled “Commercial Agreements-Materials” for more information on these license agreements.

Critical Accounting Policies and Significant Judgments and Estimates

Our financial statements are prepared in accordance with generally accepted
accounting principles in the United States (GAAP). The preparation of our
financial statements requires us to make estimates and assumptions that affect
the reported amounts of assets, liabilities, costs, and expenses and the
disclosure of contingent assets and liabilities in our financial statements and
accompanying notes. We evaluate our estimates and judgments on an ongoing basis.
We base our estimates on historical experience, known trends and events, 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
values of assets and liabilities that are not readily apparent from other
sources. Our actual results may differ materially from these estimates under
different assumptions or conditions.

We describe our significant accounting policies in Note 2 of the accompanying
unaudited condensed financial statements and in Note 2 to the audited financial
statements contained in the Annual Report. During the six months ended June 30,
2022, there were no material changes to our significant accounting policies from
those described in the Annual Report.

Jobs Act and Small Business Reporting

As an emerging growth company under the Jumpstart Our Business Startups Act of
2012 (JOBS Act), we can take advantage of an extended transition period for
complying with new or revised accounting standards. This allows an emerging
growth company to delay the adoption of certain accounting standards until those
standards would otherwise apply to private companies. We have irrevocably
elected not to avail ourselves of this exemption from new or revised accounting
standards and, therefore, will be subject to the same new or revised accounting
standards as other public companies that are not emerging growth companies. We
intend to rely on other exemptions provided by the JOBS Act, including without
limitation, not being required to comply with the auditor attestation
requirements of Section 404(b) of Sarbanes-Oxley. As a result, our financial
statements may not be comparable to companies that comply with new or revised
accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earliest of (i) the last day
of the fiscal year following the fifth anniversary of the consummation of our
IPO, (ii) the last day of the fiscal year in which we have total annual gross
revenue of at least $1.07 billion, (iii) the first day of the fiscal year in
which we are deemed to be a "large accelerated filer" as defined in Rule 12b-2
under the Exchange Act, which would occur if the market value of our common
stock held by non-affiliates exceeded $700.0 million as of the last business day
of the second fiscal quarter of the prior year, or (iv) the date on which we
have issued more than $1.0 billion in non-convertible debt securities during the
prior three-year period. We are also a smaller reporting company as defined in
the Exchange Act. 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 and will be able
to take advantage of these scaled disclosures for so long as our voting and
non-voting common stock held by non-affiliates is less than $250.0 million
measured on the last business day of our second fiscal quarter, or our annual
revenue is less than $100.0 million during the most recently completed fiscal
year and our voting and non-voting common stock held by non-affiliates is less
than $700.0 million measured on the last business day of our second fiscal
quarter.

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Recent accounting pronouncements

See Note 2 of the accompanying unaudited summary financial statements for a discussion of recent accounting pronouncements, if any.

Off-balance sheet arrangements

During the periods presented, we did not have, and do not currently have, any off-balance sheet arrangements as defined in SECOND rules.

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