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, 2021and 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.
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 22 -------------------------------------------------------------------------------- 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.
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 23 -------------------------------------------------------------------------------- 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 $15.00per 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 millionin 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, 2022was $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
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, 2022and 2021, revenue was derived from the September 2020grant agreement (the Grant Agreement) with the Bill & Melinda Gates Foundation(BMGF), pursuant to which BMGF awarded a grant totaling up to $10.0 millionin 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; 24 --------------------------------------------------------------------------------
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
SECrequirements, 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 25 -------------------------------------------------------------------------------- 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
$0and $0.8 millionduring 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
Comparison of three and six month periods ended
The following table summarizes our operating results for the three and six months ended
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 $0and $0.6 millionfor the three and six months ended June 30, 2022, respectively, compared to $1.9 millionand $3.9 millionfor the three and six months ended June 30, 2021, respectively. We had received the full $10.0 millionin funding under the Grant Agreement as of December 31, 2021, and through June 30, 2022, we have recognized $10.0 millionin revenue since the inception of the Grant Agreement. 26 --------------------------------------------------------------------------------
Research and development costs
Research and development expenses were
$15.8 millionfor the three months ended June 30, 2022, compared to $8.3 millionfor the three months ended June 30, 2021. The increase of $7.5 millionwas due to a $2.5 millionincrease in direct costs related to preclinical development and manufacturing, a $1.8 millionincrease related to non-cash stock-based compensation expense, a $1.6 millionincrease in personnel related expenses due to increased headcount to support our development activities, a $1.3 millionincrease in direct costs related to clinical development and manufacturing, and a $0.5 millionincrease in other expenses. For the six months ended June 30, 2022, research and development expenses were $33.7 million, compared to $13.8 millionfor the six months ended June 30, 2021. The increase of $19.9 millionwas due to a $9.8 millionincrease in direct costs related to preclinical development and manufacturing, a $3.3 millionincrease related to non-cash stock-based compensation expense, a $3.2 millionincrease in personnel related expenses due to increased headcount to support our development activities, a $2.7 millionincrease in direct costs related to clinical development and manufacturing, and a $0.8 millionincrease 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 $ 5,671SARS-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 millionfor the three months ended June 30, 2022, compared to $2.2 millionfor the three months ended June 30, 2021. The increase of $5.1 millionconsisted 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 millionfor the six months ended June 30, 2021. The increase of $10.3 millionconsisted 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 millionOther Income (Expense) Other income (expense) was income of $0.5 millionfor 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 millionchange was the result of higher net interest income. Other income (expense) was income of $0.6 millionfor the six months ended June 30, 2022, compared to $1.2 millionof expense for the six months ended June 30, 2021. The $1.8 millionchange was the result of a loss on extinguishment of convertible promissory note of $0.8 millionin 2021, a loss recognized on the change in fair value of derivative liability of $0.2 million, and net interest income of $0.6 millioncompared 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 27-------------------------------------------------------------------------------- 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 $15.00per 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 millionin net proceeds. As of June 30, 2022, we had cash, cash equivalents, restricted cash, and short-term investments of $243.9 millionand an accumulated deficit of $140.2 million.
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. 28 --------------------------------------------------------------------------------
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
Operating Activities Net cash used in operating activities for the six months ended
June 30, 2022was $35.3 million, consisting primarily of our net loss incurred during the period of $46.2 millionadjusted for $10.5 millionof non-cash income and expenses and $0.4 millionfor net changes in operating assets and liabilities. Non-cash expenses consisted primarily of $10.1 millionin stock-based compensation expense. The net change in operating assets and liabilities consisted of a $1.2 milliondecrease in prepaids and other current assets, a $0.2 milliondecrease in accounts payable and accrued and other current liabilities, and a $0.6 milliondecrease in deferred revenue. Net cash used in operating activities for the six months ended June 30, 2021was $16.2 million, consisting primarily of our net loss incurred during the period of $14.4 millionadjusted for $4.7 millionfor net changes in operating assets and liabilities, and $2.9 millionof non-cash expenses. Non-cash expenses consisted primarily of $1.7 millionin stock-based compensation, $0.8 millionloss on extinguishment of convertible promissory note, $0.2 millionnon-cash interest expense, and $0.2 millionof 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 milliondecrease in prepaid and other current assets, and a $1.2 milliondecrease in deferred revenue.
Net cash used in investing activities for the six months ended
June 30, 2022was $136.5 million, consisting of purchases of short-term investments of $134.6 million, $4.6 millionof purchases of property and equipment, and $2.6 millionin proceeds from lease incentives.
Net cash used in investing activities for the six months ended
Net cash provided by financing activities for the six months ended
Net cash provided by financing activities for the six months ended
June 30, 2021was $113.0 millionconsisting of $21.0 millionin proceeds related to the issuance of Series A-1 convertible preferred stock in February 2021, $92.6 millionin proceeds related to the issuance of Series B-1 convertible preferred stock in March 2021, $0.1 millionproceeds from exercises of stock options, including early exercises, offset by the payment of $0.7 millionin 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 2027and 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 millionfor 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 millionthat will be reimbursed to us or paid on 29 -------------------------------------------------------------------------------- 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 millionat the execution of the lease agreement, reduced to $0.9 millionat the first anniversary, and further reduced to $0.7 millionat 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, 2022and 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.
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 millionas 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 billionin 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 millionmeasured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 millionduring the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 millionmeasured on the last business day of our second fiscal quarter. 30 --------------------------------------------------------------------------------
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
© Edgar Online, source