CALCIMEDICA, INC. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our financial statements and the related notes included elsewhere in this Annual Report. In addition to historical financial information, this discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties. You should carefully read the sections entitled "Special Note Regarding Forward-Looking Statements" and "Risk Factors" to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Overview We have historically been a clinical-stage biopharmaceutical company focused on developing transformative medicines for the treatment of diseases of the retina and optic nerve. OnJune 28, 2022 , we announced that our board of directors would conduct a comprehensive review of strategic alternatives focused on maximizing shareholder value. As part of this review of strategic alternatives, we explored the potential for an acquisition, company sale, merger, divestiture of assets, private placement of equity securities, and other strategic transactions. Prior to this announcement, we had devoted substantially all our resources to conducting research and development and raising capital. After conducting a broad and rigorous search for strategic partners who could fund the clinical development of our most advanced programs, GB-102 for the treatment of wet age-related macular degeneration and GB-401 for glaucoma, we concluded that we did not have sufficient capital to pursue further clinical development of either program on our own, nor did we believe that we had the ability to raise sufficient additional capital to do so. BetweenOctober 2021 andAugust 2022 , we contacted 38 parties to solicit interest in licensing or partnering GB-102, and 11 parties to solicit interest in licensing GB-401, but received only one proposal, and it was on terms that were not acceptable to us. As a result, onAugust 18, 2022 , our board of directors approved a restructuring plan, which included the termination of all activities related to GB-102 and GB-401, as well as certain cost-reduction initiatives, including a 71% reduction in our workforce. OnOctober 3, 2022 , we provided written notification toJohns Hopkins University ("JHU") of our decision to terminate our exclusive license agreement to all licensed patent rights owned by JHU that were relevant to our GB-102 program. OnNovember 10, 2022 , we entered into an agreement withMireca Medicines GmbH ("Mireca") to assign certain intellectual property and revert all rights to our GB-601 preclinical program for retinitis pigmentosa, Stargardt Disease, and Leber congenital amaurosis back to Mireca, thereby terminating our involvement in that program. OnNovember 21, 2022 , we announced that we had entered into a definitive merger agreement withCalciMedica, Inc. ("CalciMedica") to combine our companies in an all-stock transaction, subject to shareholder approval. We are continuing the preclinical development of our two remaining programs: GB-501, a gene therapy delivered via a recombinant adeno-associated virus ("rAAV") vector to treat corneal clouding caused by mucopolysaccharidosis type 1 ("MPS1"), and GB-701, a novel and potent small-molecule complement factor B inhibitor being developed to target the complement pathway as a potential treatment for geographic atrophy ("GA"). As GB-501 is a biologic, it will not require, nor benefit from, our drug delivery technologies as it is administered via an intrastromal injection into the cornea. GB-701 is a new chemical entity currently being developed in collaboration with Insilico Medicine, a clinical-stage, end-to-end artificial intelligence ("AI")-drug discovery company. As a small molecule that is targeted to treat a chronic disease, GB-701 will likely require a sustained delivery technology. OnNovember 21, 2022 , we entered into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement"), as may be amended from time to time, withCalciMedica, Inc. ("CalciMedica") a clinical-stage biopharmaceutical company focused on developing first-in-class therapies for serious inflammatory diseases with high unmet need, andCamaro Merger Sub, Inc. , our wholly-owned subsidiary ("Merger Sub"). Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, Merger Sub will be merged with and intoCalciMedica , withCalciMedica surviving such merger as a wholly owned subsidiary ofGraybug (the "Merger"). Based on aCalciMedica valuation of$100.0 million and aGraybug valuation of$40.0 million , the equity holders ofGraybug immediately prior to the effective time of the transaction are expected to own approximately 28.6% of the aggregate number of outstanding shares ofGraybug common stock immediately after the Effective Time and the equity holders ofCalciMedica immediately prior to the effective time are expected to own 71.4% of the aggregate number of outstanding shares ofGraybug common stock immediately after the effective time. The Merger, which has been approved by our board of directors and the board of directors and stockholders ofCalciMedica , is expected to close in the first quarter of 2023, subject to the satisfaction or waiver of certain closing conditions, including the approval of our stockholders. Certain officers, directors and stockholders ofGraybug who in the aggregate own approximately 45% of the outstanding shares of our common stock immediately prior to the date of the Merger Agreement are parties to support agreements whereby such stockholders have agreed, among other things, to vote in favor of the Merger, subject to the terms of the support agreements. Although we have entered into the Merger Agreement and intend to consummate the proposed Merger, there is no assurance that we will be able to successfully consummate the proposed Merger on a timely basis, or at all. If, for any reason, the proposed Merger is not completed, we will reconsider our strategic alternatives and could pursue another strategic transaction similar to the proposed Merger, potential collaborative, partnering or other strategic arrangements for our programs, including a sale or divestiture of our legacy programs, or liquidate and distribute available cash. We were incorporated inMay 2011 and our operations to date have been financed primarily by gross proceeds of approximately$134.0 million from the issuance of convertible promissory notes and convertible preferred stock, and$92.0 million in net proceeds -------------------------------------------------------------------------------- from our initial public offering of our common stock ("IPO") after deducting underwriters' discounts and commissions of$7.2 million and offering costs of$4.2 million . Since inception, we have had significant operating losses. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures and, to a lesser extent, general and administrative expenditures. Our net loss was$35.6 million and$35.8 million for the years endedDecember 31, 2022 and 2021, respectively. As ofDecember 31, 2022 , we had an accumulated deficit of$204.8 million and cash, cash equivalents and short-term investments of$39.1 million . We expect to continue to incur net losses for the foreseeable future, and, if the closing of the Merger does not occur, and if we continue to operate our business as we have historically, we expect our research and development expenses, general and administrative expenses, and capital expenditures to continue to increase. In particular, we would expect our expenses to increase if we continue our development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products, as well as hire additional personnel, develop commercial infrastructure, pay fees to outside consultants, lawyers and accountants, and incur increased costs associated with being a public company, such as expenses related to services associated with maintaining compliance with Nasdaq listing rules andSEC reporting requirements, insurance and investor relations. If the Merger fails to close and we continue to operate our business as we have historically, our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending upon the timing of our clinical trials and our expenditures on other research and development activities. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our accounts payable and accrued research and development and other current liabilities.
Recent Developments
Proposed Merger
OnFebruary 9, 2023 , we filed a definitive proxy statement further describing the Merger including settingMarch 15, 2023 as the date on which our stockholders can vote on the Merger. Upon the terms and subject to the satisfaction of the conditions described in the Merger Agreement, including approval of the transaction by our stockholders, our wholly-owned subsidiary will consummate the Merger. Upon the closing of the Merger, we will adopt the business and operating plan ofCalciMedica . In the event the Merger is not consummated, our Board will be required to develop a new business plan. We cannot currently ascertain such plan nor the financial impact on us at this time.
Minimum Bid Price
OnJune 16, 2022 , we received a written notification (the "Notice Letter") from Nasdaq indicating that we were not in compliance with Nasdaq Listing Rule 5450(a)(1), as the closing bid price for our common stock was below the$1.00 per share requirement for the 30 prior consecutive business days which is the minimum closing price required to maintain continued listing on theNasdaq Stock Market under Nasdaq Listing Rule 5450(a)(1) (the "Minimum Bid Requirement"). The Notice Letter stated that we had 180 calendar days, or untilDecember 13, 2022 , to regain compliance with the Minimum Bid Requirement. OnJuly 21, 2022 , we received a written notification from Nasdaq indicating that we had regained compliance with Nasdaq Listing Rule 5550(a)(2) because the closing bid price of our common stock during the preceding ten consecutive business days,July 7, 2022 toJuly 20, 2022 , had been at$1.00 per share or greater. OnDecember 27, 2022 , we received a second written notification (the "Second Notice Letter") from Nasdaq indicating that we were not in compliance with the Minimum Bid Requirement. The Second Notice Letter stated that we had 180 calendar days, or untilJune 23, 2023 , to regain compliance with the Minimum Bid Requirement. We currently anticipate effecting a reverse stock split in connection with the Merger that would allow us to regain compliance with the Minimum Bid Requirement, but there can be no assurance that we will continue to satisfy Nasdaq's minimum financial and other requirements in future periods.
Business Effects of the COVID-19 Pandemic
The full impact of the ongoing COVID-19 pandemic remains highly uncertain and subject to change. There are many uncertainties around the COVID-19 pandemic and future developments, which are unpredictable, may result in a material, negative impact to our operations and financial condition.
For additional information on the various risks posed by the COVID-19 pandemic, please read Item 1A. Risk Factors.
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Components of Operating Results
Research and Development Expenses
Our research and development expenses have included:
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personnel costs, which include salaries, benefits and stock-based compensation;
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expenses incurred under agreements with consultants, third-party contract organizations that conduct research and development activities on our behalf;
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costs related to production of preclinical and clinical materials, including fees paid to contract manufacturers;
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laboratory and vendor expenses related to the execution of preclinical studies and previously planned clinical trials;
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laboratory supplies and materials used for internal research and development activities;
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the acquisition cost of in-licensed and purchased intellectual property;
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the acquisition of acquired in-process research and development; and
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facilities and equipment costs.
Most of our historical research and development expenses have been related to the preclinical and clinical development of GB-102, which was terminated inAugust 2022 . We have not reported program costs since inception because we have not tracked or recorded our research and development expenses on a program-by-program basis historically. We have historically used our personnel and infrastructure resources across the breadth of our research and development activities, which are directed toward identifying and developing product candidates. We expense all research and development costs in the periods in which they are incurred. Costs for certain research and development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers. If the Merger fails to close, we would expect our research and development expenditures to increase substantially if we continued to invest in research and development activities related to developing our GB-501 and GB-701 product candidates, and if we elected to continue to advance either of those programs to conduct clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates would be highly uncertain. Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of any preclinical studies or clinical trials or if, when, or to what extent we would generate revenues from the commercialization and sale of our product candidates or if we even continue to pursue such product development, commercialization or sales if the Merger fails to close. We may never succeed in achieving regulatory approval for our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our remaining product candidates, to the extent we continue to pursue such activities if the Merger fails to close, will depend on a variety of factors, including:
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securing a strategic transaction, or one or more partnerships, to provide funding for the timely execution of further product development;
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successful completion of preclinical studies and clinical trials to the
satisfaction of the FDA,
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demonstrating that our product candidates are safe and effective for any of their proposed indications;
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acceptance of our products, if and when approved, by patients, the medical community and third-party payors;
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effectively competing with other therapies;
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maintaining a continued acceptable safety and profile of our products following approval;
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obtaining and maintaining coverage and adequate reimbursement from third-party payors;
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applying for and receiving marketing approvals from applicable regulatory authorities for our product candidates;
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scaling up our manufacturing processes and capabilities to support additional or larger clinical trials of our product candidates and commercialization of any of our product candidates for which we obtain marketing approval;
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developing, validating and maintaining a commercially viable manufacturing process that is compliant with current good manufacturing practices;
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developing and expanding our sales, marketing and distribution capabilities and launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;
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minimizing and managing any delay or disruption to our ongoing or planned
clinical trials, and any adverse impacts to the
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obtaining and maintaining patent and trade secret protection and regulatory exclusivity;
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protecting our rights in our intellectual property portfolio; and
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the impact of the COVID-19 pandemic and the corresponding responses of businesses and governments.
If the Merger fails to close, we may never succeed in achieving regulatory approval for any of our remaining product candidates. We may obtain unexpected results from our preclinical studies and subsequent clinical trials, if any. We may elect to discontinue, delay or modify future clinical trials of some product candidates or focus on others. A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current preclinical product candidates. For example, if the FDA, or another regulatory authority, were to require us to conduct clinical trials beyond those that we currently anticipate would be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or future clinical trials, if any, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel costs, costs related to maintenance and filing of intellectual property and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation expense. If the Merger fails to close, and we pursue an operating plan that involves an expansion of our current headcount or operations, we would expect our general and administrative expenses to increase over the next several years to support such an expansion, increased costs of operating as a public company, retaining and motivating our employees, the development of a commercial infrastructure to support the potential commercialization of our product candidates, and the use of outside service providers such as insurers, consultants, lawyers, and accountants.
Restructuring, Impairment and Other Costs of Terminated Programs
Restructuring, impairment and other costs of terminated programs primarily consists of severance and termination benefit expense for the 20 employees terminated during 2022 and non-cash impairment of capital equipment and a right-of-use asset.
Interest Income
Our interest income principally reflects interest earned on our investments. Our investments includeU.S. government-backed money-market funds, corporate debt securities, commercial paper and government bonds. We place cash in excess of immediate requirements into a custodial account and invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation.
Results of Operations
Comparison of the Years Ended
The following sets forth our results of operations (in thousands):
Year Ended December 31, Change
2022 2021 Amount %
Operating expenses:
Research and development $ 14,113 $ 18,903 $ (4,790 ) (25 )%
General and administrative 19,104 17,044 2,060 12 %
Restructuring, impairment and other
costs of terminated programs 2,963 - 2,963 *
Total operating expenses 36,180 35,947 233 1 %
Loss from operations (36,180 ) (35,947 ) (233 ) 1 %
Interest income 575 126 449 *
Net loss $ (35,605 ) $ (35,821 ) $ 216 1 %
* Not meaningful
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Research and Development Expenses
Research and development expenses comprised (dollars in thousands):
Year Ended December 31, Change
2022 2021 Amount %
Personnel costs $ 5,299 $ 7,445 $ (2,146 ) (29 )%
CRO, CDMO, nonclinical and other services 3,368 6,088 (2,720 ) (45 )%
Acquired in-process research and development 2,193 - 2,193 *
Facility, travel and other expenses 2,181 3,290 (1,109 ) (34 )%
Professional services 843 1,079 (236 ) (22 )%
Materials and supplies 229
1,001 (772 ) (77 )%
Total research and development expenses
* Not meaningful
As of
Research and development expenses were$14.1 million and$18.9 million for the years endedDecember 31, 2022 and 2021, respectively. The decrease was primarily due to the completion of the extension phase of the GB-102 Phase 2b clinical trial inMay 2021 , a decrease in licensing fees, and a decrease in personnel costs due to the termination of employees in the second half of 2022 in connection with our restructuring, offset in part by a$2.2 million increase due to the acquisition of in-process research and development related to the acquisition ofRainBio, Inc. inMarch 2022 . If our Merger fails to close, we would expect research and development expenses to decrease in 2023 compared to 2022.
General and Administrative Expenses
General and administrative expenses to support our business activities comprised
(dollars in thousands):
Year Ended December 31, Change
2022 2021 Amount %
Personnel costs $ 8,276 $ 7,663 $ 613 8 %
Professional services 6,637 3,034 3,603 119 %
Facility costs, travel and other
expenses 3,185 3,917 (732 ) (19 )%
Patent filing and portfolio costs 1,006 1,078 (72 ) (7 )%
Write-off deposits on fixed assets
purchase commitments - 1,352 (1,352 ) *
Total general and administrative
expenses $ 19,104 $ 17,044 $ 2,060 12 %
* Not meaningful
As of
General and administrative expenses were$19.1 million and$17.0 million for the years endedDecember 31, 2022 and 2021, respectively. The increase was primarily due to a$2.8 million increase in legal, accounting and investment banking fees resulting from the strategic review, including the proposed Merger withCalciMedica and an increase in stock based compensation of$1.2 million , offset in part by a reduction of$1.4 million in the write-off of deposits on fixed assets purchase commitments inMarch 2021 and a decrease in the cost of the director and officer liability insurance of$0.5 million .
Restructuring, Impairment and Other Costs of Terminated Programs
For the year endedDecember 31, 2022 , we recorded$3.0 million of restructuring, impairment and other costs of terminated programs. We terminated all development activities relating to the GB-102 and GB-401 programs and reduced our workforce by 71%. Refer to Notes 1 and 6 to our consolidated financial statements in Item 8 of this Annual Report on Form 10-K for more details. Year Ended
2022
Impairment of capital equipment and right-of-use asset $
1,599
Severance and termination benefit expense
1,065
Other restructuring costs
299
Total restructuring, impairment and other costs of terminated programs $ 2,963
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Interest Income
Interest income was
Liquidity and Capital Resources
Overview
To date, we have incurred losses and negative cash flows from operations. As ofDecember 31, 2022 , we had available cash, cash equivalents and short-term investments of$39.1 million and an accumulated deficit of$204.8 million . To date, we have financed our operations primarily through private placements of our convertible preferred stock and convertible promissory notes and the issuance of common stock upon our initial public offering ("IPO"). OnNovember 21, 2022 , we entered into the Merger Agreement withCalciMedica , which, among other things, prohibits us from raising additional capital withoutCalciMedica's consent, which is outside of our control. We incurred net losses of$35.6 million and$35.8 million for the years endedDecember 31, 2022 and 2021, respectively. If the Merger fails to close, we would expect to continue to incur significant operational expenses and net losses in the upcoming 12 months and beyond. Our net losses may fluctuate significantly from quarter to quarter and year to year, depending on the stage and complexity of our research and development studies and related expenditures, if any, the receipt of additional payments on the sale or licensing of our technology, if any, and the receipt of payments under any current or future collaborations we may enter into. If the Merger fails to close, and we continued operations based on our current operating plan, we believe our cash, cash equivalents and short-term investments of$39.1 million atDecember 31, 2022 would be adequate to meet our cash needs for at least 12 months from the issuance date of this Annual Report on Form 10-K.
Commitments and Other Obligations
For a detailed description of our commitments and obligations, see Note 5 - Commitments and Contingencies, to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Leases
As ofDecember 31, 2022 , we had two real property leasing arrangements: one for ourBaltimore, MD laboratory, which had been our research and development facility before being decommissioned inOctober 2022 , and a second for our corporate offices inRedwood City, CA , which subsequently expired onJanuary 31, 2023 . The lease on theBaltimore facility will expire onJune 30, 2023 . As ofDecember 31, 2022 , we had fixed lease payment obligations of$0.2 million , payable within 12 months.
License Agreements
We are party to an agreement with theUniversity of North Carolina , pursuant to which we have in-licensed intellectual property rights. This agreement obligates us to timely achieve certain development milestones, as well as pay royalties in the low-single digits based on sales of products arising from our GB-501 program. None of these events had occurred as ofDecember 31, 2022 , and no royalties were due from the sales of licensed products.
Other Commitments
We have historically entered into contracts in the normal course of business with CDMOs, for manufacturing process development and supply, and with other vendors for preclinical research studies and other services or products for operating purposes. These contracts generally provide for termination on notice of 60 to 90 days. As ofDecember 31, 2022 , there was one such contract, worth approximately$1.3 million , still in effect for future services, and there were no unpaid cancellation or other related costs. In connection with an agreement with an investment banking firm for services related to the proposed Merger withCalciMedica , we incurred and paid approximately$0.8 million during the current year and will be required to make an additional payment of approximately$2.3 million contingent upon the consummation of the proposed Merger withCalciMedica . The$0.8 million incurred during the current year is included in general and administrative expenses. In connection with the proposed Merger withCalciMedica , all outstanding stock awards will be fully accelerated and we will be required to make change-in-control severance payments to current employees totaling approximately$5.5 million .
As of
During the periods presented, we did not have, nor do we currently have, any
off-balance sheet arrangements as defined under
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Funding Requirements
The consummation of the Merger with
If the proposed Merger is not consummated, we may have to revert to an operating plan more consistent with our historical operations. Our funding requirements, and ability to access additional capital, would then be determined by a number of factors and risks. Any product candidates we may develop may never achieve commercialization, and we anticipate that we will continue to incur losses for the foreseeable future. If the Merger fails to close, we would expect that our research and development expenses, general and administrative expenses, and capital expenditures would decrease in the aggregate from historical levels as our current development programs are both early stage and preclinical. As a result, until such time, if ever, as we could generate substantial product revenue, we would expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, including mergers, acquisitions, potential collaborations, licenses and other similar arrangements. If the Merger fails to close, our primary uses of capital would be compensation and related expenses, third-party clinical research, manufacturing and development services, license payments or milestone obligations that may arise, laboratory and related supplies, clinical costs, manufacturing costs, legal and other regulatory expenses and general overhead costs. If the Merger fails to close, we believe that our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements in excess of 12 months from the issuance date of these financial statements. We base this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We base the sufficiency of our existing cash, cash equivalents and short-term investments to fund our operations on the current period re-forecast of our projected cash burn rate following our decision to terminate all clinical development of our remaining product candidates, as well as our reduced headcount and reliance on CDMOs to perform all of our research and development work in 2023. While we believe that our current cash, cash equivalents and short-term investments are adequate to meet our needs for the next 12 months from issuance, we would need to raise or otherwise access additional funds in order to further advance our research and development programs, operate our business and meet our obligations as they come due if the Merger fails to close. If the Merger fails to close, we would require additional financing to advance our remaining product candidates through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for the foreseeable future. In addition to exploring an acquisition, company sale, merger, divestiture of assets, private placement of equity securities, or other strategic transactions, we would continue to seek funds through equity offerings, debt financings or other capital sources, potentially including collaborations, licenses and other similar arrangements. We may, however, be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. If we do raise additional capital through public or private equity offerings, 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 our stockholders' rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements if the Merger fails to close. Our future funding requirements would depend on many factors, including, but not limited to:
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the scope, progress, results and costs of researching, developing and manufacturing our product candidates or any future product candidates, and conducting preclinical studies and clinical trials;
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the timing of, and the costs involved in, obtaining regulatory approvals or clearances for our product candidates or any future product candidates;
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the number and characteristics of any additional product candidates we develop or acquire;
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the cost of manufacturing our product candidates or any future product candidates and any products we successfully commercialize, including costs associated with building-out our manufacturing capabilities;
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our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such agreements that we may enter into;
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the expenses needed to attract and retain skilled personnel;
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the costs associated with being a public company;
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the timing, receipt and amount of sales of any future approved or cleared products, if any; and
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the impact of the COVID-19 pandemic and the corresponding responses of businesses and governments.
Further, if the Merger fails to close, our operating plans may change, and we
may need additional funds to meet operational needs and capital requirements for
clinical trials and other research and development activities. We currently have
no credit facility or committed sources of capital. Because of the numerous
risks and uncertainties associated with the development and commercialization of
our remaining product candidates, we are unable to estimate the amounts of
increased capital and operating expenditures associated with our current product
development programs.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in
thousands):
Year Ended December 31,
2022 2021
Net cash (used in) provided by:
Operating activities $ (22,879 ) $ (31,500 )
Investing activities 26,958 10,751
Financing activities (139 ) 695
Net increase (decrease) in cash and cash equivalents
Operating Activities Cash used in operating activities of$22.9 million during the year endedDecember 31, 2022 was primarily attributable to our net loss of$35.6 million , partially offset by non-cash stock-based compensation expense of$6.7 million ,$2.2 million in acquired in-process research and development,$1.6 million in impairment of capital equipment and a right-of-use asset, a decrease of$1.8 million in our working capital,$0.3 million in depreciation expense and$0.3 million in non-cash lease expense.
Cash used in operating activities of
Investing Activities
Cash provided by investing activities of$27.0 million during the year endedDecember 31, 2022 consisted of$64.3 million of cash provided upon maturity of short-term investments and$0.4 million in proceeds from the sale of property and equipment, partially offset by$35.6 million of purchases of short-term investments,$1.9 million paid to acquire in-process research and development, and$0.3 million of purchases of property and equipment. Cash provided by investing activities of$10.8 million during the year endedDecember 31, 2021 consisted of$105.8 million of cash provided upon maturity of short-term investments, partially offset by$94.6 million of purchases of short-term investments and$0.5 million of purchases of property and equipment.
Financing Activities
There were no material cash activities from financing activities during the year
ended
Cash provided by financing activities of
Critical Accounting Policies and Significant Judgments and Estimates
Management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance withU.S. Generally Accepted Accounting Principles. The preparation of these 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 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 and any such differences may be material.
We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
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Research and Development Expense and Accruals
We record research and development expenses to operations as incurred. Research and development expenses represent costs incurred by us for the discovery and development of our product candidates and the development of our technology and include: employee-related expenses, including salaries, benefits, travel and non-cash stock-based compensation expense; external research and development expenses incurred under arrangements with third parties, such as CROs, preclinical testing organizations, CDMOs, academic and non-profit institutions and consultants; license fees; and other expenses, which include direct and allocated expenses for laboratory, facilities and other costs. As part of the process of preparing financial statements, we are required to estimate and accrue expenses. We estimate costs of research and development activities conducted by service providers, which include the conduct of sponsored research, preclinical studies and contract manufacturing activities. Payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered. If the costs have been prepaid, this expense reduces the prepaid expenses on the balance sheet, and if not yet invoiced, the costs are included in accrued liabilities on the balance sheet. We classify such prepaid assets as current or non-current assets based on our estimates of the timing of when the goods or services will be realized or consumed. These costs are a significant component of our research and development expenses. We estimate these costs based on factors such as estimates of the work completed and budget provided and in accordance with agreements established with our collaboration partners and third-party service providers. We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed may vary from our estimates and could result in us reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from external CROs, CDMOs, and other third-party service providers. Amounts ultimately incurred in relation to amounts accrued for these services at a reporting date may be substantially higher or lower than our estimates. Our expenses related to clinical trials are based on estimates of patient enrollment and related expenses at clinical investigator sites as well as estimates for the services provided and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that may be used to conduct and manage clinical trials on our behalf. We generally accrue expenses related to clinical trials based on contracted amounts applied to the level of patient enrollment and activity. If timelines or contracts are modified based upon changes in the clinical trial protocol or scope of work to be performed, we modify our estimates of accrued expenses accordingly on a prospective basis. We have and may continue to enter into purchase and license agreements to access and utilize certain technologies. We evaluate if such agreements are an acquisition of an asset or a business. To date none of these agreements have been considered to be an acquisition of a business. For asset acquisitions, the upfront payments to acquire such assets, or licenses to such assets, as well as any future milestone payments made before product approval, will be immediately recognized as research and development expenses when due, provided there is no alternative future use of the rights in other research and development projects. These agreements may also include contingent consideration in the form of cash. We assess whether such contingent consideration meets the definition of a derivative.
Stock-based Compensation
We recognize compensation costs related to stock-based awards to employees and
non-employees based on the estimated fair value of the awards on the date of
grant. We estimate the grant date fair value, and the resulting stock-based
compensation, using the Black-Scholes option-pricing model ("Black-Scholes").
The grant date fair value of the stock-based awards is generally recognized on a
straight-line basis over the requisite service period, which is generally the
vesting period of the respective awards.
Black-Scholes requires the use of subjective assumptions to determine the fair value of stock-based awards including:
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Fair Value of Common Stock- see subsection entitled Common Stock Valuations below.
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Expected Term-The expected term represents the period that stock-based awards are expected to be outstanding. Our historical share option exercise information is limited due to a lack of sufficient data points and did not provide a reasonable basis upon which to estimate an expected term. The expected term for option grants is therefore determined using the simplified method. The simplified method deems the expected term to be the midpoint between the vesting date and the contractual life of the stock-based awards.
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Expected Volatility-Since we were a privately held company untilSeptember 2020 , and do not yet have sufficient trading history for our common stock, the expected volatility is estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants. The comparable companies are chosen based on their similar size, stage in the life cycle or area of specialty. We will continue to apply this --------------------------------------------------------------------------------
method until a sufficient amount of historical information over a period equal to the expected term of the stock-based awards becomes available.
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Risk-Free Interest Rate-The risk-free interest rate is based on the
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Expected Dividend-We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.
We will continue to use judgment in evaluating the assumptions utilized for our stock-based compensation expense calculations on a prospective basis. In addition to the assumptions used in Black-Scholes, the amount of stock-based compensation expense we recognize in our financial statements includes stock option forfeitures as they occur. Such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.
Common Stock Valuations
Historically, for all periods prior to our IPO, the fair value of the shares of common stock underlying our stock-based awards was estimated on each grant date by our board of directors. In the absence of a public trading market for our common stock, our board of directors exercised their judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including contemporaneous valuations, our stage of development, important developments in our operations, the prices at which we sold shares of our preferred stock, the rights, preferences and privileges of our preferred stock relative to those of our common stock, actual operating results and financial performance, the conditions in the biotechnology industry and the economy in general, the stock price performance and volatility of comparable public companies, and the lack of liquidity of our common stock, among other factors. In determining the fair value of our common stock, the methodologies used to estimate our enterprise value were performed using methodologies, approaches and assumptions consistent with the guidance outlined in theAmerican Institute of Certified Public Accountants Technical Practice Aid , Valuation of Privately Held Company Equity Securities Issued as Compensation. The grant date fair value of our common stock was determined using valuation methodologies incorporating a number of assumptions including probability weighting of events, volatility, time to liquidation, a risk-free interest rate and an assumption for a discount for lack of marketability (Level 3 inputs). The methodology to determine the fair value of our common stock included estimating the fair value of the enterprise using a hybrid-method market approach, which estimates the fair value of the company by including an estimation of the value of the business based on scenarios in a probability-weighted expected return method ("PWERM") framework. Under the hybrid-method market approach, the per share value calculated under the scenarios are weighted based on expected exit outcomes and the quality of the information specific to each allocation methodology to arrive at a final estimated fair value per share value of the common stock before a discount for lack of marketability is applied. Following the closing of our IPO, our board of directors determines the fair market value of our common stock based on its closing price as reported on The Nasdaq Global Market on the date of grant.
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company, as defined in the Jumpstart Our Business
Startups Act of 2012 ("JOBS Act"). Under the JOBS Act, emerging growth companies
can delay adopting new or revised accounting standards issued subsequent to the
enactment of the JOBS Act until such time as those standards apply to private
companies. We have elected to use this extended transition period for complying
with new or revised accounting standards that have different effective dates for
public and private companies until the earlier of the date we (i) are no longer
an emerging growth company or (ii) affirmatively and irrevocably opt out of the
extended transition period provided in the JOBS Act. 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 are also a "smaller reporting company," as defined by Rule 12b-2 of the
Securities Exchange Act of 1934, because both the market value of our stock held
by non-affiliates is less than $700.0 million and our annual revenue is less
than $100.0 million during the most recently completed fiscal year. We may
continue to be a smaller reporting company if either (i) the market value of our
stock held by non-affiliates is less than $250.0 million or (ii) our annual
revenue is less than $100.0 million during the most recently completed fiscal
year and the market value of our stock held by non-affiliates is less than
$700.0 million . If we are a smaller reporting company at the time we cease to be
an emerging growth company, we may continue to rely on exemptions from certain
disclosure requirements that are available to smaller reporting companies.
Specifically, as a smaller reporting company we may choose to present only the
two most recent fiscal years of audited financial statements in our Annual
Report on Form 10-K and, similar to emerging growth companies, smaller reporting
companies have reduced disclosure obligations regarding executive compensation.
--------------------------------------------------------------------------------Recently Adopted Accounting Pronouncements
For a full discussion of recently adopted accounting pronouncements, see Note 2 - Summary of Significant Accounting Policies to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for more information.
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