COGNITION THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes to those statements included elsewhere in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under Item 1A, Risk factors, in this Annual Report on Form 10-K.
Overview
We are a clinical-stage biopharmaceutical company engaged in the discovery and development of innovative, small molecule therapeutics targeting age-related degenerative diseases and disorders of the central nervous system, or CNS, and retina. Currently available therapies for these diseases are limited, with many diseases having no approved therapies or treatments. Our goal is to develop disease modifying treatments for patients with these degenerative disorders by initially leveraging our expertise in the ?-2 (sigma-2) receptor, or S2R, which is expressed by multiple cell types, including neuronal synapses, and acts as a key regulator of cellular damage commonly associated with certain age-related degenerative diseases of the CNS and retina. We believe that targeting the S2R complex represents a mechanism that is functionally distinct from other current approaches in clinical development for the treatment of degenerative diseases. Since our inception in 2007, we have incurred significant operating losses and devoted substantially all of our time and resources to developing our lead product candidate, CT1812, building our intellectual property portfolio, raising capital and recruiting management and technical staff to support these operations. As ofDecember 31, 2022 , we had an accumulated deficit of$115.4 million . We incurred net losses of$21.4 million and$11.7 million for the years endedDecember 31, 2022 and 2021, respectively. To date, we have funded our operations primarily with proceeds from grants awarded by theNational Institute of Aging , or NIA, a division of theNational Institutes of Health , orNIH , and proceeds from our initial public offering, or IPO, completed inOctober 2021 , proceeds from our follow-on public offering inNovember 2022 , and the sales of our convertible promissory notes, convertible preferred stock, simple agreements for future equity, or SAFE, and stock option exercises. Since our inception, we have received approximately$171.0 million in cumulative grant awards to fund our clinical trials, primarily from the NIA, and we have raised approximately$108.8 million in net proceeds from sales of our equity securities, convertible notes, SAFE, stock option exercises, our IPO and follow-on public offering. As ofDecember 31, 2022 , we had cash and cash equivalents of$41.6 million . OnOctober 13, 2021 , we completed our IPO, pursuant to which we issued and sold 3,768,116 shares of our common stock at a public offering price of$12.00 per share. Additionally, onNovember 12, 2021 , the underwriters exercise of their over-allotment option in full to purchase 565,217 shares of our common stock closed. In connection with the IPO, we received net proceeds of approximately$44.2 million , after deducting underwriting discounts and commissions and other offering related expenses payable by us, which includes net proceeds of approximately$6.3 million from the exercise of the over-allotment option.
On
OnDecember 23, 2022 , we entered into a sales agreement withCantor Fitzgerald & Co. andB. Riley Securities, Inc. , or the Sales Agents, providing for the offering, issuance and sale by us of up to$40 million of our common stock from time to time in "at-the-market" offerings (the "ATM"). For the year endedDecember 31, 2022 , we have not sold any shares of common stock under the ATM. 106 Table of Contents
We expect to continue to incur significant and increasing expenses and net losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings, debt financings or other sources, such as potential collaboration agreements and strategic alliances, licensing or similar arrangements with third parties. To the extent available, we expect to continue our pursuit of non-dilutive research contributions, or grants, including additional NIA grant funding. However, we may fail to receive additional NIA grants, or we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to obtain additional NIA grants or raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition. Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to raise capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations. We do not own or operate manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of CT1812 for preclinical studies and clinical trials, as well as for commercial manufacture if CT1812 obtains marketing approval. We also rely, and expect to continue to rely, on third parties to manufacture, package, label, store, and distribute CT1812, if marketing approval is obtained. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of CT1812.
Impact of COVID-19 on Our Business
Our business has been and could continue to be adversely affected by the effects
of the ongoing COVID-19 pandemic, including, but not limited to, our clinical
trials. For example, our ongoing and/or planned clinical trials may be impacted
by interruptions or delays in the operations of the FDA and comparable foreign
regulatory authorities. Additionally, we have made certain adjustments to the
operation of our trials in an effort to ensure the monitoring and safety of
patients and minimize risks to trial integrity during the pandemic in accordance
with the guidance issued by the FDA and may need to make further adjustments in
the future. We have also initiated our clinical trial protocols to enable remote
visits to mitigate any potential impacts as a result of the COVID-19 pandemic.
Many of these adjustments are new and untested, may not be effective, may affect
the integrity of data collected, and may have unforeseen effects on the progress
and completion of our clinical trials and the findings from such clinical
trials.
The spread of COVID-19, including the spread of new strains and variants of
COVID-19, and actions taken to reduce such spread may also materially affect us
economically. While the potential further economic impact brought by, and the
duration of, the COVID 19 pandemic may be difficult to assess or predict, there
could be a significant disruption of global financial markets, reducing our
ability to access capital, which could in the future negatively affect our
liquidity and financial position. As a result, we may face difficulties raising
capital through future sales of our common stock or such sales may be on
unfavorable terms.
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Components of Our Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of direct and indirect costs incurred for our research activities, including development of our drug discovery efforts and the development of our product candidates. Direct costs include laboratory materials and supplies, contracted research and manufacturing, clinical trial costs, consulting fees, and other expenses incurred to sustain our research and development program. Indirect costs include personnel-related expenses, consisting of employee salaries, related benefits, and stock-based compensation expense for employees engaged in research and development activities, facilities, and other expenses consisting of direct and allocated expenses for rent and depreciation, and lab consumables. We expense research and development costs as incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed. In-licensing fees and other costs to acquire technologies used in research and development that have not yet received regulatory approval and that are not expected to have an alternative future use are expensed when incurred. We track direct costs by stage of program, clinical or preclinical. However, we do not track indirect costs on a program specific basis because these costs are deployed across multiple programs and, as such, are not separately classified. We cannot reasonably determine the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. Product candidates in later stages of development generally have higher development costs than those in earlier stages. We expect that our research and development expenses will increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, as our product candidates advance into later stages of development, as we begin to conduct larger clinical trials, as we seek regulatory approvals for any product candidates that successfully complete clinical trials, as we expand our product pipeline, as we maintain, expand, protect and enforce our intellectual property portfolio, and as we incur expenses associated with hiring additional personnel to support our research and development efforts.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, including employee salaries, related benefits, and stock-based compensation expense for our employees in the executive, finance and accounting, and other administrative functions. General and administrative expenses also include third-party costs such as legal costs, insurance costs, accounting, auditing and tax related fees, consulting fees and facilities and other expenses not otherwise included as research and development expenses. We expense general and administrative costs as incurred. We expect that our general and administrative expenses will increase for the foreseeable future as we increase our headcount to support our continued research activities and development of our programs. Following the completion of our IPO onOctober 13, 2021 , we have incurred, and will continue to incur, substantially increased expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of theSEC , and those of any national securities exchange on which our securities are traded, legal, auditing, additional insurance expenses, investor relations activities, and other administrative and professional services.
Other Income (Expense)
Grant Income
Grant income relates to the grants awarded from governmental bodies that are
conditional cost reimbursement grants and are recognized as grant income as
allowable costs are incurred and the right to payment is realized. The grants
awarded relate to agreed upon direct and indirect costs for specific studies or
clinical trials, which may include personnel
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and consulting costs, costs paid to contract research organizations, research institutions and /or consortiums involved in the grant, as well as facilities and administrative costs. These grants are cost plus fixed fee arrangements in which we are reimbursed for eligible direct and indirect costs over time, up to the maximum amount of each specific grant award. Only costs that are allowable under the grant award, certain government regulations and theNIH's supplemental policy and procedure manual may be claimed for reimbursement, and the reimbursements are subject to routine audits from governmental agencies from time to time. As ofDecember 31, 2022 , the Company has been awarded grants with project periods that extend throughMay 31, 2026 , subject to extension. Our clinical trials have been funded by approximately$171.0 million in cumulative grants awarded primarily by the NIA, which includes an approximately$81.0 million grant from the NIA to fund our Phase 2 (COG0203) study of CT1812 in patients with early-stage AD, an approximately$30.5 million grant from the NIA to fund our Phase 2 (COG0201) study of CT1812 in patients with mild to moderate AD, and an approximately$29.5 million grant from the NIA to fund our Phase 2 (COG1201) study of CT1812 in patients with dementia with Lewy bodies.
Change in fair value of derivative liability
Change in fair value of our derivative liability consists of changes in the fair value of certain conversion and redemption features associated with our convertible notes that are required to be bifurcated and accounted for as free-standing derivative financial instruments. The derivative liability expired unexercised upon the conversion of the convertible notes into Series B-1 convertible preferred stock inMay 2021 .
Change in fair value of SAFE
Change in fair value of our SAFE consists of fair value adjustments to these instruments based primarily on the changes in the probability of occurrence and estimated timing of future event inputs in the valuation model. Upon the occurrence of our IPO onOctober 7, 2021 , the SAFE was converted into 931,485 shares of our common stock. Gain on Debt Extinguishment Gain on debt extinguishment for the year endedDecember 31, 2021 was the result of the forgiveness of the Paycheck Protection Program loan onJanuary 21, 2021 . There was no gain or loss on debt extinguishment for the year endedDecember 31, 2022 . Interest expense
Interest expense for the year endedDecember 31, 2022 consisted of interest expense related to the insurance premium financing arrangement with a lender. Interest expense for the year endedDecember 31, 2021 primarily consisted of interest expense from our convertible notes.
Other income (expense), net
Other income (expense), net consists primarily of research and development tax
credits earned in the applicable period, as well as foreign currency transaction
gains or losses, and interest income from interest-bearing cash equivalents.
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Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations (in thousands):
Year Ended December 31,
(in thousands) 2022 2021 Change
Consolidated Statements of Operations Data:
Operating Expenses:
Research and development $ 30,324 $ 18,572 $ 11,752
General and administrative 13,227 10,026 3,201
Total operating expenses 43,551 28,598 14,953
Loss from operations (43,551) (28,598) (14,953)
Other income (expense):
Grant income 22,217 17,447 4,770Change in the fair value of the derivative liability - 2,209 (2,209) Change in the fair value of SAFE -
(2,236) 2,236 Other income (expense), net (35) (88) 53 Gain on debt extinguishment - 443 (443) Interest expense (28) (893) 865 Total other income, net 22,154 16,882 5,272 Net Loss$ (21,397) $ (11,716) $ (9,681)
Research and Development Expenses
The following table summarizes our research and development expenses (in
thousands):
Year Ended December 31,
2022 2021 Change
Clinical programs $ 15,782 $ 4,679 $ 11,103
Personnel 7,481 4,882 2,599
Manufacturing 4,661 7,465 (2,804)
Preclinical programs 2,178 1,426 752
Facilities and other costs 222 120 102
$ 30,324 $ 18,572 $ 11,752
Research and development expenses were $30.3 million for the year ended December
31, 2022 , compared to $18.6 million for the year ended December 31, 2021 . The
increase of $11.7 million was primarily due to the following:
an increase of
? trial activity primarily due to increased contract research organization spend;
and
? an increase of
research and development activities; and
a decrease of
with contract manufacturing organizations for production of pre-clinical and
? future clinical trial materials associated with our most advanced product
candidates due to the timing of the manufacturing of the pre-clinical and
clinical trial materials; and
? an increase of
primarily due to increased sponsored research spend under grants.
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General and Administrative Expenses
General and administrative expenses were
? an increase of
expenses; and
? an increase of
increased headcount; and
? an increase of
tax, and legal services; and
? a decrease of
grants. Other Income (Expense) Grant Income Grant income was$22.2 million for the year endedDecember 31, 2022 , compared to$17.4 million for the year endedDecember 31, 2022 . The change in grant income is correlated with the increase in eligible reimbursable costs incurred during 2022 as compared to 2021.
Change in Fair Value of the Derivative Liability
Changes in the fair value derivative liability resulted in a gain of$2.2 million for the year endedDecember 31, 2021 . There was no gain or loss for the year endedDecember 31, 2022 as the derecognition of the derivative liability occurred inMay 2021 upon the conversion of convertible notes into shares of Series B-1 convertible preferred stock.
Change in Fair Value of the SAFE
Changes in the fair value of the SAFE resulted in a loss of$2.2 million for the year endedDecember 31, 2021 . There was no gain or loss for the year endedDecember 31, 2022 as the derecognition of the SAFE liability occurred when the SAFE converted into shares of our common stock upon the closing of our IPO.
Other Income (Expense), Net
Other income, net was less than$0.1 million for the year endedDecember 31, 2022 , compared to other expense, net of less than$0.1 million for the year endedDecember 31, 2021 . Overall, management believes that the change in other expense was not significant in either period.
Gain on Debt Extinguishment
Gain on debt extinguishment was$0.4 million for the year endedDecember 31, 2021 as a result of the forgiveness of the Paycheck Protection Program loan onJanuary 21, 2021 . There was no gain or loss on debt extinguishment for the
year endedDecember 31, 2022 . Interest Expense
Interest expense was less than$0.1 million for the year endedDecember 31, 2022 , compared to interest expense of$0.9 million for the year endedDecember 31, 2021 . The change of$0.9 million in interest expense was the result of the convertible notes outstanding balance during the year endedDecember 31, 2021 , which were subsequently converted into shares of our Series B-1 convertible
preferred stock inMay 2021 . 111 Table of Contents
Liquidity and Capital Resources
Sources of Liquidity
To date, we have funded our operations primarily with proceeds from grants awarded by the NIA, and proceeds from the sales of our convertible promissory notes, convertible preferred stock, SAFE, stock option exercises, our IPO and our follow-on public offering. Since our inception, we have received grant awards primarily from the NIA in the aggregate amount of approximately$171.0 million and have raised approximately$108.8 million in net proceeds from sales of our equity securities, convertible notes and SAFE, stock option exercises, our IPO and our follow-on public offering. OnMarch 25, 2021 , we completed a SAFE offering with various investors, pursuant to which we received gross proceeds in an aggregate amount equal to$8.9 million . OnOctober 13, 2021 , we closed our IPO, selling 3,768,116 shares of our common stock at a public offering price of$12.00 per share. Additionally, onNovember 12, 2021 , the underwriters exercise of their over-allotment option to purchase 565,217 shares of our common stock closed. The net proceeds were approximately$44.2 million , after deducting underwriting discounts and commissions and other offering related expenses payable by us, which includes net proceeds of approximately$6.3 million from the exercise of the over-allotment option. OnNovember 15, 2022 , we closed our follow-on public offering, selling 5,000,000 shares of our common stock at a public offering price of$1.20 per share. The net proceeds were approximately$5.2 million , after deducting underwriting discounts and commissions and other offering related expenses payable by us. OnDecember 23, 2022 , we entered into a sales agreement with the Sales Agents, providing for the offering, issuance and sale by us of up to$40.0 million of our common stock from time to time in ATM offerings. As ofDecember 31, 2022 , we have not sold any shares of common stock under the ATM. In addition, inMarch 2023 , we entered into a Purchase Agreement withLincoln Park Capital Fund, LLC , or Lincoln Park, giving the Company the right, but not the obligation to sell to Lincoln Park up to$35.0 million worth of shares of our common stock. As ofDecember 31, 2022 , we had$41.6 million in cash and cash equivalents and have not generated positive cash flows from operations. Based on our current business plans, we believe that the net proceeds from the IPO and follow-on public offering, together with our existing cash and cash equivalents and income from non-dilutive grants, will be sufficient for us to fund our operating expenses and capital expenditures requirements into the second half of 2024, which assumes no usage from the ATM nor purchase agreement with Lincoln Park. We have based these estimates on assumptions that may prove to be incorrect or require adjustment as a result of business decisions, and we could utilize our available capital resources sooner than we currently expect.
Future Funding Requirements
We expect to continue to incur significant and increasing expenses and net losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel, and operate as a public company. We anticipate that we will need to raise additional funding in the future to fund our operations, including the commercialization of any approved product candidates. We are subject to the risks typically related to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.
Our future funding requirements will depend on many factors, including, but not limited to:
the scope, progress, costs and results of our ongoing and planned clinical
trials of CT1812, as well as the associated costs, including any unforeseen
? costs we may incur as a result of preclinical study or clinical trial delays
due to the COVID-19 pandemic or other diseases, macroeconomic conditions,
global or political instability, such as the ongoing conflict between
and
the scope, progress, costs and results of preclinical development, laboratory
? testing and clinical trials for any future product candidates we may decide to
pursue;
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? the extent to which we develop, in-license or acquire other product candidates
and technologies;
the costs and timing of process development and manufacturing scale-up
? activities associated with our product candidates and other programs as we
advance them through preclinical and clinical development;
? the availability, timing, and receipt of any future NIA Grants;
? the number and development requirements of other product candidates that we may
pursue;
? the costs, timing and outcome of regulatory review of our product candidates;
the costs and timing of future commercialization activities, including product
? manufacturing, marketing, sales and distribution, for any of our product
candidates for which we receive marketing approval;
? the revenue, if any, received from commercial sales of our product candidates
for which we receive marketing approval;
? our ability to establish collaborations to commercialize CT1812 or any of our
other product candidates outside
the costs and timing of preparing, filing and prosecuting patent applications,
? maintaining and enforcing our intellectual property rights and defending any
intellectual property-related claims; and
the additional costs we may incur as a result of operating as a public company,
? including our efforts to enhance operational systems and hire additional
personnel, including enhanced internal controls over financial reporting.
Until such time as we can generate significant revenue from product sales, we expect to finance our operations through a combination of public or private equity offerings, debt financings or other sources, such as potential collaboration agreements and strategic alliances, licensing or similar arrangements with third parties. To the extent available, we expect to continue our pursuit of non-dilutive research contributions, or grants, including additional NIA grant funding. However, we may fail to receive additional NIA Grants, or we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to obtain additional NIA Grants or raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or 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 preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, licenses and other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. Adequate funding may not be available when needed or on terms acceptable to us, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets inthe United States and worldwide resulting from the ongoing COVID-19 pandemic or other diseases, the ongoing conflict betweenUkraine andRussia , inflation, liquidity constraints, failures and instability inU.S. and international financial banking systems, and otherwise. If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. We cannot assure you that we will ever be profitable or generate positive cash flows from operating activities. 113 Table of Contents Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): Year Ended December 31, 2022 2021 Cash flows used in operating activities$ (18,533) $ (3,631) Cash flows used in investing activities (171) (27) Cash flows provided by financing activities 5,546 53,201 Effect of exchange rate changes on cash and cash equivalents (1) (11) Net (decrease) increase in cash and cash equivalents$ (13,159) $ 49,532 Operating Activities
Net cash used in operating activities for the year endedDecember 31, 2022 was$18.5 million , which consisted primarily of our net loss of$21.4 million partially offset by net non-cash charges of$3.8 million and a net change of$0.9 million in our operating assets and liabilities. The non-cash charges primarily consisted of depreciation and amortization of less than$0.1 million , amortization of right-of-use assets of$0.2 million , and equity-based compensation of$3.6 million . The net change in our operating assets and liabilities was primarily due to an increase in grant receivables of$1.9 million , an increase in other assets of$1.7 million , a decrease in accounts payable of$1.1 million , partially offset by an increase in deferred grant income and other liabilities of$2.6 million , and a decrease of$0.9 million of prepaid expenses, other current assets, and other receivables. Net cash used in operating activities for the year endedDecember 31, 2021 was$3.6 million , which consisted primarily of our net loss of$11.7 million partially offset by net non-cash charges of$5.2 million and a net change of$2.8 million in our operating assets and liabilities. The non-cash charges primarily consisted of depreciation and amortization of$0.1 million , amortization of debt discount of$0.4 million , change in fair value of SAFE of$2.2 million , and equity-based compensation of$5.1 million , partially offset by a change in the fair value of the derivative liability of$2.2 million . The net change in our operating assets and liabilities was primarily due to an increase in accounts payable of$2.2 million , an increase in accrued expenses of$1.3 million , and an increase in other current liabilities of$0.5 million , partially offset by an increase in grant receivables of$1.2 million .
Investing Activities
During the years ended
Financing Activities
Net cash provided by financing activities was$5.5 million and$53.2 million for the years endedDecember 31, 2022 and 2021, respectively. The decrease in cash provided by financing activities relates primarily to the IPO of our stock whereby we received net proceeds of$44.2 million and the issuance of SAFEs whereby we received$8.9 million during the year endedDecember 31, 2021 . This is partially offset by proceeds received from the exercise of common stock options in the amount of$1.6 million , as well as proceeds from issuance of common stock in our follow-on public offering in the amount of$5.3 million during the year endedDecember 31, 2022 . 114 Table of Contents Contractual Obligations The following table summarizes our contractual obligations as ofDecember 31, 2022 (in thousands): Less than 1 to 3 3 to 5 More than 5 1 Year Years Years years Total Operating lease obligations:$ 209 $ 443 $
242 $ 126$ 1,020 Total:$ 209 $ 443 $ 242 $ 126$ 1,020
InOctober 2022 , we entered into an insurance premium financing arrangement with a lender. Under the agreement, we financed$0.8 million of certain premiums at a 6.85% annual interest rate. Payments of less than$0.1 million are due monthly fromOctober 2022 throughSeptember 2023 . As ofDecember 31, 2022 , the outstanding principal of the loan was$0.6 million . We have entered into operating leases for office and laboratory facilities under agreements that run throughMay 31, 2029 . The amounts reflected in the table above consist of the future minimum lease payments under the non-cancelable lease arrangements. OnAugust 31, 2022 , we entered into an agreement to lease 2,980 square feet of office space inPittsburgh, Pennsylvania . The lease has a term of 45 months and commenced onOctober 1, 2022 . The annual base rent under the lease is less than$0.1 million throughout the term of the lease. Total payments due over the term of the lease are$0.2 million . Additionally, onAugust 31, 2022 , we modified one of our existing lease agreements with the landlord for approximately 3,706 square feet of lab space at the same location to extend the lease term termination date fromJune 30, 2023 untilJune 30, 2026 . OnJuly 1, 2021 , we entered into an agreement to lease 2,864 square feet of office space inPurchase, New York . The lease has a term of 89 months and commenced onDecember 9, 2021 . The annual base rent under the lease is less than$0.1 million for the first lease year and is subject to annual increases of between 1.82% and 2.04%. We provided a security deposit in the form of a Letter of Credit in the amount of less than$0.1 million pursuant to the terms of the lease. We enter into contracts in the normal course of business with contract research organizations and other vendors to assist in the performance of our research and development and other services and products for operating purposes. These contracts typically do not contain minimum purchase commitments and generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations.
Critical Accounting Policies and Use of Estimates
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.
Research and Development Costs,
Research and development costs are expensed as incurred. Research and
development expenses consist principally of personnel costs, including salaries,
stock-based compensation, and benefits for employees, third-party license fees
and other operational costs related to our research and development activities,
including allocated facility-related expenses and external costs of outside
vendors, and other direct and indirect costs. Non-refundable advance payments
for research and development costs are deferred and expensed as the related
goods are delivered or services are performed. Costs for external development
activities are recognized based on an evaluation of the progress to completion
of specific tasks. Costs for certain research and development activities are
recognized based on the pattern of performance of the individual arrangements,
which may differ from the pattern of billings incurred, and are reflected in the
consolidated financial statements as prepaid expenses or as accrued research and
development expenses.
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Equity-Based Compensation
We maintain an equity-based compensation plan as a long-term incentive for employees, non-employee directors and consultants. The plan allows for the issuance of incentive stock options, non-qualified stock options, restricted stock units, and other forms of equity awards.
We recognize equity-based compensation expense for stock options subject to time-based vesting on a straight-line basis over the requisite service period and account for forfeitures as they occur. To the extent any stock option grants are made subject to the achievement of a performance condition, management evaluates when the achievement of any such performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date. Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model.
The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. These assumptions include:
Expected Term. The expected term represents the period that the stock-based
? awards are expected to be outstanding. As we do not have sufficient historical
experience for determining the expected term of the stock option awards granted, expected term has been calculated using the simplified method.
Risk-Free Interest Rate. The risk-free interest rate is based on the
?
stock-based awards' expected term.
Expected Volatility. Up until
and did not have a trading history of common stock. As such, the expected
volatility was derived from the average historical stock volatilities of the
common stock of several public companies within the industry that the Company
? considers to be comparable to our business over a period equivalent to the
expected term of the stock-based awards. The Company will continue to derive
expected volatility from average historical stock volatilities of industry
peers until the Company has compiled a trading history of its own for a
sufficient period of time.
? Expected Dividend Yield. The expected dividend yield is zero as we have not
paid and do not anticipate paying any dividends in the foreseeable future.
Fair Value of Common Stock. Prior to the IPO, the fair value of the shares of
common stock underlying the stock-based awards had historically been determined
by the board of directors with input from management. Because there was no
public market for the common stock, the board of directors has determined the
fair value of the common stock at the time of grant of the stock-based award by
? considering a number of objective and subjective factors, including having
contemporaneous valuations of the common stock performed by a third-party
valuation specialist. Subsequent to the IPO, the board of directors will
determine the fair value of the shares of common stock underlying the
stock-based awards based off of the closing price as reported on the Nasdaq
See Note 9 to our audited financial statements for more information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options. Certain of such assumptions involve inherent uncertainties and the application of significant judgment. As ofDecember 31, 2022 , the total unrecognized compensation expense related to unvested time-based vesting awards was$6.5 million , which is expected to be recognized over weighted-average remaining vesting period of approximately
2.0 years.
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Recent Accounting Pronouncements
For a description of recent accounting pronouncements, see Note 2 of the notes to our audited consolidated financial statements for the year endedDecember 31, 2022 included elsewhere in this Annual Report.
Emerging Growth Company Status
We are an emerging growth company, as defined in the 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 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 that we (1) are no longer an emerging growth company or (2) 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 the new or revised accounting pronouncements as of public company effective dates. We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have at least$1.235 billion in annual revenue; (2) the last 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 such year; (3) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of our IPO.
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