The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year endedDecember 31, 2021 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission ("SEC") onMarch 7, 2022 . Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to "we," "us" and "our" refer toInstil Bio, Inc. and our consolidated subsidiaries.
Forward-Looking Statements
The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which are subject to the "safe harbor" created by those sections. These forward-looking statements include, but are not limited to, statements concerning our strategy, future operations, our expectations regarding our clinical trials, future financial position, future revenues, projected costs, prospects, and plans and objectives of management. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q and in our other filings with theSEC . The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements.
Overview
We are a clinical-stage biopharmaceutical company focused on developing an innovative cell therapy pipeline of autologous tumor infiltrating lymphocyte, or TIL, therapies for the treatment of patients with cancer. We have assembled an accomplished team with a successful track record in the development, manufacture, regulatory approval and commercialization of multiple cell therapies. Using our optimized and scalable manufacturing process, we are advancing our lead TIL product candidate, ITIL-168, for the treatment of advanced melanoma. Based on the clinical results from a compassionate use program with a TIL product that was manufactured using a prior version of the ITIL-168 manufacturing process, we submitted an investigational new drug application, or IND, to theU.S. Food and Drug Administration , or the FDA, and were cleared to initiate DELTA-1, a Phase 2 trial in patients with advanced melanoma whose disease has progressed following PD-1 inhibitor therapy and, if BRAF-mutated, targeted therapy, in late 2021. ITIL-168 will be manufactured in our company-operated in-house manufacturing facilities for both our clinical trials and commercial sales, if approved. We are also developing a novel class of genetically engineered TIL therapies using our Co-Stimulatory Antigen Receptor, or CoStAR, platform. These modified TILs still rely on their native, patient-specific T cell receptors, or TCRs, to bind to tumor neoantigens, but have been enhanced to express novel CoStAR molecules, which bind to shared tumor-associated antigens and provide potent costimulation to T cells within the tumor microenvironment. We believe that the ability of CoStAR to augment the activation of TILs upon native TCR-mediated recognition of tumor neoantigens has the potential to bring TIL therapy to patients with cancer types that have been historically resistant to immunotherapy. We initiated a Phase 1 trial for our lead CoStAR-TIL product candidate, ITIL-306, in patients with non-small cell lung cancer, ovarian cancer, and renal cell carcinoma inAugust 2022 and dosed the first patient inOctober 2022 prior to instituting the voluntary pause described below. The CoStAR molecule in ITIL-306 binds to folate receptor alpha, a tumor associated antigen that is commonly expressed in many solid tumors including the three cancers that will be studied initially with ITIL-306: NSCLC, ovarian cancer, and renal cell cancer. We expect to report initial clinical data from the Phase 1 trial for ITIL-306 in 2023. InOctober 2022 , we voluntarily paused enrollment in DELTA-1 as well as DELTA-2, a Phase 1 trial of ITIL-168 with pembrolizumab in patients with solid tumors, and the Phase 1 trial of ITIL-306 following a series of 18 -------------------------------------------------------------------------------- manufacturing failures in DELTA-1. Our ongoing investigation of the manufacturing failures identified a central source of contamination in the cell media. In conjunction with this pause, we are also evaluating opportunities to increase the robustness of our manufacturing process. In addition, inOctober 2022 , we notified the FDA and other regulatory agencies that an unplanned review of the data for the initial patients that had been dosed with ITIL-168 in the DELTA-1 trial was conducted in order to review risk-benefit. This review was inconclusive because the response data were not mature. Subsequently, the Data Safety Monitoring Board's prespecified review found no safety concerns. We plan to discuss next steps for the DELTA-1 trial with the FDA and other regulatory agencies, and after such discussions, or as a result of our ongoing investigation of our manufacturing process, we may be required to modify, delay or restart our ITIL-168 clinical development program. The Company is deferring enrollment in the DELTA-2 study to focus resources toward higher priority clinical programs. We plan to provide an update on our ITIL-168 clinical development program in the first quarter of 2023. We were founded inAugust 2018 . InFebruary 2019 , we entered into a license agreement withImmetacyte Ltd. , or Immetacyte, pursuant to which we obtained a worldwide license to Immetacyte's proprietary technology, know-how and intellectual property for the research, development, manufacture and commercialization of TIL therapies. Immetacyte had been manufacturing a TIL product under a compassionate use program since 2011. InMarch 2020 , we acquired 100% of the share capital of Immetacyte and terminated the Immetacyte license agreement. We acquired Immetacyte primarily for the in process research and development, or IPR&D, which is critical to achieve our objective in developing an innovative cell therapy pipeline of autologous TIL therapies for the treatment of patients with cancer. Utilizing this IPR&D, we have optimized and scaled the manufacturing process. Since inception, we have had significant operating losses. Our net loss was$56.2 million for the three months endedSeptember 30, 2022 and$169.3 million for the nine months endedSeptember 30, 2022 . As ofSeptember 30, 2022 , we had an accumulated deficit of$371.1 million . As ofSeptember 30, 2022 , we had cash, cash equivalents, restricted cash, and marketable securities of$303.8 million , which consists of$41.1 million in cash and cash equivalents,$0.5 million in restricted cash, and$262.2 million in marketable securities. We expect to continue to incur net losses for the foreseeable future.
Impact of the COVID-19 Pandemic on Our Operations
OnMarch 11, 2020 , theWorld Health Organization characterized the outbreak of COVID-19 as a global pandemic and recommended containment and mitigation measures. Since then, extraordinary actions have been taken by international, federal, state, and local public health and governmental authorities to contain and combat the outbreak and spread of COVID-19 in regions throughout the world, including theUnited Kingdom andCalifornia , where most of our operations are conducted. We have been carefully monitoring the COVID-19 pandemic as it continues to progress and its potential impact on our business. As a result of COVID-19, we have taken precautionary measures in order to minimize the risk of the virus to our employees. In addition, a significant portion of our workforce continues to work remotely. To date, we have been able to continue our key business activities and advance our clinical programs. However, in the future, it is possible that it will become more difficult to enroll participants in our clinical trials as a result of COVID-19, which could delay our clinical development timelines. While the broader implications of the COVID-19 pandemic on our results of operations and overall financial performance remain uncertain, including any implications from the spread of the new variants and subvariants, the COVID-19 pandemic has, to date, not had a material adverse impact on our results of operations or our ability to raise funds to sustain operations. The economic effects of the pandemic and resulting societal changes are currently not predictable, and the future financial impacts could vary from those foreseen.
See "Risk Factors" for a further discussion of the potential adverse impact of COVID-19 on our business.
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Components of Operating Results
Operating Expenses Research and Development Research and development expenses account for a significant portion of our operating expenses. Research and development expenses consist primarily of research and development, manufacturing, monitoring and other services payments and, to a lesser extent, salaries, benefits and other personnel-related costs, including stock-based compensation, professional service fees, and facility and other related costs. In addition, research and development expense is presented net of reimbursements from reimbursable tax and expenditure credits and grants from theU.K. government. For the three and nine months endedSeptember 30, 2022 andSeptember 30, 2021 , we did not allocate our research and development expenses by program. We expect our research and development expenses to change in line with our clinical development activities. Our expenditures on future nonclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs and timing of clinical trials and development of product candidates will depend on a variety of factors, including:
• the scope, rate of progress and expenses of clinical trials and other research and development activities, including the impacts of our voluntary pause in our clinical trials and the related investigation into our manufacturing processes;
• potential safety monitoring and other studies requested by regulatory agencies;
• significant and changing government regulation; and
• the timing and receipt of regulatory approvals, if any.
The process of conducting the necessary clinical research to obtain FDA and other regulatory approval is costly and time consuming and the successful development of product candidates is highly uncertain. The risks and uncertainties associated with our research and development projects are discussed more fully in the section of this Quarterly Report titled "Risk Factors." As a result of these risks and uncertainties, we are unable to determine with any degree of certainty the duration and completion costs of our research and development projects, or if, when or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.
General and Administrative
General and administrative expenses consist primarily of compensation and personnel-related expenses, including stock-based compensation, for our personnel in executive, finance and other administrative functions. General and administrative expenses also include professional fees paid for accounting, auditing, legal, tax and consulting services, insurance costs, recruiting costs, travel expenses, amortization and depreciation, and other general and administrative costs. We expect our general and administrative expenses to change in line with the growth of the Company to support our research and development activities and operations generally, the growth of our business and, if any of our product candidates receive marketing approval, commercialization activities. We also expect to continue to incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of theSEC , additional director and officer insurance expenses, investor relations activities and other administrative and professional services. Interest Income 20
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Interest income consists of interest income from funds held in our cash and cash equivalent accounts, and marketable securities.
Interest Expense
Interest expense consists of interest expense on our note payable and amortization of loan origination costs.
Other Expense, Net
Other expense, net consists primarily of derivative instrument fair value gains, foreign exchange remeasurement gains and other expenses and income.
Income Tax Provision
We are subject to income taxes inthe United States and the foreign jurisdiction where we operate, theUnited Kingdom . TheUnited Kingdom has statutory tax rates that differ from those inthe United States . Accordingly, our effective tax rates will vary depending on the relative proportion ofUnited Kingdom toUnited States income, the availability of research and development tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Due to the uncertainty of the business in which we operate, projections of future profitability are difficult and past profitability is not necessarily indicative of future profitability. OnSeptember 30, 2022 , we maintained a full valuation allowance against net deferred tax assets forthe United States entity. The valuation allowance has been provided based on the positive and negative evidence relative to our company, including the existence of cumulative net operating losses, or NOLs, since the Company's inception, and the inability to carryback these NOLs to prior periods. Furthermore, the Company determined that it is more likely than not that the benefit of these assets would not be realized in the foreseeable future.
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended September 30, Change 2022 2021 $ Operating expenses: Research and development $ 39,660$ 29,064 $ 10,596 General and administrative 16,989 13,960 3,029 Total operating expenses 56,649 43,024 13,625 Loss from operations (56,649) (43,024) (13,625) Interest income 1,276 22 1,254 Interest expense (807) - (807) Other expense, net (415) (661) 246 Loss before income tax benefit (56,595) (43,663) (12,932) Income tax benefit 371 658 (287) Net loss $ (56,224)$ (43,005) $ (13,219) 21
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Research and Development Expenses
Research and development expenses were$39.7 million and$29.1 million for the three months endedSeptember 30, 2022 and 2021, respectively. The increase in research and development expenses of$10.6 million was primarily due to: •$2.7 million in costs from an increase in headcount, consisting of$4.7 million in wages and benefits, offset by a decrease in stock-based compensation expense of$1.6 million and a decrease of$0.4 million for other employee-related expenses in relation to our research and development personnel.
•$3.2 million in costs related to research and clinical development activities, including from our clinical trials and expanded clinical manufacturing activities; and
•$4.7 million of expenses related to facilities and overhead, depreciation and amortization, and other expenses.
General and Administrative Expenses
General and administrative expenses were$17.0 million and$14.0 million for the three months endedSeptember 30, 2022 and 2021, respectively. The net increase of$3.0 million was primarily due to: •$3.2 million in costs resulting from increased headcount and personnel related costs, including increased stock based compensation expense of$0.8 million , to support our growing business and for preparation of clinical trials; and •$0.8 million in consulting and professional services costs, mainly consisting of an increase in expenses for human resource professional services, finance and legal consultants of$0.7 million and for business operation consultants of$0.1 million ;
•offset by a decrease of
Interest Income, Interest Expense and Other Expense, Net
Interest income, interest expense and other expense, net were$0.1 million of income and$0.6 million of expense for the three months endedSeptember 30, 2022 and 2021, respectively. The total change of$0.7 million was primarily due to:
•$0.8 million of interest expense from our note payable;
•offset by a$0.2 million increase in other income, primarily consisting of a gain on fair value change on our derivative instrument for$0.8 million and a decrease in other expenses of$0.1 million , offset by a loss on foreign currency transactions of$0.7 million ;
•offset by a
Income Tax Benefit
Income tax benefit during the three months ended
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Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended September 30, Change 2022 2021 $ Operating expenses: Research and development$ 120,334 $ 64,674 $ 55,660 General and administrative 49,325 37,134 12,191 Total operating expenses 169,659 101,808 67,851 Loss from operations (169,659) (101,808) (67,851) Interest income 1,859 45 1,814 Interest expense (1,138) - (1,138) Other expense, net (1,863) (702) (1,161) Loss before income tax benefit (170,801) (102,465) (68,336) Income tax benefit 1,468 1,021 447 Net loss$ (169,333) $ (101,444) $ (67,889)
Research and Development Expenses
Research and development expenses were$120.3 million and$64.7 million for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase in research and development expenses of$55.7 million was primarily due to: •$27.3 million in costs from an increase in headcount, consisting of$23.9 million for wages and benefits, including an increase in stock-based compensation expense of$1.8 million and an increase of$1.6 million for other employee-related expenses in relation to our research and development personnel, to support increased clinical trial activities, including clinical manufacturing; •$14.1 million in costs related to research and clinical development activities, including our clinical trials and expanded clinical manufacturing activities; and
•$14.3 million of expenses related to facilities and overhead, depreciation and amortization, and other expenses.
General and Administrative Expenses
General and administrative expenses were$49.3 million and$37.1 million for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase of$12.2 million was primarily due to: •$12.7 million in costs resulting from increased headcount and personnel related costs, including increased stock-based compensation expense of$4.7 million , to support our growing business and for preparation of clinical trials; •$1.2 million in consulting and professional services costs, resulting from increases in expenses for information technology and facility consultants of$0.1 million , business operations consultants of$0.5 million , and human resource professional services, finance and legal consultants of$0.6 million ; and
•offset by a decrease of
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Interest Income, Interest Expense and Other Expense, Net
Interest income, interest expense and other expense, net were$1.1 million of expense and$0.7 million of expense for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase of$0.5 million was primarily due to:
•$1.1 million in interest expense from our note payable; and
•$1.2 million in other expenses, primarily consisting of loss on foreign currency transactions of$2.1 million , offset by a gain on fair value change on our derivative instrument of$0.8 million and a decrease of other expenses of$0.1 million ;
•offset by a
Income Tax Benefit
Income tax benefit for the nine months ended
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have not generated any revenue from product sales and we have incurred significant operating losses. We do not have any products that have achieved regulatory marketing approval and we do not expect to generate revenue from sales of any product candidates for several years, if ever. As ofSeptember 30, 2022 , we had cash, cash equivalents, restricted cash, and marketable securities of$303.8 million , which consists of$41.1 million in cash and cash equivalents,$0.5 million in restricted cash, and$262.2 million in marketable securities. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Prior to our IPO, we funded our operations primarily through the issuance and sale of convertible preferred stock. From our inception throughMarch 2021 , we raised net cash proceeds of$380.1 million from the issuance and sale of our convertible preferred stock.
In
OnApril 1, 2022 , we filed an automatic shelf registration statement on Form S-3, or the 2022 Shelf Registration Statement. Pursuant to the 2022 Shelf Registration Statement, we may offer and sell an indeterminate amount and combination of shares of our common stock, shares of our preferred stock, various series of debt securities and warrants to purchase any of such securities in one or more registered offerings. We have not yet sold and issued any securities under the 2022 Shelf Registration Statement. InJune 2022 , our wholly-owned subsidiary,Complex Therapeutics Mezzanine LLC , and our wholly-owned indirect subsidiary,Complex Therapeutics LLC , entered into a mortgage construction loan and mezzanine construction loan, or together, the Loan, secured by ourTarzana, California land and building, currently under construction. The initial principal amount of the Loan was$52.1 million , with additional future principal of up to$32.9 million to fund ongoing construction costs. As ofSeptember 30, 2022 , we had$63.0 million in principal outstanding, net of debt issuance cost, under the Loan. 24 --------------------------------------------------------------------------------
Funding Requirements
Based on our current operating plan, we believe our existing cash and cash equivalents, marketable securities, and the expected proceeds from the completion of anticipated sale-leaseback ofTarzana, California manufacturing site will be sufficient to fund our operating expenses and capital expenditure requirements into 2025. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. We expect to continue to expend significant resources for the foreseeable future. We use our cash to fund operations, primarily to fund our research and development expenditures and related personnel costs. We expect our expenses to continue to be significant as we invest in research and development activities, particularly as we advance our product candidates into later stages of development and conduct larger clinical trials, seek regulatory approvals for and commercialize any product candidates that successfully complete clinical trials, hire personnel and invest in and grow our business, expand and protect our intellectual property portfolio, and operate as a public company. Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates, we are unable to estimate the exact timing and amount of our funding requirements. Our future operating expenditures will depend on many factors, including: • the scope, rate of progress, costs and results of our clinical and preclinical development activities, including the impacts of our voluntary pause in our clinical trials, the results of our discussions with the FDA and other regulatory agencies, and the related investigation into our manufacturing process;
• the number and characteristics of any additional product candidates we develop or acquire;
• the timing of, and the costs involved in, obtaining regulatory approvals for ITIL-168, ITIL-306 or any future product candidates, and the number of trials required for regulatory approval;
• the cost of manufacturing ITIL-168, ITIL-306 or any future product candidates, as well as any products we successfully commercialize;
• costs related to our manufacturing and other facilities;
• the cost of commercialization activities of our product candidates, if approved for sale, including marketing, sales and distribution costs;
• the timing, receipt and amount of sales of ITIL-168, ITIL-306 or any future product candidates, if approved;
• the costs associated with constructing our new clinical and commercial
manufacturing facility and building out lab space, as well as our ability to
complete the anticipated sale-leaseback of our
• the extent to which we acquire or in-license other companies' product candidates and technologies;
• our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of any such arrangements, including the timing and amount of any future milestone, royalty or other payments due under any such agreement; • any product liability or other lawsuits; • the expenses needed to attract, hire and retain skilled personnel;
• our investments in our operational, financial and management information systems;
• the costs associated with operating as a public company;
• the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing our intellectual property portfolio; and
• any delays or issues resulting from the ongoing COVID-19 pandemic or adverse geopolitical and economic conditions.
25 -------------------------------------------------------------------------------- InMarch 2020 , we acquired 100% of the share capital of Immetacyte for total cash and non-cash consideration, including contingent consideration, of$15.4 million . In connection with the acquisition, we terminated the Immetacyte license agreement and associated payment obligations. The maximum consideration that remained unpaid atSeptember 30, 2022 , which payment is contingent on future events, was$13.8 million . Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through equity offerings, debt financings or other capital sources, which may include strategic collaborations or other arrangements with third parties. Additional funds may not be available to us on acceptable terms or at all. If we raise additional funds by issuing equity or convertible debt securities, our stockholders will suffer dilution, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common shareholders. Debt financing, if available, may involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities receive any distribution of our corporate assets. If we raise funds through collaborations or other similar arrangements with third parties, we may have to relinquish valuable rights to technologies, future revenue streams, product candidates or research programs or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common shares. Our ability to raise additional funds may be adversely impacted by 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, the war inUkraine , inflation and rising interest rates. 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. See "Risk Factors." We lease various operating spaces inthe United States and theUnited Kingdom under non-cancelable operating lease arrangements that expire on various dates through 2026. These arrangements require us to pay certain operating expenses, such as taxes, repairs, and insurance and contain landlord or tenant incentives or allowances, renewal and escalation clauses. As ofSeptember 30, 2022 , our future minimum lease payments under committed or non-cancelable lease agreements were$9.0 million . Our contractual obligations and commitments primarily consist of amounts we will pay to the general contractor constructing and developing land and buildings inTarzana, California , which we acquired inOctober 2020 for$37.6 million . We are in the process of developing this land for ourU.S. operations, and our contractual commitments for this development project are limited to unreimbursed spend by the general contractor. As ofSeptember 30, 2022 ,$16.4 million was contractually committed to the development of this project. In the normal course of business, we enter into contracts with Clinical Research Organizations, or CROs, and other third parties for preclinical studies and clinical trials, research and development supplies and other testing and manufacturing services. We are contractually obligated for approximately$48.8 million in future services related to clinical trials, depending on whether certain milestones are met, as ofSeptember 30, 2022 .
Cash Flows
The following table sets forth the significant sources and uses of cash for the periods set forth below (in thousands):
Nine
Months Ended
2022 2021 Net cash provided by (used in): Cash used in operating activities$ (143,188) $ (79,348) Cash provided by (used in) investing activities 81,739 (534,354) Cash provided by financing activities 65,684 392,966 Net increase (decrease) in cash, cash equivalents, and restricted cash $ 4,235$ (220,736) 26
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Cash Flows from Operating Activities
Cash used in operating activities for the nine months endedSeptember 30, 2022 was$143.2 million , which consisted of the net loss of$169.3 million and an increase of$4.0 million to our net operating assets and liabilities, partially offset by$30.1 million in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities. The non-cash charges primarily consisted of stock-based compensation of$23.8 million , depreciation and amortization expense of$3.9 million and change in foreign exchange remeasurement of$2.8 million . The net change in our operating assets and liabilities was primarily due to an increase of$0.7 million in accounts payable, partially offset by a decrease of$0.2 million in accrued expenses and other liabilities, an increase of$2.2 million in prepaid expenses and other current assets and an increase of$2.3 million in other long-term assets and operating lease liabilities. Cash used in operating activities for the nine months endedSeptember 30, 2021 was$79.3 million , which consisted primarily of the net loss of$101.4 million , partially offset by$19.9 million in non-cash charges and other adjustments to reconcile net loss to net cash used in operating activities and a$2.2 million net change to our net operating assets and liabilities. The non-cash charges primarily consisted of stock-based compensation of$17.3 million , and depreciation and amortization expense of$1.9 million . The net change in our operating assets and liabilities was primarily due to an increase of$3.8 million in accounts payable, and an increase of$4.5 million in accrued expenses and other liabilities, partially offset by an increase of$2.9 million in prepaid expenses and other current assets and an increase of$3.2 million in other long-term assets.
Cash Flows from Investing Activities
Cash provided by investing activities for the nine months endedSeptember 30, 2022 was$81.7 million , which consisted primarily of$154.5 million of cash provided by marketable securities investments, offset by$71.6 million related to cash used to purchase property and equipment. Cash used in investing activities for the nine months endedSeptember 30, 2021 was$534.4 million , of which$39.4 million was related to purchases of property and equipment and$495.0 million was related to marketable securities.
Cash Flows from Financing Activities
Cash provided by financing activities for the nine months endedSeptember 30, 2022 was$65.7 million , which was primarily related to cash proceeds from our note payable of$64.5 million and$1.2 million from exercise of stock options. Cash provided by financing activities for the nine months endedSeptember 30, 2021 was$393.0 million , which was primarily related to net cash proceeds from our IPO of$339.0 million , net cash proceeds from the issuance of Series C convertible preferred stock of$52.5 million and cash proceeds from exercise of stock options of$1.6 million .
Critical Accounting Policies and Estimates
This management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed 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 27 --------------------------------------------------------------------------------
readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
For a description of critical accounting policies that require significant judgments and estimates during the preparation of our financial statements, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" and Note 2 to our Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . There have been no significant changes to our critical accounting policies from those disclosed in our 2021 Annual Report.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements applicable to us is included in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Emerging Growth Company Status and Smaller Reporting Company Status
We are an "emerging growth company" as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any golden parachute payments not previously approved. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. In addition, 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 avail ourselves of 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 (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 the new or revised accounting pronouncements as of public company effective dates. We will remain an emerging growth company until the earliest of (i)December 31, 2026 , (ii) the last day of the fiscal year in which we have total annual gross revenue of at least$1.235 billion , (iii) 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 or (iv) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period. We are also a "smaller reporting company," as defined in Rule 12b-2 under the Exchange Act. We may continue to be a smaller reporting company if either (i) the market value of our shares held by non-affiliates is less than$250.0 million or (ii) our annual revenue was less than$100.0 million during the most recently completed fiscal year and the market value of our shares 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. 28
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