You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited financial statements and the related notes included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission (the "SEC"), onMarch 17, 2022 for the fiscal year endedDecember 31, 2021 , including information with respect to our plans and strategy for our business and related financing. The discussion and analysis below includes forward-looking statements that involve risks and uncertainties, including those risks and uncertainties set forth in the sections titled "Risk Factors" of this Quarterly Report on Form 10-Q, which may cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. See "Cautionary Note Regarding Forward-Looking Statements" above. Unless the context otherwise requires, the terms "Company," "Nkarta, Inc. ," "we," "us" or "our" refer toNkarta, Inc. We do not have any subsidiaries.
Overview
We are a biopharmaceutical company focused on the discovery, development and commercialization of allogeneic, off-the-shelf engineered natural killer ("NK") cell therapies to treat cancer. We currently have co-lead product candidates, NKX101, a CAR-NK product candidate targeting cells that display NKG2D ligands, and NKX019, a CAR-NK product candidate targeting the CD19 antigen, in ongoing Phase 1 clinical trials. Both product candidates incorporate proprietary technologies that enable us to generate an abundant supply of NK cells, improve the persistence of these cells for sustained activity in the body, engineer enhanced NK cell recognition of tumor targets, enhance cell fitness and tumor microenvironment evasion, and freeze, store and thaw our engineered NK cells for the treatment of cancer. Our product candidates are designed to be allogeneic and off-the-shelf, which means they are produced using cells from a different person than the patient treated, and they are produced in quantity, then frozen and therefore available for treating patients without delay, unlike autologous cell therapies, which are derived from a patient's own cells. Based on published data from clinical trials of certain NK cell therapies, we believe that engineered NK cells have the potential to be an effective cancer therapy, be well tolerated, and avoid some of the toxicities observed with other cell therapies. Our modular NK cell engineering platform is designed to address the limitations and challenges of current technologies for engineering T cells and NK cells and is a result of our internal expertise and deep understanding of NK cell biology. Our platform includes proprietary technologies for NK cell expansion, persistence, targeting and cryopreservation. All of our product candidates incorporate each of the four components of our technology platform, which we believe provides the best opportunity for achieving clinically meaningful results in our development program. NKX101 is currently being studied in a multi-center Phase 1 clinical trial in theU.S. for the treatment of relapsed/refractory acute myeloid leukemia ("AML") and higher-risk myelodysplastic syndromes ("MDS"). This ongoing first-in-human study evaluates the safety, pharmacokinetics, and preliminary anti-tumor activity of NKX101 when administered after lymphodepleting chemotherapy. The clinical trial consists of dose-finding followed by dose-expansion and is designed to identify the recommended Phase 2 dose. NKX019 is currently being studied in a multi-center Phase 1 clinical trial in theU.S. andAustralia for the treatment of a variety of B-cell malignancies by targeting the CD19 antigen that is found on these types of cancerous cells and where CD19-targeted engineered NK cells, T cells and monoclonal antibodies have demonstrated clinical activity. This ongoing first-in-human study evaluates the safety, pharmacokinetics, and preliminary anti-tumor activity of NKX019 when administered after lymphodepleting chemotherapy. The clinical trial consists of dose-finding followed by dose-expansion and is designed to identify the recommended Phase 2 dose. Under the Company's research collaboration agreement with CRISPR Therapeutics AG ("CRISPR") entered into inMay 2021 (as amended, the "CRISPR Agreement"), we are collaboratively designing and advancing up to two allogeneic, gene-edited NK cell therapies, one of which is the engineered CAR-NK product candidate targeting the CD70 tumor antigen, and one allogeneic, gene-edited NK+T cell therapy. Since the commencement of our operations in 2015, we have devoted substantially all of our resources in support of our product development efforts, hiring personnel, raising capital to support and expand such activities and providing general and administrative support for these operations. We have not generated any revenue from product sales and have funded our operations primarily from our initial public offering ("IPO") completed inJuly 2020 , the issuance of convertible promissory notes, private placements of our preferred stock, the secondary offering of our common stock completed inApril 2022 , and with proceeds from our previous collaboration. We incurred a net loss of$86.1 million and$91.4 million during the years endedDecember 31, 2021 and 2020, respectively, and$81.3 million and$63.3 million during the nine months endedSeptember 30, 2022 and 2021, respectively, and we expect to continue to incur significant losses for the foreseeable future. As ofSeptember 30, 2022 , we had an accumulated deficit of$285.4 million . AtSeptember 30, 2022 , we had cash, cash equivalents, restricted cash and short-term investments of$395.1 million . 15 -------------------------------------------------------------------------------- We expect our operating expenses to significantly increase as we continue to develop and seek regulatory approvals for our product candidates, engage in other research and development activities to expand our pipeline of product candidates, maintain and expand our intellectual property portfolio, and ultimately establish a commercial organization. We have also incurred increased operating expenses since becoming a public company, which we expect will further increase when we are no longer able to rely on certain "emerging growth company" exemptions we are afforded under the Jumpstart Our Business Startups Act (the "JOBS Act") as further described under "-JOBS Act" below. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials, and our expenditures on other research and development activities. OnApril 28, 2022 , we issued and sold 15,333,334 shares of our common stock in an underwritten public offering, including 2,000,000 shares associated with the full exercise of the underwriters' option to purchase additional shares, at a price to the public of$15.00 per share. The total net proceeds from the offering were approximately$215.3 million , after deducting underwriting discounts and commissions and offering expenses.
During the nine months ended
Update on COVID-19, Macroeconomic Conditions, and Supply Disruptions
Our operations have been and may in the future be impacted by the COVID-19 pandemic, as well as by global and national economic and market conditions generally.
The COVID-19 pandemic has caused and may in the future cause disruptions in the conduct and enrollment of current and future clinical trials due to, among other things, bed shortages and staffing challenges at our treating hospitals. Hospitals may experience staffing challenges as a result of employee turnover and attrition, the current labor shortage, and/or personnel being pulled off clinical trials to care for patients with COVID-19. In addition, the COVID-19 pandemic has resulted in a significant increase in FDA workload, as well as the need to reprioritize the projects under review. As a result, we may experience delays in FDA timelines along the course of the regulatory process. The continuing disruptions in the global supply chain have also resulted in limited disruptions in the supply of our product candidates, as well as global supply shortages of certain materials that we and our contract development and manufacturing organization ("CDMO") partners use for research and current good manufacturing practice manufacturing, such as certain raw materials, cell culture media, disposable plastics, and equipment. To the extent there is a subsequent outbreak of COVID-19, or if it begins to significantly impact essential distribution systems or our third-party manufacturers, contractors or suppliers, we may experience further disruptions in our supply chain and operations with associated delays in the manufacturing and supply of our product candidates. In addition, we could in the future experience delays in the construction of our commercial-scale good manufacturing practice ("GMP") manufacturing facility and future headquarters due to the COVID-19 pandemic and current macroeconomic conditions. We have seen significant inflation in construction costs in the last six months, which has negatively affected the costs of constructing our new facility. In addition, global supply chain disruptions, including procurement delays and long lead times on certain materials, could adversely impact the scheduled completion and/or costs of constructing our new facility. A shortage of fludarabine, an agent commonly used in oncology, including in lymphodepletion, has recently been reported. Fludarabine is used in our NKX101 an NKX019 clinical trials prior to treatment with our product candidates. Certain of our clinical trial sites have indicated that they are experiencing a shortage of fludarabine. Although we and our clinical sites are taking steps to try to mitigate any impact of the shortage on our clinical trials, enrollment has been delayed at certain of our clinical trial sites, and we could continue to experience enrollment delays due to the fludarabine shortage in the future. We continuously monitor the effects of domestic and global events, including but not limited to the current and expected impact of the COVID-19 pandemic, inflation, labor shortages, and supply chain matters on our operations, including continued enrollment in the NKX101 and NKX019 clinical trials, as well as on our contract research organizations ("CROs"), CDMOs, and clinical trial sites, to ensure that we remain responsive and adaptable to the dynamic changes in our operating environment.
Financial Operations Overview
Operating Expenses
Research and Development
Research and development costs consist primarily of costs incurred for the discovery and clinical development of our drug candidates, which include:
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employee-related expenses, including salaries, related benefits, travel and share-based compensation expenses for employees engaged in research and development functions;
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expenses incurred in connection with research, laboratory consumables, sponsored research, and preclinical studies;
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expenses incurred in connection with conducting clinical trials including investigator grants and site payments for time and pass-through expenses and expenses incurred under agreements with CROs, other vendors or central laboratories and service providers engaged to conduct our trials;
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the cost of consultants engaged in research and development related services;
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the cost to manufacture drug product candidates for use in our preclinical studies and clinical trials;
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facilities, depreciation and other expenses, which include allocated expenses for rent and maintenance of facilities, insurance and supplies;
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costs related to regulatory compliance; and
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the cost of annual license fees.
We typically have various early-stage research and drug discovery projects as well as various product candidates undergoing clinical trials. Our internal resources, employees and infrastructure are not directly tied to any one research or drug discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding the costs incurred for these early-stage research and drug discovery programs on a project-specific basis. We expense research and development costs as they are incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. The following table summarizes our research and development expenses for the three and nine months endedSeptember 30, 2022 and 2021. The direct external development program expenses reflect external costs attributable to our clinical development candidates and preclinical candidates selected for further development. Such expenses include third-party contract costs relating to manufacturing, clinical trial activities, translational medicine and toxicology activities. The partner cost sharing represents reimbursable research and development expenses from the CRISPR Agreement. The unallocated internal research and development costs include personnel, facility costs, laboratory consumables and discovery and research related activities associated with our pipeline. Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 (in thousands) (in thousands) Direct external development program expenses: NKX101$ 5,626 $ 3,525 $ 13,884 $ 8,600 NKX019 2,472 2,828 7,704 5,302 CD70 559 63 990 427 NK+T 65 147 141 499 Program 5 118 - 174 - Partner cost sharing (1,048 ) (852 ) (2,823 ) (1,210 ) Unallocated internal research and development costs: Personnel related (including share-based compensation) 9,022 7,584 25,654 21,829 Others 6,621 3,321
18,329 10,664
Total research and development costs
Research and development activities are central to our business model. There are numerous factors associated with the successful commercialization of any of our drug candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our clinical development programs. Drug candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our drug candidates. However, we expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the near term and in the future. The successful development of our drug candidates is highly uncertain. A change in the outcome of any of a number of variables with respect to the development of our drug candidates may significantly impact the costs and timing associated with the development of our drug candidates. A discussion of the risks and uncertainties that we face in the development and commercialization of our drug 17 -------------------------------------------------------------------------------- candidates can be found under Part II, Item 1A, "Risk Factors" in this Quarterly Report on Form 10-Q. We may never succeed in obtaining regulatory approval for any of our drug candidates. General and Administrative General and administrative expenses consist primarily of salaries and employee-related costs, including share-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and facility-related costs. We expect our general and administrative expenses will increase for the foreseeable future to support our increased research and development activities and to reflect increased costs associated with operating as a public company. These increased costs will likely include increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing andSEC requirements, director and officer insurance premiums and investor relations costs.
Other Income (Expense)
Interest Income
Interest income consists of interest earned on our cash, cash equivalents and short-term investments and adjustments related to amortization of purchase premiums and accretion of discounts of short-term investments.
Results of Operations
The following table summarizes our results of operations for the periods indicated (in thousands):
Three Months EndedSeptember 30 ,
Nine Months Ended
2022 2021 Change 2022 2021 Change Operating expenses: Research and development$ 23,435 $ 16,616 $ 6,819 $ 64,053 $ 46,111 $ 17,942 General and administrative 6,827 5,812 1,015 19,919 17,431 2,488 Total operating expenses 30,262 22,428 7,834 83,972 63,542 20,430 Loss from operations (30,262 ) (22,428 ) (7,834 ) (83,972 ) (63,542 ) (20,430 ) Other income (expense), net: Interest income 1,900 81 1,819 2,698 295 2,403 Other income (expense), net 17 (6 ) 23 19 (14 ) 33 Total other income, net 1,917 75 1,842 2,717 281 2,436 Net loss$ (28,345 ) $ (22,353 ) $ (5,992 ) $ (81,255 ) $ (63,261 ) $ (17,994 )
Comparison of the Three and Nine Months Ended
Research and development expenses. Research and development expenses were$23.4 million and$16.6 million for the three months endedSeptember 30, 2022 and 2021, respectively. The increase of$6.8 million was primarily due to an increase in personnel costs of$1.4 million as a result of continued growth in headcount, an increase of$1.7 million in program costs primarily relating to NKX101 and NKX019 and an increase of$3.3 million in other internal research costs, primarily consisting of research and laboratory supplies and facilities expenses. Research and development expenses were$64.1 million and$46.1 million for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase of$17.9 million was primarily due to an increase in personnel costs of$3.8 million as a result of continued growth in headcount, an increase of$7.7 million in program costs primarily relating to NKX101 and NKX019 and an increase of$7.7 million in other internal research costs, primarily consisting of research and laboratory supplies and facilities expenses. The increase in program costs relating to NKX101 and NKX019, in both the three and nine months endedSeptember 30, 2022 , was primarily due to additional clinical development activities compared to the prior year period. We expect our research and development expenses will continue to increase in future periods as we progress our product candidates and conduct our clinical trials and development activities. 18 -------------------------------------------------------------------------------- General and administrative expenses. General and administrative expenses were$6.8 million and$5.8 million for the three months endedSeptember 30, 2022 and 2021, respectively. The increase of$1.0 million was primarily due to an increase in personnel costs of$0.7 million , including an increase of$0.4 million in share-based compensation expense as a result of continued growth in headcount, and an increase of$0.2 million in other general and administrative expenses that included insurance, rent, depreciation expense and other facilities expense. General and administrative expenses were$19.9 million and$17.4 million for the nine months endedSeptember 30, 2022 and 2021, respectively. The increase of$2.5 million was primarily due to an increase in personnel costs of$2.3 million , including an increase of$1.3 million in share-based compensation expense as a result of continued growth in headcount, and an increase of$0.8 million in other general and administrative expenses that included insurance, rent, depreciation expense and other facilities expense. We have incurred and expect to continue to incur additional expenses as a result of being a public company, which we expect will further increase when we no longer qualify as an "emerging growth company" under the JOBS Act. In addition, we have incurred and expect to continue to incur increased expenses related to additional insurance, investor relations and other expenses related to the need for additional human resources and professional services associated with being a public company. Interest income. Interest income was$1.9 million and$0.1 million for the three months endedSeptember 30, 2022 and 2021, respectively. Interest income was due to interest earned from short-term investments, partially offset by amortization of purchase premiums and accretion of discounts of short-term investments. Interest income was$2.7 million and$0.3 million for the nine months endedSeptember 30, 2022 and 2021, respectively. Interest income was due to interest earned from short-term investments, partially offset by amortization of purchase premiums and accretion of discounts of short-term investments.
Liquidity and Capital Resources
Sources of Liquidity
As of
OnAugust 12, 2021 , we filed a Registration Statement on Form S-3 (the "Shelf Registration Statement"), covering the offer and sale from time to time, pursuant to Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of up to$500.0 million in aggregate offering price of shares of our common stock, shares of our preferred stock, debt securities, warrants, and rights and units. The Shelf Registration Statement was declared effective by theSEC onSeptember 2, 2021 . The Shelf Registration Statement included a prospectus covering the offer and sale from time to time of up to$150.0 million in aggregate offering price of shares of the Company's common stock through an "at-the-market" equity offering program under the Securities Act (the "ATM Offering Program") withCowen and Company, LLC , as sales agent. During the nine months endedSeptember 30, 2022 , we issued and sold 113,213 shares of our common stock pursuant to the ATM Offering Program, resulting in net proceeds of approximately$1.6 million , after deducting offering expenses. OnApril 28, 2022 , we issued and sold 15,333,334 shares of our common stock in an underwritten public offering, including 2,000,000 shares associated with the full exercise of the underwriters' option to purchase additional shares, at a price to the public of$15.00 per share. The total net proceeds from the offering were approximately$215.3 million , after deducting underwriting discounts and commissions and offering expenses. We have incurred net losses and negative cash flows from operations since our inception and anticipate that we will continue to incur net losses for the foreseeable future. We expect to incur substantial expenditures as we develop our product pipeline and advance our drug candidates through clinical development, undergo the regulatory approval process and, if approved, launch commercial activities. Specifically, in the near term we expect to incur substantial expenses relating to initiating and completing our clinical trials, the development and validation of our manufacturing processes, and other development activities. Furthermore, we expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. We will need substantial additional funding to support our continuing operations and pursue our long-term development strategy. Until such time as we can generate significant revenue from sales of our drug candidates, if ever, we may seek additional funding through the issuance of our common stock, including through our ATM Offering Program, other equity or debt financing or collaborations or partnerships with other companies. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts for our product candidates and other research, development and manufacturing activities. We may not be able to raise additional capital on terms acceptable to us, or at all. If we fail to raise 19 -------------------------------------------------------------------------------- capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our drug candidates or delay our efforts to expand our product pipeline. We may also be required to sell or license to other parties' rights to develop or commercialize our drug candidates that we would prefer to retain. We believe that our current cash, cash equivalents, restricted cash and short-term investments as ofSeptember 30, 2022 will be sufficient to meet our cash needs for at least 12 months following the issuance date of this Quarterly Report on Form 10-Q. Cash Flows The following table sets forth a summary of our cash flows for the periods indicated (in thousands): Nine Months Ended September 30, 2022 2021 Net cash used in operating activities$ (49,669 ) $ (50,355 ) Net cash (used in) provided by investing activities (189,436 ) 50,369 Net cash provided by financing activities 218,588
1,200
Net increase (decrease) in cash and cash equivalents
Operating Activities Net cash used in operating activities was$49.7 million and$50.4 million for the nine months endedSeptember 30, 2022 and 2021, respectively. The net cash used in operating activities for the nine months endedSeptember 30, 2022 was primarily due to our net loss of$81.3 million , adjusted for$18.3 million of net non-cash charges consisting primarily of share-based compensation of$12.4 million , depreciation and amortization of$1.9 million , investment accretion and amortization of$0.8 million , non-cash lease expense of$3.3 million and a$13.2 million net change in operating assets and liabilities. The net cash used in operating activities for the nine months endedSeptember 30, 2021 was primarily due to our net loss of$63.3 million , adjusted for$12.9 million of net non-cash charges consisting primarily of share-based compensation of$10.7 million , depreciation and amortization of$1.2 million , investment accretion and amortization of$2.4 million , and a$1.8 million net change in operating assets and liabilities. Investing Activities Net cash used in investing activities was$189.4 million for the nine months endedSeptember 30, 2022 net cash provided by investing activities was$50.4 million for the nine months endedSeptember 30, 2021 . The net cash used in investing activities for the nine months endedSeptember 30, 2022 was primarily due to purchases of short-term investments of$310.3 million and purchases of property and equipment of$12.1 million primarily related to the construction of our manufacturing facility, partially offset by proceeds from maturities of short-term investments of$133.0 million . The net cash provided by investing activities for the nine months endedSeptember 30, 2021 was primarily due to proceeds from maturities of short-term investments of$185.4 million , partially offset by purchases of short-term investments of$131.1 million and purchases of property and equipment of$3.9 million primarily related to the construction of our manufacturing facility. Financing Activities Net cash provided by financing activities was$218.6 million for the nine months endedSeptember 30, 2022 , primarily due to the proceeds of$215.6 million from our secondary offering, net of issuance costs,$1.6 million from the ATM Offering Program, net of issuance costs, and proceeds of$1.4 million from the exercise of stock options. Net cash provided by financing activities was$1.2 million for the nine months endedSeptember 30, 2021 , primarily due to proceeds from the exercise of stock options. 20
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Funding Requirements
Based upon our current operating plans, we believe that our existing cash, cash equivalents, restricted cash and short-term investments will be sufficient to fund our operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing therapeutic product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
? the type, number, scope, progress, expansions, results, costs and timing of our clinical trials and preclinical studies for our product candidates or other potential product candidates or indications which we are pursuing or may choose to pursue in the future; ?
the outcome, timing and costs of regulatory review of our product candidates;
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the costs and timing of manufacturing for our product candidates, including commercial manufacturing and the costs associated with building our manufacturing facilities;
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our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;
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the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase;
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the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;
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our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
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patients' willingness or ability to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;
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the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements, including payments required for meeting regulatory and commercial milestones or sales based royalties;
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the costs of obtaining, maintaining and enforcing our patent and other intellectual property rights; and
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costs associated with any product candidates, products or technologies that we may in-license or acquire.
Until such time as we can generate significant revenue from sales of our therapeutic product candidates, if ever, we expect to finance our cash needs through public or private equity, including pursuant to the ATM Offering Program, or debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. We may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders 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 equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams or research programs or may have to grant licenses on terms that may not be favorable to us and may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves. 21
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Material Cash Requirements
InMay 2018 , we entered into a lease agreement for our corporate office and laboratory space located inSouth San Francisco, California with an expiration date inMay 2025 (the "Initial Lease Agreement"). InApril 2019 , we executed the first amendment to the Initial Lease Agreement for additional corporate space, laboratory space and manufacturing capabilities and an extension to the lease term throughApril 2026 . The terms of the lease amendment contain a rent abatement for the first month and rent escalation provisions. In addition to the base rent payments, we will be obligated to pay certain customary amounts for our share of operating expenses and tax obligations related to the facilities. InMay 2020 , we executed the second amendment to the Initial Lease Agreement for an eight-year non-cancelable lease for additional office and laboratory space in the same building. The lease amendment for the additional space provided for abatement of rent during the first three months of the lease and contained rent escalations during the term of the lease. The lease amendment for this additional space commenced inJanuary 2021 and expires inJanuary 2029 . The lease amendment also included an extension of the lease term of our existing office and laboratory space throughJanuary 2029 , with an option to extend the lease for an additional seven-year term. InJanuary 2021 , we executed the third amendment to the Initial Lease Agreement for a three-year non-cancelable lease for additional office space in the same building. The lease amendment for this additional space commenced in the second quarter of 2021 and expires inMarch 2024 . InOctober 2021 , we executed the fourth amendment to the Initial Lease Agreement for a seven-year non-cancelable lease for additional office and laboratory space in the same building. The lease amendment for additional space provided for abatement of rent during the first two months of the lease and contained rent escalations during the term of the lease. The lease amendment for this additional space is anticipated to commence inApril 2022 and expires inJanuary 2029 . The Company expects to pay base rent of approximately$4.6 million over the lease term. The lease amendment also includes this additional space in our option to extend the lease for an additional seven-year term. The other terms of the Initial Lease Agreement, as amended, remain unchanged. InJuly 2021 , we entered into a lease agreement for corporate office, manufacturing and laboratory space located inSouth San Francisco, California with an expiration date approximately twelve years after the lease's commencement date (the "Additional Lease Agreement"). The lease for this additional space commenced inJanuary 2022 . The Additional Lease Agreement also provides for certain tenant improvement allowances for tenant improvements and certain infrastructure upgrades in connection with the initial buildout of the premises, a portion of which, if utilized, would need to be repaid by us over the lease term. InNovember 2021 , we executed an amendment to the Additional Lease Agreement for our corporate office, manufacturing and laboratory space. The amendment expressly includes manufacturing as a permitted use at the facility, clarifies thatSilicon Valley Bank is an acceptable bank for purposes of issuing a letter of credit under the lease, revises the letter of credit transferability terms and replaces the form of letter of credit attached to the lease. The other terms of the Additional Lease Agreement remain unchanged.
In
See Note 6 to our financial statements included elsewhere in this Quarterly Report on Form 10-Q for additional information regarding our lease liability.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, including those related to preclinical studies and clinical trial accruals, the incremental borrowing rate used in determining the lease liability and right-of-use asset for the Additional Lease Agreement, and share-based compensation. We base our estimates and assumptions on historical experience, known trends and events, and various other factors that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes in our critical accounting policies and estimates during the nine months endedSeptember 30, 2022 , as compared to the critical accounting policies and estimates disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K. Indemnification As permitted underDelaware law and in accordance with our bylaws, we indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. We are also party to indemnification agreements with 22 -------------------------------------------------------------------------------- our officers and directors. We believe the fair value of the indemnification rights and agreements is minimal. Accordingly, we have not recorded any liabilities for these indemnification rights and agreements as ofSeptember 30, 2022 andDecember 31, 2021 . Segment Information
We have one business activity and operate in one reportable segment.
JOBS Act
We are an "emerging growth company" as described under the JOBS Act, and we could have taken advantage of an extended transition period for complying with new or revised accounting standards. This would have allowed us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have chosen irrevocably to "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"). We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the consummation of our IPO, (ii) the last day of the fiscal year in which we have total annual gross revenue of at least$1.235 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 Securities Exchange Act of 1934, as amended (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. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting company or a non-accelerated filer, which would allow us to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our prospectuses and in our periodic reports and proxy statements. 23
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