PRELUDE THERAPEUTICS INCORPORATED You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis contains forward-looking statements that involve risks and uncertainties. You should review the section titled "Risk Factors" in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described below.
Overview
We are a clinical-stage fully integrated oncology company built on a foundation of drug discovery excellence to deliver novel precision cancer medicines to underserved patients. By leveraging our core competencies in cancer biology and medicinal chemistry, combined with our clinical development capabilities, we have built an efficient, fully-integrated drug discovery engine and the development expertise necessary to identify compelling biological targets and create new chemical entities, or NCEs, that we rapidly advance into clinical trials. We believe our approach could result in better targeted cancer therapies. Our discovery excellence has been validated by our rapid progress in creating a wholly-owned, internally developed pipeline. Since our inception in 2016, we have received clearance from theU.S. Food and Drug Administration , or the FDA, for multiple investigational new drug applications, or INDs, and successfully advanced several programs into clinical trials. In addition, we have other unique programs in various stages of preclinical development. By focusing on developing molecules using broad mechanisms that have multiple links to oncogenic driver pathways in select patients, we have developed a diverse pipeline consisting of multiple distinct programs spanning methyltransferases, kinases, protein-protein interactions and targeted protein degraders. Our pipeline is designed to serve patients with high unmet medical need, where there are limited or no treatment options. We believe we can best address these diseases by developing therapies that target primary and secondary resistance mechanisms. We have several drug candidates in clinical development, and we believe we can generate proof-of-concept clinical data in the next 12 to 24 months to guide our future regulatory pathways to approval. Our CDK9 and MCL1 inhibitors are selective and potent, with potentially superior safety profiles. Our next generation CDK4/6 inhibitor is specifically designed to be a brain and tissue penetrant and our SMARCA2 molecule is a unique, first-in-class protein degrader, targeting specific patient populations. Our CDK9 candidate, PRT2527, is designed to be a potent and selective CDK9 inhibitor. In preclinical studies, PRT2527 was shown to reduce MCL1 and MYC protein levels and was highly active in preclinical models at well-tolerated doses. Our preclinical studies suggest that PRT2527 demonstrates high kinase selectivity and potency, providing opportunity for a wider therapeutic index compared to less selective CDK9 inhibitors, allowing for rapid development in combinations. Preclinical data demonstrated that treatment with PRT2527 depleted oncogenic drivers with short half-lives, such as MYC and MCL1, and effectively induced apoptosis. PRT2527 treatment demonstrated robust efficacy in both hematological malignancies and solid tumor models with MYC dysregulation. Dose dependent increases in exposure and target engagement were observed as evidenced by MYC and MCL1 depletion to levels associated with tumor regression in preclinical models. A Phase 1 trial is underway evaluating escalating IV doses of PRT2527 as a monotherapy in patients with selected solid tumors. No adverse events leading to dose reduction or discontinuation have been reported and we expect to select a recommended Phase 2 dose, or RP2D, in solid tumors. We plan to use this safety data to continue the cohort expansion study in solid tumors, as well as to inform and rapidly progress PRT2527 in a hematology malignancies clinical trial. We expect to present solid tumor dose escalation data at a medical conference in the first half of 2023, demonstrate a RP2D in hematological malignancies in the second half of 2023, and present initial clinical results for hematological malignancies at a medical conference in the second half of 2023. Our MCL1 candidate, PRT1419, is designed to be a potent and selective inhibitor of the anti-apoptotic protein, MCL1. The potency and selectivity of PRT1419 is supported by preclinical data demonstrating nanomolar inhibition of MCL1 and no inhibition of related enzymes at 200 times higher concentration of our product candidate. The IV formulation of PRT1419 has demonstrated a desirable pharmacokinetic, pharmacodynamic and safety profile with potential for differentiation from competitor compounds. We are enrolling patients in a Phase 1 solid tumor dose escalation and confirmation study, including a significant number of patients at the recommended expansion dose of 80 mg/m2. In this study, PRT1419 has been generally well tolerated, with no cardiotoxicity observed in these patients to date. Cardiovascular parameters including troponin levels and ejection fraction changes were evaluated, in addition to standard safety, pharmacokinetics and target engagement metrics. 82 -------------------------------------------------------------------------------- The clinical pharmacodynamic profile of PRT1419 demonstrates the desired level of target engagement, as measured by caspase activation in peripheral mononuclear cells and reduction of CD14+ monocytes to levels associated with tumor regressions in preclinical models of hematological cancers. We intend to evaluate PRT1419 in hematology malignancies in monotherapy, as well as in combinations, with the goal of establishing safety, clinical activity and a RP2D in hematology malignancies in 2023. Advancement in hematological cancers will include monotherapy expansions in CLL and NHL based on a strong rationale for MCL1 inhibition and the need for novel treatments in second line. We expect to present solid tumor data at a medical conference in the first half of 2023, demonstrate a RP2D in hematological malignancies in the second half of 2023, and present hematological malignancy data in the second half of 2023. InJuly 2022 , we received IND clearance for PRT3645, a brain and tissue penetrant molecule that potently targets CDK4/6 with a biased selectivity for CDK4. A Phase 1 clinical trial has been initiated for PRT3645 in biomarker enriched patients with select tumor types including sarcomas, mesothelioma, gliomas, head and neck cancers and non-small cell lung cancer, in addition to breast cancer with or without brain metastases, and our first patient was dosed inDecember 2022 .
In
InNovember 2022 , we announced that we will discontinue the internal development of our two clinical candidates that are designed to be oral, potent and selective inhibitors of protein arginine methyltransferase 5, or PRMT5. Discontinuation of the PRMT5 programs will allow us to focus our efforts on our CDK9, MCL1, CDK4/6 and SMARCA2 programs. We were incorporated inFebruary 2016 under the laws of theState of Delaware . Since inception, we have devoted substantially all of our resources to developing product and technology rights, conducting research and development, organizing and staffing our company, business planning and raising capital. We have incurred recurring losses, the majority of which are attributable to research and development activities, and negative cash flows from operations. We have funded our operations primarily through the sale of convertible preferred stock and common stock. Our net loss was$115.4 million and$111.7 million for the years endedDecember 31, 2022 and 2021, respectively. As ofDecember 31, 2022 , we had an accumulated deficit of$334.6 million . Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. We expect to continue to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through all stages of development and clinical trials and, ultimately, seek regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. 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. 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. We will need to raise substantial additional capital to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we plan to finance our operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. There are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on terms acceptable to us or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to secure adequate additional funding, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more product candidates or delay our pursuit of potential in-licenses or acquisitions. As ofDecember 31, 2022 , we had$201.7 million in cash, cash equivalents, and marketable securities. We expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating expense and capital expenditures through the fourth quarter of 2024. 83 --------------------------------------------------------------------------------
Components of Results of Operations
Revenue
To date, we have not recognized any revenue from any sources, including from product sales, and we do not expect to generate any revenue from the sale of products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, or license agreements with third parties, we may generate revenue in the future from product sales. However, there can be no assurance as to when we will generate such revenue, if at all. Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred, including:
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expenses incurred to conduct the necessary discovery-stage laboratory work, preclinical studies and clinical trials required to obtain regulatory approval;
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personnel expenses, including salaries, benefits and stock-based compensation expense for our employees engaged in research and development functions;
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costs of funding research performed by third parties, including pursuant to agreements with clinical research organizations, or CROs, that conduct our clinical trials, as well as investigative sites, consultants and CROs that conduct our preclinical and nonclinical studies;
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expenses incurred under agreements with contract manufacturing organizations, or CMOs, including manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical study and clinical trial materials;
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fees paid to consultants who assist with research and development activities;
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expenses related to regulatory activities, including filing fees paid to regulatory agencies; and
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allocated expenses for facility costs, including rent, utilities, depreciation and maintenance.
We track outsourced development costs and other external research and development costs to specific product candidates on a program-by-program basis, fees paid to CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. However, we do not track our internal research and development expenses on a program-by-program basis as they primarily relate to compensation, early research and other costs which are deployed across multiple projects under development. Research and development activities are central to our business model. Product 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. We expect our research and development expenses to increase significantly over the next several years as we increase personnel costs, including stock-based compensation, conduct our clinical trials, including later-stage clinical trials, for current and future product candidates and prepare regulatory filings for our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel expenses,
including salaries, benefits and stock-based compensation expense, for employees
and consultants in executive, finance and accounting, legal, operations support,
information technology and human resource functions. General and administrative
expense also includes corporate facility costs not otherwise included in
research and development expense, including rent, utilities, depreciation and
maintenance, as well as legal fees related to intellectual property and
corporate matters and fees for accounting and consulting services.
We expect that our general and administrative expense will increase in the
future to support our continued research and development activities, potential
commercialization efforts and increased costs of operating as a public company.
These increases will likely include increased costs related to the hiring of
additional personnel and fees to outside consultants, legal support and
accountants, among other expenses. Additionally, we anticipate increased costs
associated with being a public
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company, including expenses related to services associated with maintaining
compliance with the requirements of Nasdaq and the Securities and Exchange
Commission , or SEC , insurance and investor relations costs. If any of our
current or future product candidates obtains U.S. regulatory approval, we expect
that we would incur significantly increased expenses associated with building a
sales and marketing team.
Other Income, Net
Other income, net consists primarily of interest earned on our cash equivalents
and marketable securities and grant income received from the State of Delaware .
We anticipate re-applying for the grant from the State of Delaware from time to
time as long as we maintain qualifying headcount levels in the State of
Delaware . We expect our interest income, net to increase due to our investment
of cash received from the sale of common stock.
Income Taxes
Since our inception, we have not recorded any income tax benefits for the net operating losses, or NOLs, we have incurred or for our research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our NOLs and tax credits will not be realized.
Results of Operations
Comparison of the Years Ended
The following table sets forth our results of operations for the years endedDecember 31, 2022 and 2021. Year ended December 31, (in thousands) 2022 2021 Change Operating expenses: Research and development$ 92,889 $ 86,778 $ 6,111 General and administrative 30,651 26,957 3,694 Total operating expenses 123,540 113,735 9,805 Loss from operations (123,540 ) (113,735 ) (9,805 ) Other income, net 8,102 2,041 6,061 Net loss$ (115,438 ) $ (111,694 ) $ (3,744 )
Research and Development Expenses
Research and development expenses increased by$6.1 million to$92.9 million for the year endedDecember 31, 2022 from$86.8 million for the year endedDecember 31, 2021 . Included in research and development expenses for the year endedDecember 31, 2022 , was$11.5 million of non-cash expense related to stock-based compensation expense, including employee stock options, compared to$9.5 million for the year endedDecember 31, 2021 . The increase in research and development expense was primarily due to an increase in discovery-stage program expenses and from the growth and advancement of our clinical pipeline along with an increase in internal costs, including non-cash stock-based compensation expense. Research and development expenses by program are summarized in the table below: Year ended December 31, (in thousands) 2022 2021 PRT543$ 6,303 $ 12,775 PRT811 6,972 12,534 PRT1419 (Oral and IV) 7,709 8,442 PRT2527 4,030 3,101 Discovery programs 25,150 17,722
Internal costs, including personnel related 42,725 32,204
$ 92,889 $ 86,778 85
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General and Administrative Expenses
General and administrative expenses increased by$3.7 million to$30.7 million for the year endedDecember 31, 2022 from$27.0 million for the year endedDecember 31, 2021 . Included in the general and administrative expenses for the year endedDecember 31, 2022 , was$13.6 million of non-cash expense related to stock-based compensation expense, including employee stock options, as compared to$11.5 million for the same period in 2021. The increase in general and administrative expense was primarily due to an increase in non-cash stock-based compensation expense and an increase in personnel related expenses due to a higher employee headcount.
Other Income, net
Other income, net increased by$6.1 million to$8.1 million for the year endedDecember 31, 2022 from$2.0 million for the year endedDecember 31, 2021 , primarily due to the receipt and recognition of research and development tax credits from theState of Delaware during 2022, as well as interest earned on the investment of our cash proceeds.
Liquidity and Capital Resources
Overview
Since our inception, we have not recognized any revenue and have incurred operating losses and negative cash flows from our operations. We have not yet commercialized any product and we do not expect to generate revenue from sales of any products for several years, if at all. Since our inception, we have funded our operations through the sale of convertible preferred stock and common stock. As ofDecember 31, 2022 , we had$201.7 million in cash, cash equivalents, and marketable securities and had an accumulated deficit of$334.6 million . We expect our existing cash, cash equivalents, and marketable securities will enable us to fund our operating expense and capital expenditures through the fourth quarter of 2024. We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect.
Funding Requirements
Our primary use of cash is to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable, accrued expenses and prepaid expenses.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
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the scope, timing, progress and results of discovery, preclinical development, laboratory testing and clinical trials for our product candidates;
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the costs of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;
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the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;
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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
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the costs and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;
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expenses needed to attract and retain skilled personnel;
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costs associated with being a public company;
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the costs required to scale up our clinical, regulatory and manufacturing capabilities;
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the costs of future commercialization activities, if any, including establishing sales, marketing, manufacturing and distribution capabilities, for any of our product candidates for which we receive marketing approval; and
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revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.
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We will need additional funds to meet operational needs and capital requirements
for clinical trials, other research and development expenditures, and business
development activities. We currently have no credit facility or committed
sources of capital. Because of the numerous risks and uncertainties associated
with the development and commercialization of our product candidates, we are
unable to estimate the amounts of increased capital outlays and operating
expenditures associated with our current and anticipated clinical studies.
Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our operations through a combination of equity offerings, debt
financings, collaborations, strategic alliances and marketing, distribution or
licensing arrangements. To the extent that we raise additional capital through
the sale of equity or convertible debt securities, ownership interests will be
diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect the rights of 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 acquisitions or capital
expenditures or declaring dividends. If we raise additional funds through
collaborations, strategic alliances or marketing, distribution or licensing
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. If we
are unable to raise additional funds through equity or debt financings or other
arrangements when needed, we may be required to delay, limit, reduce or
terminate our research, product development or future commercialization efforts,
or grant rights to develop and market product candidates that we would otherwise
prefer to develop and market ourselves.
Cash Flows
The following table shows a summary of our cash flows for the periods indicated:
Years ended December 31,
(in thousands) 2022 2021
Net cash used in operating activities $ (83,729 ) $ (83,531 )
Net cash provided by (used in) investing activities 81,691 (263,803 )
Net cash provided by financing activities 815 164,897
Net decrease in cash and cash equivalents$ (1,223 ) $ (182,437 ) Operating Activities During the year endedDecember 31, 2022 , we used$83.7 million of cash in operating activities. Cash used in operating activities reflected our net loss of$115.4 million , offset by a$0.9 million net decrease in our operating assets and liabilities and noncash charges of$30.8 million , which consisted of$25.1 million in stock-based compensation,$2.6 million in amortization of premiums and discounts on marketable securities,$1.7 million noncash lease expense, and$1.3 million in depreciation. The primary use of cash was to fund our operations related to the development of our product candidates. During the year endedDecember 31, 2021 , we used$83.5 million of cash in operating activities. Cash used in operating activities reflected our net loss of$111.7 million , offset by a$3.6 million net decrease in our operating assets and liabilities and noncash charges of$24.5 million , which consisted of$20.9 million in stock-based compensation,$1.4 million in amortization of premiums and discounts on marketable securities,$1.3 million noncash lease expense, and$0.9 million in depreciation. The primary use of cash was to fund our operations related to the development of our product candidates.
Investing Activities
During the year endedDecember 31, 2022 investing activities provided$81.7 million of cash primarily due to net maturities of marketable securities of$84.7 million . During the year endedDecember 31, 2021 we used$261.5 million of cash to purchase marketable securities and$2.3 million of cash for the purchase of property and equipment. Financing Activities
During the year ended
During the year endedDecember 31, 2021 , financing activities provided$164.9 million , which reflected the receipt of net cash of$161.4 million from the sale of common stock as well as the receipt of$3.8 million from the exercise of stock 87 -------------------------------------------------------------------------------- options and purchases of stock under the Employee Stock Purchase Plan. During the year endedDecember 31, 2021 , we also paid$0.3 million in deferred offering costs in connection with the sale of common stock.
Contractual obligations and other commitments
The following table summarizes our contractual obligations as ofDecember 31, 2022 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods: Payments Due by Period Less than 1 More than 5 (in thousands) year 1 to 3 years 3 to 5 years years Total Operating leases$ 1,928 $ 5,062 $ 6,095 $ 31,479 $ 44,564 The Company leases office and laboratory space inWilmington, Delaware under a noncancelable lease (the "Lease"). During the first quarter of 2022, the Lease was amended to allow the Company the option to renew the Lease for two 6-month periods. The Company exercised its option to renew the lease for each additional 6 month period during 2022, and the lease term is now extended untilDecember 31, 2023 . InAugust 2022 , we entered into an amendment (the "Lease Amendment") to the lease agreement for office and lab space atChestnut Run Plaza inWilmington, Delaware (the "ChestnutRun Lease "). The ChestnutRun Lease has a commencement date of the earlier of (i) the Landlord Work Substantial Completion Date (as such term is defined in the ChestnutRun Lease ), or (ii) the date the Company takes possession of the premises for the conduct of the Company's business (the "Commencement Date"). The ChestnutRun Lease premises includes approximately 81,000 rentable square feet, located atChestnut Run Plaza inWilmington, Delaware (the Premises). Upon the Commencement Date, the Company will recognize a right-of-use asset and operating lease liability. The ChestnutRun Lease has an initial term of 162 months with 3 five-year extension options and certain expansion rights.
Critical Accounting Policies and Estimates
While our significant accounting policies are described in more detail in Note 3 to our audited financial statements included elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies are the most critical to the judgments and estimates used in the preparation of our financial statements.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates. We expense research and development costs as incurred.
We accrue an expense for preclinical studies and clinical trial activities performed by our CROs and vendors based upon estimates of the proportion of work completed. We determine the estimates by reviewing contracts, vendor agreements and purchase orders, and through discussions with our internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services. However, actual costs and timing of clinical trials are highly uncertain, subject to risks and may change depending upon a number of factors, including our clinical development plan. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. Nonrefundable advance payments for goods and services, including fees for clinical trial expenses, process development or manufacturing and distribution of clinical supplies that will be used in future research and development activities, are deferred and recognized as expense in the period that the related goods are consumed or services are performed.
Share-Based Compensation
We recognize compensation costs related to share-based awards granted to employees and directors, including stock options and vesting restricted stock, based on the estimated fair value of the awards on the date of grant. We estimate the
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grant date fair value of stock options, and the resulting stock-based
compensation, using the Black-Scholes option-pricing model. The grant date fair
value of the stock-based awards is recognized on a straight-line basis over the
requisite service period, which is generally the vesting period of the
respective awards.
We estimate the fair value of stock options using the Black-Scholes
option-pricing model, which requires assumptions, including volatility, the
expected term of our stock options, the risk-free interest rate for a period
that approximates the expected term of our stock options, and our expected
dividend yield. Certain assumptions used in our Black-Scholes option-pricing
model represent management's best estimates and involve a number of variables,
uncertainties and assumptions and the application of management's judgment, as
they are inherently subjective. If any assumptions change, our stock-based
compensation expense could be materially different in the future.
These subjective assumptions are estimated as follows:
Expected volatility-As a privately held company we did not have any trading history for our common stock; accordingly the expected volatility was estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty. As a public company we have computed the historical volatility of our own stock price and will continue to use the average volatility for comparable publicly traded biotechnology companies until we have ample trading history of our own stock commensurate with the estimated expected term of our options. Expected Term - The expected term represents the period that stock-based awards are expected to be outstanding. The expected term for option grants is determined using the simplified method. The simplified method deems the expected term to be the midpoint between the vesting date and the contractual life of the stock-based awards. JOBS Act Accounting Election We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or 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 have elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We will remain an emerging growth company until the earliest of (1) the last day of our first fiscal year (a) in which we have total annual gross revenues of at least$1.235 billion , or (b) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds$700.0 million as of the priorJune 30th , (2) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period and (3)December 31, 2025 .
Recent Accounting Pronouncements
See Note 3 to our financial statements included elsewhere in this Annual Report on Form 10-K for a description of recent accounting pronouncements applicable to our financial statements.
Emerging Growth Company and Smaller Reporting Company Status
InApril 2012 , the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. 89
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Subject to certain conditions, as an emerging growth company, we may rely on certain other exemptions and reduced reporting requirements, including without limitation, exemption to the requirements for providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. We will remain an emerging growth company until the earlier to occur of (a) the last day of the fiscal year (i) following the fifth anniversary of the completion of our IPO, (ii) in which we have total annual gross revenues of at least$1.235 billion or (iii) in which we are deemed to be a "large accelerated filer" under the rules of theSEC , which means the market value of our common stock that is held by non-affiliates exceeds$700.0 million as of the priorJune 30th , or (b) the date on which we have issued more than$1.0 billion in non-convertible debt during the prior three-year period. We are also a "smaller reporting company," meaning that the market value of our stock held by non-affiliates is less than$700.0 million and our annual revenue is less than$100.0 million during the most recently completed fiscal year. We may continue to be a smaller reporting company after if either (i) the market value of our stock held by non-affiliates is less than$250.0 million or (ii) our annual revenue is less than$100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than$700.0 million . If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.
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