The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage biopharmaceutical company focused on developing a robust pipeline of T cell receptor-engineered T cell, or TCR-T, therapies for the treatment of patients with cancer. Our approach is based on the central premise that we can learn from patientswho are winning their fight against cancer in order to treat thosewho are not. Using one of our proprietary platform technologies, TargetScan, we analyze the T cells of cancer patients with exceptional responses to immunotherapy to discover how the immune system naturally recognizes and eliminates tumor cells in these patients. This allows us to precisely identify the targets of T cell receptors, or TCRs, that are driving these exceptional responses. We aim to use these anti-cancer TCRs to treat patients with cancer by genetically engineering their own T cells to recognize and eliminate their cancer. In addition to discovering TCR-T therapies against novel targets, we are using our ReceptorScan technology to further diversify our portfolio of therapeutic TCRs with TCR-T therapies against known targets. We reduce the risk and enhance the safety profile of these therapeutic TCRs by screening them using SafetyScan to identify potential off-targets of a TCR and eliminate those TCR candidates that cross-react with proteins expressed at high levels in critical organs.
We believe this three-pronged approach will allow us to discover and develop a wide range of potential treatment options for cancer patients.
We are advancing a robust pipeline of TCR-T therapy candidates for the treatment of patients with hematologic and solid tumor malignancies. Our lead liquid tumor product candidates, TSC-100 and TSC-101, are in development for the treatment of patients with hematologic malignancies to eliminate residual leukemia and prevent relapse following hematopoietic stem cell transplantation, or HCT. TSC-100 and TSC-101 target HA-1 and HA-2 antigens, respectively, which are well-recognized TCR targets that were identified in patients with exceptional responses to HCT-associated immunotherapy. We submitted Investigational New Drug, or IND, applications with theU.S. Food and Drug Administration , or FDA, for each of TSC-100 and TSC-101 in the fourth quarter of 2021. The FDA has cleared the IND for TSC-100 while the IND for TSC-101 remains on clinical hold pending additional assessment of the potential for off-tumor reactivity in certain tissues. We plan to initiate the Phase 1 clinical study of TSC-100 in the first half of 2022. Pending clearance of the IND for TSC-101, we will initiate the TSC-101 arm of the trial. In addition, we are developing multiple TCR-T therapy candidates for the treatment of solid tumors. One of the key goals for our solid tumor program is to develop what we refer to as multiplexed TCR-T therapy. We are designing these multiplexed therapies to be a combination of up to three highly active TCRs that are customized for each patient and selected from our bank of therapeutic TCRs, which we refer to as ImmunoBank. We plan to populate the ImmunoBank with TCRs for multiple targets as well as multiple HLA types for each target, thus helping us to overcome the key solid tumor resistance mechanisms of target loss as well as HLA loss. We are currently advancing five solid tumor programs, with TSC-200 in IND-enabling activities, TSC-204 advancing to IND-enabling studies, and TSC-201, TSC-202, and TSC-203, in lead optimization, and expect to submit two IND applications for our solid tumor TCR-T therapy candidates in the second half of 2022, with additional IND applications expected to be submitted in 2023. Since our inception in 2018, we have devoted our efforts to raising capital, obtaining financing, filing, prosecuting and maintaining intellectual property rights, organizing and staffing our company and incurring research and development costs related to the identification of novel targets for TCRs and development of TCR-T therapies to target and eliminate cancer cells. We do not have any therapies approved for sale and have not generated any revenue from product sales. To date, we have funded our operations primarily with proceeds from sales of convertible preferred stock, proceeds from the initial public offering ("IPO") completed inJuly 2021 and revenue received under our collaboration agreement withNovartis Institutes for BioMedical Research, Inc. , or Novartis. ThroughDecember 31, 2021 , we have received net proceeds of$159.4 million from sales of our convertible preferred stock. We received$89.6 million in net proceeds (after deducting underwriting discounts, commissions and offering costs), from our IPO. Under the terms of our Collaboration and License Agreement with Novartis, we received a$20.0 million upfront payment and agreed to invest an estimated$10.0 million in research costs that will be reimbursed by Novartis over the research period of the agreement. 119 --------------------------------------------------------------------------------
Impact of COVID-19
InMarch 2020 , theWorld Health Organization declared the COVID-19 outbreak a pandemic. The ongoing COVID-19 global and national health emergency has caused significant disruption in the international andUnited States economies and financial markets. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability and business disruptions for us and many of our vendors. In response to public health directives and orders and to help minimize the risk of the virus to employees, we have taken a series of actions aimed at safeguarding our employees and business associates, including implementing a flexible work-at-home policy. These disruptions could result in increased costs of execution of development plans or may negatively impact the quality, quantity, timing and regulatory usability of data that we would otherwise be able to collect. While these disruptions are currently expected to be temporary, there is considerable uncertainty around the duration of these disruptions. Therefore, the related financial impact and duration cannot be reasonably estimated at this time.
Initial public offering
OnJuly 16, 2021 , we completed our IPO in which we issued and sold 6,666,667 shares of our voting common stock at an initial public offering price of$15.00 per share, for aggregate gross proceeds of0 million . Our shares are traded on The Nasdaq Global Market under the ticker symbol "TCRX." We received$89.6 million in net proceeds from the IPO after deducting underwriting discounts and commissions, and offering costs borne by us. Upon closing of the IPO, all of our outstanding shares of convertible preferred stock automatically converted into 15,616,272 shares of common stock (of which 5,143,134 shares are non-voting common stock).
Components of operating results
Income
To date, our revenue has been derived from our one collaboration and two licensing agreements. We have not generated any revenue from the sale of therapies to date, nor do we expect to originate revenues therefrom in the near future, if at all. If our development efforts for our product candidates are successful and result in regulatory approval or if we enter into additional license or collaboration agreements with third parties, we may generate additional revenue in the future from sales of our therapies, payments from license or collaboration agreements that we may enter into with third parties, or any combination thereof. However, there can be no assurance as to when we will generate such revenue, if at all. We expect that our revenue for at least the next several years will be derived primarily from collaborations and licenses that we may enter into in the future, if any.
Collaboration revenue
InMarch 2020 , we entered into a Collaboration and License Agreement, or the Novartis Agreement, withNovartis Institutes for BioMedical Research, Inc. , or Novartis, to collaborate on their research efforts to discover and develop novel TCR-T therapies. Under the Novartis Agreement, we will identify and characterize TCRs in accordance with a research plan, transfer data arising from the research plan, and Novartis will have the option to license and develop TCRs for up to three novel targets identified in performance of the collaboration during the collaboration period of the Novartis Agreement. Novartis will also have rights of first negotiation for certain additional targets and TCRs identified in performance of the collaboration during a defined period. We are free to develop TCRs against targets not licensed by Novartis. The collaboration includes an upfront fee and research funding together totaling$30.0 million . We have the potential to receive up to$10.0 million per target, of which Novartis may select up to three, and potential milestone payments, contingent on clinical, regulatory and sales success. In addition to the milestones, Novartis will pay us royalties equal to a percentage in the mid-single-digits to low-teens on net sales for each therapy. The Novartis Agreement is within the scope of ASC 606 under which we have identified a single performance obligation consisting of the research services, data reporting and participation in a joint steering committee. During the year endedDecember 31, 2021 , we recognized$9.8 million of revenue associated with the Novartis Agreement, which includes recognition of the upfront payment and research funding. We expect to recognize the remaining arrangement consideration over the expected research term, which is not expected to exceed 3 years from the execution of the agreement. 120 --------------------------------------------------------------------------------
Functionnary costs
Research and development costs
Research and development expenses consist primarily of costs incurred in connection with our research activities, including our therapeutic discovery efforts, preclinical trials and the development of our proprietary platform technologies and product candidates. We expense research and development costs as incurred, which include:
•
employee-related expenses, including salaries, bonuses, benefits, stock-based compensation, and other related costs for those employees involved in research and development efforts;
•
expenses incurred in connection with our research programs, including under agreements with third parties, such as consultants and contract research organizations, or CROs;
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the cost of raw materials, developing and scaling our manufacturing process, and manufacturing our product candidates for use in our research and preclinical studies, including under agreements with third parties, such as consultants, contractors, and contract manufacturing organizations, or CMOs;
•
laboratory supplies and research equipment;
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facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities and insurance; and
•
payments made under license agreements with third parties.
We expense research and development costs as incurred. Non-refundable advance payments that we make 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, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments under license agreements are expensed upon receipt of the license, and annual maintenance fees under license agreements are expensed in the period in which they are incurred. Milestone payments under license agreements are accrued, with a corresponding expense being recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable. Our direct external research and development expenses consist of costs that include fees, reimbursed materials, direct material costs, and other costs paid to consultants, contractors, CMOs and CROs in connection with our development and manufacturing activities. We do not allocate employee costs, general laboratory supplies, and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform technology and, as such, are not separately classified. When our TCR-T therapy candidates enter clinical development, we will begin to segregate related research and development expenses by product candidate. Product candidates in later stages of clinical development generally have higher development costs than those in preclinical and earlier stages of clinical development, primarily due increased size and duration of later stage clinical trials. 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. At this time, we cannot accurately 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 product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with therapeutic development and commercialization, including the following:
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the number and scope of preclinical and clinical programs we choose to pursue;
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the timing and progress of preclinical and clinical development activities for each program;
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our ability to raise additional funds necessary to complete preclinical and clinical development and commercialize our product candidates;
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advancing the development efforts of parties with whom we may enter into collaborative agreements;
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our ability to maintain our current research and development programs and establish new ones;
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our ability to establish new licensing or collaboration agreements;
•
the successful initiation and completion of clinical trials with satisfactory safety, tolerability and efficacy profiles for the
•
the receipt and related terms of regulatory approvals from applicable regulatory authorities;
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•
the availability of raw materials to be used in the manufacture of our product candidates;
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our ability to consistently manufacture our product candidates for use in clinical trials;
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our ability to establish and operate a manufacturing facility or secure manufacturing supply through relationships with third parties;
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our ability to obtain and maintain patents, trade secret protection and regulatory exclusivity, both in
•
our ability to protect our rights to our intellectual property portfolio;
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the commercialization of our product candidates, if and when approved;
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obtain and maintain liability insurance and adequate reimbursement;
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the acceptance of our product candidates, if approved, by patients, the medical community and third-party payers;
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competition with other products and therapies; and
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an acceptable continued safety profile of our therapies after their approval.
A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of these product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates or in establishing market acceptance for any product candidates that may be approved.
General and administrative expenses
General and administrative expenses consist primarily of salaries and personnel expenses, including stock-based compensation, for our personnel in executive, legal, finance and accounting, human resources, and other administrative functions. General and administrative expenses also include legal fees relating to corporate matters; professional fees paid for accounting, auditing, consulting, and tax services; insurance costs; travel expenses; and facility costs not otherwise included in research and development expenses. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We have incurred significantly increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company and anticipate this expenses to increase in 2022 as we complete a full year as a public company. In addition, if we obtain regulatory approval for a product candidate and do not enter into a third-party commercialization collaboration, we expect to incur significant expenses related to building a sales and marketing team to support sales, marketing and distribution activities.
Other income
Other income primarily includes interest earned on our cash and cash equivalent balances held at financial institutions.
Income taxes
Since our inception, we have not recorded anyU.S. federal or state income tax benefits for the net losses we have incurred in any year or for our earned research and development tax credits, due to the uncertainty of realizing a benefit from those items. As ofDecember 31, 2021 , we had federal and state net operating loss carryforwards of$69.1 million and$66.9 million , respectively, which may be used to offset future taxable income, if any. These amounts expire at various dates through 2041. The federal net operating losses generated in and after 2018 can be carried forward indefinitely. As ofDecember 31, 2021 , we had federal and state tax credit carryforwards of$3.5 million and$2.3 million , respectively. These amounts expire at various dates through 2036. Due to the degree of uncertainty related to the ultimate use of the deferred tax assets, we have fully reserved these tax benefits, as the determination of the realization of the deferred tax benefits was not determined to be more likely than not. 122 --------------------------------------------------------------------------------
Operating results
Years completed
The following table summarizes our results of operations for the years ended
Year Ended
December 31,
2021 2020 Change
Income
Collaboration and license revenue$ 10,141 $ 1,085 $ 9,056 Operating expenses: Research and development 44,954 20,577 24,377 General and administrative 13,828 6,741 7,087 Total operating expenses 58,782 27,318 31,464 Loss from operations (48,641 ) (26,233 ) (22,408 ) Other income: Interest income 16 106 (90 ) Net loss$ (48,625 ) $ (26,127 ) $ (22,498 ) Revenue We had$10.1 million revenue for the year endedDecember 31, 2021 and$1.1 million revenue for the year endedDecember 31, 2020 . The increase was related to the recognition of revenue associated with the Novartis Agreement, which has an expected term that ends no later thanMarch 2023 . The revenue generated from the Novartis Agreement has increased for the year endedDecember 31, 2021 as compared toDecember 31, 2020 as a result of the timing of research activities, which commenced inSeptember 2020 . As ofDecember 31, 2021 , the Company had current and long-term deferred revenue of$11.4 million and$1.5 million , respectively. Revenue is anticipated to slightly increase through 2022.
Research and development costs
The following table summarizes our research and development expenses for the years ended
Year Ended
December 31,
2021 2020 Change
Preclinical studies $ 23,915 $ 7,922 $ 15,993
Legal and professional fees 787 859 (72 )
Personnel expenses (including stock-based
compensation) 12,690 7,383 5,307
Facility-related and other 7,562
4,413 3,149 Total research and development expenses
The increase in research and development expenses was primarily attributable to a$16.0 million increase in laboratory supplies, research material, and preclinical studies in order to support the IND submissions for TSC-100 and TSC-101. There was a$5.3 million increase in personnel expenses, including an increase of$0.6 million related to stock-based compensation expense, due to an increase in headcount from 45 to 77. Finally, there was a$3.1 million increase in facility-related expenses and other expenses due to the expansion of leased facilities as well as the increased depreciation related to purchases of laboratory equipment. 123 --------------------------------------------------------------------------------
General and administrative expenses
The following table summarizes our general and administrative expenses for the years ended
Year Ended
December 31,
2021 2020 Change
Personnel expenses (including stock-based
compensation) $ 6,795 $ 2,525 $ 4,270
Legal and professional fees 2,814 2,827 (13 )
Other expenses 4,219 1,389 2,830
Total general and administrative expenses 13,828 6,741 7,087
The increase in general and administrative expense was primarily due to a $4.3
million increase in personnel expenses, which includes an increase of $1.4
million related to stock-based compensation expense due to an increase in
headcount from 12 to 21. In addition, there was an increase of $2.8 million in
other expenses primarily related to increased costs due to public company D&O
insurance, depreciation expense, recruiting, and market research.
Liquidity and capital resources `
Sources of liquidity
We have not generated any revenue from product sales and have incurred net losses and negative cash flows from our operations. 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. Under the terms of the Novartis Agreement, we received an upfront payment of$20 million . Additionally, Novartis is obligated to reimburse us for costs incurred to perform the research and development activities of up to$10 million . To date, we have funded our operations primarily with proceeds from sales of equity securities, most recently, with proceeds from the sale of common stock in our IPO inJuly 2021 . As ofDecember 31, 2021 , we had cash and cash equivalents of$161.4 million . Funding requirements We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance our research programs into preclinical and clinical development. In addition, we expect to continue to incur additional costs associated with operating as a public company. The timing and amount of our operating expenditures will depend largely on:
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identification of additional research programs and product candidates;
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the scope, progress, costs and results of preclinical and clinical development of any product candidates we may develop;
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the costs, timing and results of regulatory review of any product candidates we may develop;
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our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate a clinical trial;
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our decision to strengthen our manufacturing capabilities;
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our decision to invest in facilities to enable growth;
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investing in next-generation T-cell engineering capabilities;
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changes in laws or regulations applicable to any product candidates we may develop, including, but not limited to, clinical trial requirements for approvals;
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the cost and timing of obtaining materials to produce an adequate supply for any preclinical or clinical development of any product candidates we may develop;
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the costs and timing of future commercialization activities, including manufacturing, marketing, sales and distribution, for any product candidates we may develop and for which we obtain marketing approval;
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legal fees related to the prosecution of patent applications and the enforcement of patent claims and other intellectual property claims;
•
additions or departures of key scientific or management personnel;
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•
our ability to establish and maintain collaborations on favorable terms, if any, and the costs and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments under this one ; and
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the costs of maintaining the operation as a public enterprise.
We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into 2024. 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. 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, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. 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 additional 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. We have not yet received regulatory approval for or commercialized any of our product candidates and do not expect to generate revenue from product sales for several years, if at all. We do not expect to generate any product revenue unless and until we (1) complete development of any of our product candidates; (2) obtain applicable regulatory approvals; and (3) successfully commercialize or enter into collaborative agreements for our product candidates. We do not know with certainty when, or if, any of these items will ultimately occur. We expect to incur continuing significant losses for the foreseeable future and our losses to increase as we ramp up our preclinical and clinical development programs. We may encounter unforeseen expenses, difficulties, complications, delays and other currently unknown factors that could adversely affect our business. Moreover, as a public company, we will incur significant legal, accounting and other expenses that we were not required to incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules adopted by theSEC and Nasdaq, requires public companies to implement specified corporate governance practices that are currently not applicable to us as a private company. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, we will first be required to furnish a report by our management on our internal control over financial reporting for the year endingDecember 31, 2022 . However, while we remain an emerging growth company and a smaller reporting company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. We expect these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. We will require additional capital to develop our product candidates and fund our operations into the foreseeable future. We anticipate that we will eventually need to raise substantial additional capital, the requirements for which will depend on many factors, including:
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the scope, timing, rate of progress and costs of our drug discovery efforts, preclinical development activities, laboratory testing and clinical trials for our product candidates;
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the number and scope of clinical programs we decide to pursue;
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the cost, timing and outcome of the preparation and regulatory review of our product candidates;
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the scope and costs of development and manufacturing activities;
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the cost and time associated with bringing our product candidates to market, if they receive marketing approval;
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the amount of revenue, if any, from commercial sales of our product candidates, if any of our product candidates receive marketing approval;
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•
the achievement of milestones or the occurrence of other developments that trigger payments under any collaboration agreement we may have at that time;
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the extent to which we acquire or license other product candidates and technologies;
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the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property claims;
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our ability to establish and maintain collaborations on favorable terms, if at all;
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our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates and, ultimately, the sale of our products, following FDA approval;
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our implementation of various computerized information systems;
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the impact of COVID-19 on our clinical development or operations; and
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the costs associated with being a public company.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments or engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. Adequate funding may not be available to us on acceptable terms or at all. Our potential inability to raise capital when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. If we are unable to raise additional funds as required, we may need to delay, reduce, or terminate some or all development programs and clinical trials. We may also be required to sell or license our rights to product candidates in certain territories or indications that we would otherwise prefer to develop and commercialize ourselves. If we are required to enter into collaborations and other arrangements to address our liquidity needs, we may have to give up certain rights that limit our ability to develop and commercialize our product candidates or may have other terms that are not favorable to us or our stockholders, which could materially and adversely affect our business and financial prospects. See Part 2, Item 1A. "Risk Factors" of this Annual Report for additional risks associated with our substantial capital requirements.
Cash flow
The following table summarizes our sources and uses of cash for each of the periods presented (in thousands):
Year Ended December 31,
2021 2020 Change
Net cash used in operating activities $ (48,677 ) $ (3,023 ) $ (45,654 )
Net cash used in investing activities (9,941 ) (4,238 ) (5,703 )
Net cash provided by financing activities 189,668 288 189,380
Net increase (decrease) in cash, cash
equivalents and restricted cash $ 131,050 $ (6,973 ) $ 138,023
Operating Activities
During the year ended
•
our net loss of
•
an increase in prepaid assets and other current assets of
•
a decrease in deferred revenue of
These were partially offset by:
•
non-monetary expenses of
•
an increase in accrued charges and other current liabilities of
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During the year ended
•
our net loss of
•
an increase in prepaid expenses and other current assets of
These were partially offset by:
•
non-monetary expenses of
•
an increase in deferred revenue of
•
an increase in accrued expenses of
•
an increase in trade payables and other current liabilities of
Investing Activities During the years endedDecember 31, 2021 and 2020, net cash used in investing activities was$9.9 million and$4.2 million , respectively, primarily related to the purchases of laboratory equipment, leasehold improvements, and construction in progress. Financing Activities During the year endedDecember 31, 2021 , net cash provided by financing activities was$189.7 million , consisting primarily of net proceeds of$99.7 million from our issuance of convertible preferred stock,$89.6 million from our IPO, and$0.3 million in net proceeds from the exercise of common stock options.
During the year ended
Contractual obligations
Here is a summary of our main contractual obligations at
Less than 1 More than 5
Total year 1 to 3 years 4 to 5 years years
Contractual Obligations:
Operating lease commitments (1) $ 94,099 $ 2,075 $ 19,378 $ 17,289 $ 55,356
Total Contractual Obligations $ 94,099 $ 2,075 $ 19,378 $ 17,289 $ 55,356
(1) Represents future minimum lease payments under our operating lease for 840
Winter Street in Waltham, Massachusetts and an additional space at 880 Winter
Street Waltham, Massachusetts of which rent is anticipated to commence January
2023 . The term is expected to expire December 2032 .
We enter into contracts in the normal course of business with third-party CROs
for clinical trials, preclinical studies, and other services and
products for operating purposes. These contracts generally provide for
termination following a certain period after notice and therefore we believe
that our
non-cancelable obligations under these agreements are not material, and they are
not included in the table above.
Significant Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States , or GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable 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. We 127 --------------------------------------------------------------------------------
evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates based on different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our financial statements.
Revenue recognition
To date, our revenues have consisted of consideration related to the Novartis Agreement. We adopted the provisions of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), or ASC 606, onJanuary 1, 2018 . In accordance with ASC 606, we recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of ASC 606, we perform the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the assessment of the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when, or as we satisfy each performance obligation. As part of the accounting for arrangements under ASC 606, we must use significant judgment to determine the performance obligations based on the determination under step (ii) above. We also use judgment to determine whether milestones or other variable consideration, except for royalties and sales-based milestones, should be included in the transaction price as described below. We recognize revenue based on those amounts when, or as, the performance obligations under the contract are satisfied. We utilize judgment to assess the nature of the performance obligation to determine whether the performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition. The measure of progress, and the resulting periods over which revenue should be recognized, are subject to estimates by management and may change over the course of the arrangement, which are subject to review by the joint steering committee, or JSC. Such a change could have a material impact on the amount of revenue we record in future periods. We concluded that the transfer of control to the customer for the performance obligation occurs over the time period that the research and development services are provided by us. We recognize revenue for the performance obligation as those services are provided using an input method, based on the cumulative costs incurred compared to the total estimated costs expected to be incurred to satisfy the performance obligation. The cost-to-cost method is, in management's judgment, the best measure of progress towards satisfying the performance condition. At the inception of each arrangement that includes research, development or regulatory milestone payments, we evaluate whether the milestones are considered likely to be met and estimate the amount to be considered for inclusion in the transaction price using the most-likely-amount method. If it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur, the associated milestone value is included in the transaction price. For milestone payments due upon events that are not within our control, such as regulatory approvals, we are not able to assert that it is likely that the regulatory approval will be granted and that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur until those approvals are received. In making this assessment, we evaluate factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone. There is considerable judgment involved in determining whether it is probable that a significant reversal in the amount of cumulative revenue recognized would not occur. We reevaluate the transaction price and our total estimated costs expected to be incurred at the end of each reporting period and as uncertain events, such as changes to the expected timing and cost of certain research, development and manufacturing activities that we are responsible for, are resolved or other changes in circumstances occur. If necessary, we will adjust our estimate of the transaction price or our estimates of the total costs expected to be incurred. To date, we have not had any significant changes in our estimates.
Research and development costs to be paid
As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses. This process involves estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the financial statements based on facts and circumstances known to us at that time. At each period end, we corroborate the accuracy of these estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include those related to fees paid to:
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Suppliers in connection with discovery and preclinical development activities;
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CRO in the context of preclinical and clinical studies and tests; and
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CMO in the framework of the development and scale-up activities of the processes and the production of materials.
We record the expense and accrual related to contract research and manufacturing based on our estimates of the services received and efforts expended considering a number of factors, including our knowledge of the progress towards completion of the research, development, and manufacturing activities; invoicing to date under contracts; communication from the contract research organizations, contract manufacturing organizations and other companies of any actual costs incurred during the period that have not yet been invoiced; and the costs included in the contracts and purchase orders. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expense accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses. Stock-based compensation We measure stock-based awards granted to employees and directors based on fair value on the date of the grant using the Black-Scholes option-pricing model for options. Compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. We use the straight-line method to record the expense of awards with service-based vesting conditions. We use the graded-vesting method to record the expense of awards with both service-based and performance-based vesting conditions, commencing when achievement of the performance condition becomes probable. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which uses as inputs the fair value of our common stock and assumptions we make for the volatility of our common stock, 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. Prior to our IPO, there was no public market for our common stock, and consequently, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering third-party valuations of our common stock as well as our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation through the date of the grant. Since our IPO, we have determined the fair market value of our common stock using the closing price of our common stock as reported on the Nasdaq Global Select Market.
Recently issued accounting pronouncements
We do not believe that recently issued accounting pronouncements will have a material impact on our financial condition and results of operations.
Emerging Growth Company and Small Company Reporting Status
The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected not to "opt out" of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to "opt out" of such extended transition period or (ii) no longer qualify as an emerging growth company. We may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies. We are also a "smaller reporting company", meaning that the market value of our stock held by non-affiliates plus the aggregate amount of gross proceeds to us as a result of the IPO is less than$700 million and our annual revenue was less than$100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates is less than$250 million or (ii) our annual revenue was less than$100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than$700 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. 129
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