You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and related notes for the six months endedJune 30, 2020 , included in Part I, Item 1 of this report and with our audited consolidated financial statements and related notes thereto for the year endedDecember 31, 2019 , included in the Company's Form 10-K. This discussion and other sections of this Quarterly Report contain forward-looking statements that involve risks and uncertainties, such as our plans, objectives, expectations, intentions and beliefs. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section entitled "Risk Factors" included in Part II, Item 1A of this Quarterly Report. You should also carefully read "Special Note Regarding Forward-Looking Statements". Overview We are a clinical stage biotechnology company developing first-in-class immunology therapeutic product candidates to patients. We are focused on emerging immune control mechanisms applicable to inflammation and immuno-oncology indications. We develop our product candidates using our proprietary antibody discovery technology platform, which is based upon a breakthrough understanding of the natural process of antibody generation, known as somatic hypermutation ("SHM"), and replicates this natural process of antibody generation in vitro. Our strategy is to advance the development of our proprietary product candidates, and where applicable, establish partnerships with leading biopharmaceutical companies where we retain certain development and commercialization rights. Our most advanced wholly-owned antibody programs, imsidolimab, etokimab, ANB030 and ANB032, are designed to modulate therapeutic targets that are genetically associated with human inflammatory disorders. Imsidolimab, our IL-36R antibody previously referred to as ANB019, inhibits the interleukin-36 receptor ("IL-36R"), and is being developed for the treatment of rare inflammatory diseases including generalized pustular psoriasis, ("GPP"), and palmoplantar pustulosis, ("PPP"). We completed a Phase 1 clinical trial in healthy volunteers, which was presented at EAACI 2018, where imsidolimab was well-tolerated by all subjects, no dose-limiting toxicities were observed, and no serious adverse events were reported among any subjects in the trial. We are conducting an open-label, multi-dose, single-arm Phase 2 trial of imsidolimab in up to 10 GPP patients, also referred to as the GALLOP trial, where an interim analysis, announced inSeptember 2019 , was conducted after the first two patients completed 16-weeks (Day 113) with imsidolimab monotherapy. Both patients achieved the primary endpoint of disease improvement at Day 29 and Day 113 without requiring rescue therapy. Patients demonstrated rapid and sustained modifiedJapanese Dermatology Association ("mJDA") improvement and complete clearance of skin pustules from Day 8 through Day 113. C-reactive protein ("CRP"), levels decreased to nearly normal in both patients and genotypic testing of these two patients indicated that imsidolimab may be broadly applicable to pustular disease patients without a requirement for genetic screening. We anticipate additional clinical data and a regulatory strategy update for the development of imsidolimab in GPP during the fourth quarter of 2020. InJuly 2020 , theU.S. Food and Drug Administration granted orphan drug designation for imsidolimab for the treatment of patients with GPP. We are also conducting a randomized, double-blind, placebo-controlled approximately 50-patient multi-dose trial of imsidolimab in PPP, also referred to as the POPLAR trial, where top-line data are anticipated in the first quarter of 2021, which has been impacted by COVID-19 related clinical site closures. In addition to GPP and PPP, we anticipate initiation of Phase 2 trials of imsidolimab in two new indications. Treatment of solid tumors with inhibitors of epidermal growth factor (EGFRi) and MAPK/ERK kinase (MEKi) is frequently limited by the occurrence of skin toxicities. Recent translational data has suggested that these skin toxicities are mediated by excess IL-36 signaling, leading to IL-8-mediated cutaneous neutrophilia and acneiform rash. Based on existing claims data, approximately 60,000 patients are prescribed EGFRi and/or MEKi treatments annually, and the vast majority of these patients experience dermatological toxicity, which in some cases leads to dose reduction and/or discontinuation of treatment. Current standard-of-care treatments are generally ineffective in patients with the most severe grades of EGFRi and/or MEKi mediated acneiform rash. During the fourth quarter of 2020, we anticipate initiating a Phase 2 trial of imsidolimab, in combination with EGFRi/MEKi inhibitors, to assess its efficacy in the treatment of this indication. Ichthyosis is a family of rare, inherited, dermatological disorders characterized by dry, scaling and thickened skin. Recent human translational studies have suggested that the underlying skin inflammation responsible for ichthyosis is mediated by dysregulated IL-36 signaling, and we believe that imsidolimab treatment may be efficacious in treatment of this condition. Approximately 6,000 patients inthe United States are affected with moderate-to-severe levels of ichthyosis and no approved 20 -------------------------------------------------------------------------------- therapies are available for this disease. We anticipate initiating a Phase 2 trial of imsidolimab in this indication during the fourth quarter of 2020. Etokimab, our anti-IL-33 antibody previously referred to as ANB020, inhibits the activity of the interleukin-33 cytokine ("IL-33"), which we believe may be applicable to the treatment of respiratory disorders. We are conducting a randomized, placebo-controlled Phase 2 trial of etokimab in approximately 100 adult patients with CRSwNP, also referred to as the ECLIPSE trial, which is a debilitating atopic disorder associated with elevated IL-33 pathway signaling. We recently reported top-line data from a week 8 interim analysis of the ECLIPSE trial. Patients dosed with etokimab every four (q4w) or eight weeks (q8w) failed to achieve statistically significant improvement in their bilateral nasal polyps score (NPS), an endoscopic measure of nasal occlusion, and in their sino-nasal outcome test (SNOT-22), a patient reported quality-of-life assessment, versus placebo at the week 8 timepoint. Both endpoints demonstrated statistically significant improvement over baseline levels of NPS and SNOT-22. Blood eosinophil levels, which are a biomarker of etokimab's mechanism, demonstrated statistically significant reduction relative to baseline in both etokimab treatment arms. We intend to determine next steps for the etokimab program after reviewing week 16 primary endpoint by year-end 2020. Our third wholly-owned program, ANB030, is an anti-PD-1 agonist antibody program designed to augment PD-1 signaling through ANB030 treatment to suppress T-cell driven human inflammatory diseases. Genetic mutations in the PD-1 pathway are known to be associated with increased susceptibility to human inflammatory diseases, and hence we believe that ANB030 is applicable to diseases where PD-1 checkpoint receptor function may be under-represented. We presented preclinical data for ANB030 at the Festival of Biologics Annual Meeting inMarch 2020 . Our Investigational New Drug Application ("IND") for ANB030 has been cleared, and in the first half of 2020 we initiated a Phase 1 healthy volunteer clinical trial, which is designed to assess the safety, pharmacokinetics and pharmacodynamics of ANB030 in single and multiple ascending dose cohorts. We anticipate top-line data from this Phase 1 trial in mid-2021. Our fourth wholly-owned program is an anti-BTLA modulator antibody, known as ANB032, which is broadly applicable to human inflammatory diseases associated with lymphoid and myeloid immune cell dysregulation. Mutations in the BTLA signaling pathway are associated with human inflammatory disease and we believe ANB032 silences pro-inflammatory signaling by modulating BTLA binding to HVEM. We anticipate filing an IND for ANB032 during the fourth quarter of 2020. In addition to our wholly-owned antibody programs, multiple Company-developed antibody programs have been advanced to preclinical and clinical milestones under our collaborations. We have received to date approximately$105.0 million in cash receipts from collaborations. Our collaborations include an immuno-oncology-focused collaboration withGSK, Inc. and an inflammation-focused collaboration withBMS Corporation . A Biologics License Application ("BLA") for our most advanced partnered program, which is an anti-PD-1 antagonist antibody called dostarlimab, was submitted by GSK and accepted by the FDA for the treatment of advanced or recurrent deficient mismatch repair endometrial cancer ("dMMREC"). In addition, theEuropean Medicines Agency ("EMA") recently accepted GSK's Marketing Authorization Application ("MAA") for dostarlimab in the EU for (dMMREC). We received a$10.0 million cash milestone payment upon the FDA acceptance and anticipate an additional$20.0 million cash milestone payment upon first FDA approval of dostarlimab during the second half of 2020. This FDA approval is dependent on a pre-approval inspection of the dostarlimab manufacturing site by the FDA and the approval is therefore contingent on easing of COVID-19 travel restrictions. We also received a$5.0 million milestone payment for the EMA acceptance and anticipate an additional$10.0 million cash milestone payment upon EMA approval. In addition, GSK anticipates submitting a regulatory filing for potential approval of dostarlimab in a second indication, the treatment of pan-deficient mismatch repair tumors, during the first half of 2021.We anticipate receiving additional milestones from GSK, of equal magnitude to the milestone payments outlined above, upon acceptance and approval of BLA and EMA filings of dostarlimab for this second indication. Dostarlimab is also under development at GSK for a number of additional oncological indications. For more information about these collaborations, see Part I-Note 4,Collaborative Research and Development Agreements, above. 21 --------------------------------------------------------------------------------
The following table summarizes certain key information about our wholly-owned and partnered product candidates:
[[Image Removed: anab-20200630_g1.jpg]] In addition, inDecember 2019 , a strain of coronavirus was reported inWuhan, China , and began to spread globally, including tothe United States andEurope , in the following months. TheWorld Health Organization has declared COVID-19 to be a pandemic and a public health emergency of international concern. The full impact of the COVID-19 outbreak is inherently uncertain at the time of this report. The COVID-19 outbreak has resulted in travel restrictions and in some cases, prohibitions of non-essential activities, disruption and shutdown of businesses and greater uncertainty in global financial markets. As COVID-19 has spread, it has significantly impacted the health and economic environment around the world and many governments have closed most public establishments, including restaurants, workplaces and schools. Our ongoing clinical trials have been, and may continue to be, affected by the closure of offices, or country borders, among other measures being put in place around the world. The inability to travel and conduct face-to-face meetings can also make it more difficult to enroll new patients in ongoing or planned clinical trials. Any of these circumstances will potentially have a negative impact on our financial results and the timing of our clinical trials. The COVID-19 pandemic has caused us to modify our business practices (including but not limited to curtailing or modifying employee travel, moving to full remote work, and cancelling physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, patients and business partners. The extent of the impact of the COVID-19 on our future liquidity and operational performance will depend on certain developments, including the duration and spread of the outbreak, the impact on our trials, patients and collaboration partners, and the effect on our suppliers. 22 -------------------------------------------------------------------------------- Components of Operating Results Collaboration Revenue We have not generated any revenue from product sales. Our revenue has been derived from amortization of upfront license payments, research and development funding and milestone payments under collaboration and license agreements with our collaborators. From inception throughJune 30, 2020 , we have received$104.6 million in cash in non-dilutive funding from our collaborators. Research and Development Expense Research and development expenses consist of costs associated with our research and development activities, including drug discovery efforts, preclinical and clinical development of our programs, and manufacturing. Our research and development expenses include: •External research and development expenses incurred under arrangements with third parties, such as Contract Research Organizations ("CROs"), consultants, members of our scientific and therapeutic advisory boards, and Contract Manufacturing Organizations ("CMOs"); •Employee-related expenses, including salaries, benefits, travel and stock-based compensation; •Facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment, and laboratory supplies; and •License and sub-license fees. We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expense when the service has been performed or when the goods have been received. We are conducting research and development activities primarily on inflammation programs. We have a research and development team that conducts antibody discovery, characterization, translational studies, IND-enabling preclinical studies and clinical development. We conduct some of our early research and preclinical activities internally and plan to rely on third parties, such as CROs and CMOs, for the execution of certain of our research and development activities, such as in vivo toxicology and pharmacology studies, drug product manufacturing and clinical trials. We have completed Phase 1 and 2a trials for etokimab and Phase 1 trials for imsidolimab and have ongoing Phase 2 clinical trials as well. General and Administrative Expense General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation for our executive, finance, legal, business development, human resource and support functions. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses, travel expenses and professional fees for auditing, tax and legal services. Interest Expense Interest expense consists of floating interest payments and amortization of discounts on our outstanding notes payable relating to our Loan and Security Agreement withOxford Finance LLC andSilicon Valley Bank , as amended, which we refer to as the Loan Agreement. OnJanuary 1, 2020 , the Loan Agreement was paid in full, without penalty or premium. Interest Income Interest income consists primarily of interest earned on our short-term and long-term investments, and is recognized when earned. 23 -------------------------------------------------------------------------------- Critical Accounting Policies and Use of 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. generally accepted accounting principles ("U.S. GAAP"). The preparation of these financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. We believe there have been no significant changes in our critical accounting policies as discussed in our Annual Report on Form 10-K filed with theSEC onMarch 2, 2020 . Results of Operations - Comparison of the Three and Six Months EndedJune 30, 2020 and 2019 Collaboration Revenue We recognized$0 million and$15.0 million in collaboration revenue for the three and six months endedJune 30, 2020 , respectively, related to two milestone payments associated with dostarlimab, the anti-PD-1 antagonist antibody partnered with GSK. The first milestone payment was for$10.0 million for successful filing of the first NDA in a first indication and the second milestone payment was for$5.0 million for successful filing of the first MAA in a first indication. We recognized$5.0 million for both the three and six months endedJune 30, 2019 related to a milestone payments for the initiation of a Phase 3 trial in a second indication for dostarlimab, the anti-PD-1 antagonist antibody. We expect that any collaboration revenue we generate will continue to fluctuate from period to period as a result of the timing and amount of milestones from our existing collaborations. Research and Development Expenses Research and development expenses were$17.9 million during the three months endedJune 30, 2020 compared to$27.4 million during the three months endedJune 30, 2019 for a decrease of$9.5 million , primarily due to a$7.6 million decrease in outside services for manufacturing expenses,$0.9 million decrease in salaries and related expenses, including stock compensation expense,$0.9 million decrease in clinical expenses, and a$0.1 million decrease in other research and development expenses. Research and development expenses were$38.9 million during the six months endedJune 30, 2020 compared to$48.0 million during the six months endedJune 30, 2019 for a decrease of$9.1 million , primarily due to a$7.6 million decrease in outside services for manufacturing expenses,$1.0 million decrease in salaries and related expenses, including stock compensation expense,$0.4 million decrease in clinical expenses, and a$0.1 million decrease in other research and development expenses. We do not track fully burdened research and development costs separately for each of our drug candidates. We review our research and development expenses by focusing on external development and internal development costs. External development expenses consist of costs associated with our external preclinical and clinical trials, including pharmaceutical development and manufacturing. Included in preclinical and other unallocated costs are external corporate overhead costs that are not specific to any one program. Internal costs consist of salaries and wages, share-based compensation and benefits, which are not tracked by product candidate as several of our departments support multiple product candidate research and development programs. The following table summarizes the external costs attributable to each program and internal costs: 24 --------------------------------------------------------------------------------
Three Months Ended Six Months Ended June 30, June 30, 2020 2019 Increase/(Decrease) 2020 2019 Increase/(Decrease) External Costs Etokimab$ 3,969 $ 11,667 $ (7,698)$ 11,891 $ 19,163 $ (7,272) Imsidolimab 3,625 5,108 (1,483) 8,816 10,165 (1,349) ANB030 973 3,494 (2,521) 1,639 4,977 (3,338) Preclinical and other unallocated costs 5,392 2,201 3,191 7,997 4,147 3,850 Total External Costs 13,959 22,470 (8,511) 30,343 38,452 (8,109) Internal Costs 3,989 4,880 (891) 8,573 9,529 (956) Total Costs$ 17,948 $ 27,350 $ (9,402)$ 38,916 $ 47,981 $ (9,065) General and Administrative Expenses General and administrative expenses were$4.7 million during the three months endedJune 30, 2020 compared to$4.3 million during the three months endedJune 30, 2019 for an increase of$0.4 million , primarily due to a$0.6 million increase in legal expenses and$0.2 million increase in insurance expense, offset by a$0.2 million decrease in personnel costs including stock compensation expense,$0.1 million decrease in professional fees, and$0.1 million decrease in travel expenses. General and administrative expenses were$9.0 million during the six months endedJune 30, 2020 compared to$8.4 million during the six months endedJune 30, 2019 for an increase of$0.6 million , primarily due to a$0.6 million increase in legal expenses and$0.4 million increase in insurance expense, offset by a$0.3 million decrease in professional fees,$0.1 million decrease in personnel costs including stock compensation expense, and$0.1 million decrease in travel expenses. We expect that our general and administrative expenses will increase for the foreseeable future as we incur additional costs associated with being a publicly traded company, including legal, auditing and filing fees, additional insurance premiums, investor relations expenses and general compliance and consulting expenses. We also expect our intellectual property related legal expenses, including those related to preparing, filing, prosecuting and maintaining patent applications, to increase as our intellectual property portfolio expands. Interest Expense Interest expense was$0 for both the three and six months endedJune 30, 2020 , and$0.3 million and$0.6 million during the three and six months endedJune 30, 2019 , respectively. The decrease in interest expense during the periods is due to the final payment made on our Term Loans onJanuary 1, 2020 . Interest Income Interest income was$1.1 million and$3.0 million during the three and six months endedJune 30, 2020 , respectively, and was$3.0 million and$5.9 million during the three and six months endedJune 30, 2019 , respectively, which primarily related to our short-term and long-term investments, the balance of which decreased during the periods as a result of funding our clinical trial programs. The decrease in interest income is also attributable to lower interest rates during the six months endedJune 30, 2020 . Other Income (Expense), Net Other income (expense), net was income of less than$0.1 million and expense of less than$0.1 million for the three and six months endedJune 30, 2020 , respectively, and income of$0.1 million and expense of less than$0.1 million for the three and six months endedJune 30, 2019 , respectively, and primarily related to foreign exchange transactions through our Australian subsidiary and with our foreign CROs and CMOs. 25 -------------------------------------------------------------------------------- Liquidity and Capital Resources From our inception throughJune 30, 2020 , we have received an aggregate of$743.6 million to fund our operations which included$619.9 million from the sale of equity securities,$104.6 million from our collaboration agreements and$19.1 million from venture debt. As ofJune 30, 2020 , we had$392.2 million in cash, cash equivalents and investments. In addition to our existing cash, cash equivalents and investments, we are eligible to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain nonclinical, clinical, regulatory and sales-based events, and royalty payments under our collaboration agreements. Our ability to earn these milestone and contingent payments and the timing of achieving these milestones is primarily dependent upon the outcome of our collaborators' research and development activities and is uncertain at this time. Our rights to payments under our collaboration agreements are our only committed external source of funds. We may seek to obtain additional financing in the future through equity or debt financings or through collaborations or partnerships with other companies. If we are unable to obtain additional financing on commercially reasonable terms, our business, financial condition and results of operations will be materially adversely affected. Funding Requirements Our primary uses of capital are, and we expect will continue to be, third-party clinical and preclinical research and development services, including manufacturing, laboratory and related supplies, compensation and related expenses, legal, patent and other regulatory expenses and general overhead costs. We have entered into agreements with certain vendors for the provision of services, including services related to commercial manufacturing, that we are unable to terminate for convenience. Under such agreements, we are contractually obligated to make certain minimum payments to the vendors, with the amounts to be based on the timing of the termination and the specific terms of the agreement. As a publicly traded company, we incur significant legal, accounting and other expenses that were not required as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as rules adopted by theSEC andThe Nasdaq Global Stock Market , requires public companies to implement specified corporate governance practices that were inapplicable to us as a private company. These rules and regulations have increased our legal and financial compliance costs, have made and will continue to make certain activities more time-consuming and costly. Cash, cash equivalents and investments totaled$392.2 million as ofJune 30, 2020 , compared to$428.5 million as ofDecember 31, 2019 . We believe that our existing cash, cash equivalents and investments will fund our current operating plan at least into 2023. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Additionally, the process of testing drug candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain. Cash Flows The following table summarizes our cash flows for the six months endedJune 30, 2020 and 2019: Six Months Ended June 30, (in thousands) 2020 2019 Net cash (used in) provided by: Operating activities$ (34,722) $ (31,616) Investing activities 86,145 67,533 Financing activities (1,268) (2,961)
Net increase in cash, cash equivalents, and restricted cash
Operating Activities Net cash used in operating activities during the six months endedJune 30, 2020 of$34.7 million was primarily due to our net loss of$29.8 million , adjusted for addbacks for non-cash expenses of$6.1 million which includes stock-based compensation and net decreases in working capital of$11.0 million . Net cash used in operating activities during the six months 26 -------------------------------------------------------------------------------- endedJune 30, 2019 of$31.6 million was primarily due to our net loss of$46.0 million , adjusted for non-cash expenses of$5.2 million which includes stock-based compensation and net increases in working capital of$9.3 million . Investing Activities Net cash provided by investing activities during the six months endedJune 30, 2020 and 2019 of$86.1 million and$67.5 million , respectively, primarily relates to the timing of our investment maturity, which was used to fund our operating expenses. Financing Activities The net cash used in financing activities during the six months endedJune 30, 2020 of$1.3 million primarily related to principal and final payments of$1.4 million made on our Term Loans, offset by$0.1 million in proceeds from the issuance of common stock upon the exercise of stock options. The net cash used in financing activities during the six months endedJune 30, 2019 of$3.0 million primarily related to principal payments of$3.8 million made on our Term Loans, offset by$0.8 million in proceeds from the issuance of common stock upon the exercise of stock options. Contractual Obligations Operating Leases We have two non-cancellable office leases ("Office Leases") with remaining lease terms of approximately 1.25 years, each of which are classified as operating leases. Both leases expire in 2021. Only one of our leases has remaining renewal options, which includes three options to renew for one additional year. The exercise of lease renewal options is at our sole discretion, which we currently do not anticipate exercising and as such were not recognized as part of our ROU asset and lease liabilities. Our lease payments are fixed, and we recognize lease expense for these leases on a straight-line basis over the lease term. Operating lease ROU assets and lease liabilities are recorded based on the present value of the future minimum lease payments over the lease term at commencement date. As our leases do not provide an implicit rate, we used our incremental borrowing rate based on the information available at effective date of adoption in determining the present value of future payments. The weighted-average discount rate used was 8.59%. AtJune 30, 2020 , the future minimum annual obligations under the Office Leases are$0.5 million and$0.7 million for the remainder of fiscal years ending 2020 and 2021, respectively. OnMay 4, 2020 , we entered into a lease agreement ("Lease Agreement") withWateridge Property Owner, LP , with respect to facilities in the building at10770 Wateridge Circle ,San Diego, California 92121. Under the Lease Agreement, we agreed to lease approximately 45,000 square feet of space in the10770 Wateridge Circle Building for a term of 124 months, beginning onMarch 1, 2021 (or on such later date as described in the Lease Agreement). The terms of the Lease Agreement provide us with an option to extend the term of the lease for an additional five years, as well as a one-time option we have to terminate the lease after seven years with the payment of a termination fee. The monthly base rent will be$4.20 per rentable square foot, and will be increased by 3% annually. We are also responsible for our pro rata share of real estate taxes, building insurance, maintenance, direct expenses and utilities under the Lease Agreement. Other Commitments and Contingencies We have entered into agreements with certain vendors for the provision of goods and services, which includes manufacturing services with contract manufacturing organizations and development services with contract research organizations. These agreements may include certain provisions for purchase obligations and termination obligations that could require payments for the cancellation of committed purchase obligations or for early termination of the agreements. The amount of the cancellation or termination payments vary and are based on the timing of the cancellation or termination and the specific terms of the agreement. Guarantees and Indemnifications We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to certain of these arrangements, we indemnify, hold harmless, and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party for third-party claims in connection with our breach of the agreement, our negligence or willful 27 -------------------------------------------------------------------------------- misconduct in connection with the agreement, or any trade secret, copyright, patent or other intellectual property infringement claim with respect to our technology. The term of these indemnification arrangements is generally perpetual. The maximum potential amount of future payments we could be required to make under these agreements is not determinable because it involves claims that may be made against us in the future, but have not yet been made. We also entered into indemnification agreements with our officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving in such capacity, as permitted underDelaware law, in accordance with our certificate of incorporation and bylaws, and pursuant to agreements providing for indemnification entered into with our officers and directors. The term of the indemnification period lasts as long as an officer or director may be subject to any proceeding arising out of acts or omissions of such officer or director in such capacity. The maximum amount of potential future indemnification of directors and officers is unlimited; however, we currently hold director and officer liability insurance. This insurance allows the transfer of risk associated with our exposure and may enable us to recover a portion of any future amounts paid. We believe that the fair value of these indemnification obligations is minimal. Accordingly, we have not recognized any liabilities relating to these obligations for any period presented. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSEC . 28
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