KINNATE BIOPHARMA INC. Investors should read the following discussion and analysis of our financial condition and results of operations together with the section entitled "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties, including those described in the section titled "Special Note Regarding Forward Looking Statements." Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth under the section titled "Risk Factors" included elsewhere in this report.
Overview
We are a clinical stage precision oncology company focused on the discovery, design and development of small molecule kinase inhibitors for difficult-to-treat, genomically defined cancers. Our mission is to inspire hope for those battling cancer by expanding on the promise of targeted therapies. Our Kinnate Discovery Engine, which starts with the identification of an unmet need among validated oncogenic drivers, utilizes our deep expertise in medicinal chemistry and structure-based design, and the tailored ecosystems of our partners to develop our targeted therapies. We focus our discovery and development efforts on three patient populations: (1) those with cancers that harbor known oncogenic drivers (gene alterations that cause cancers) with no currently available targeted therapies, (2) those with genomically well-characterized tumors that have intrinsic resistance to currently available treatments (non-responders), and (3) those whose tumors have acquired resistance over the course of therapy to currently available treatments. Our Kinnate Discovery Engine, together with the biomarker-driven approach of our drug development strategy, our continual translational research and early global expansion in development, may enable us to develop drugs with an increased probability of clinical success while reducing the cost and risk of drug development. Our lead product candidate is exarafenib , which is a Rapidly Accelerated Fibrosarcoma (RAF) inhibitor in development for the treatment of patients with lung cancer, melanoma and other solid tumors. Unlike currently available treatments that target only B-Rapidly Accelerated Fibrosarcoma (BRAF) kinase Class I alterations, we have designed exarafenib to target BRAF Class II and Class III alterations, where it would be a first-line targeted therapy, in addition to covering BRAF Class I alterations. InApril 2021 , we filed an Investigational New Drug application (IND) for exarafenib with theU.S. Food and Drug Administration (FDA). InMay 2021 , the FDA cleared our IND for exarafenib and we initiated KN-8701, a Phase 1 clinical trial evaluating exarafenib. We began dosing exarafenib in humans in the second half of 2021. In 2022, we announced the addition of patients with NRAS mutant melanoma into KN-8701 both in monotherapy and in combination with a MEK inhibitor binimetinib. KN-8701 is currently ongoing. We anticipate disclosing exarafenib monotherapy and combination dose escalation data from this clinical trial in the first half of 2023. In the first quarter of 2023, we announced that we initiated enrollment of patients into the monotherapy dose expansion cohorts of KN-8701. Our second product candidate is KIN-3248, a Fibroblast Growth Factor Receptors (FGFR) inhibitor, designed for the treatment of patients with intrahepatic cholangiocarcinoma (ICC), a cancer of the bile ducts in the liver, and urothelial carcinoma (UC), a cancer of the bladder lining as well as other solid tumors. KIN-3248 is designed to address clinically observed kinase domain mutations in FGFR2 and FGFR3 that drive resistance to current therapies. InJanuary 2022 , the FDA cleared our IND for KIN-3248 and we initiated KN-4802, a Phase 1 clinical trial evaluating KIN-3248, in the first quarter of 2022. KIN-3248 has demonstrated proof of concept in preclinical models showing activity across both initial FGFR 2/3 genomic alterations and a broad range of common resistant variants that arise from first generation FGFR 2/3 targeted therapies. We anticipate initial dose escalation data from the ongoing KN-4802 clinical trial in the second half of 2023.
We are also advancing other small molecule research programs, including a Cyclin-Dependent Kinase 12 (CDK12) inhibitor in our KIN004 program for the treatment of ovarian carcinoma (OC), triple-negative breast cancer (TNBC) and metastatic castration-resistant prostate cancer (mCRPC).
InFebruary 2023 , we announced that we acquired the ownership stake of Kinnjiu previously held by the Series A investors for$24.0 million , using a combination of$9.1 million in cash and 2.2 million shares of common stock of Kinnate. We retain Kinnjiu's cash, intellectual property and other assets, including key personnel and its legal entity structure. Since our inception in 2018, we have devoted substantially all of our resources to research and development activities, including with respect to our RAF and FGFR programs and other research programs, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. We do not have any products approved for commercial sale, and we have not generated any revenue from product sales or other sources since inception. Our ability to generate product revenue sufficient to achieve profitability, if ever, will depend on the successful development and eventual commercialization of one or more of our product candidates which we expect, if it ever occurs, will take a number of years. We also do not own or operate, and currently have no plans to establish, any manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial manufacturing if any of our product candidates obtain marketing approval. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment and personnel while also enabling us to focus our expertise and resources on the development of our product candidates. 113
--------------------------------------------------------------------------------
Table of Contents
To date, we have financed our operations primarily through proceeds from the issuance of common stock (including our IPO) and private placements of our convertible preferred stock. As ofDecember 31, 2022 , we had cash and cash equivalents and short-term and long-term investments of$266.3 million , inclusive of$25.7 million at Kinnjiu. Based on our current operating plan, we believe that our current cash and cash equivalents and short-term and long-term investments will be sufficient to fund our planned operating expenses and capital expenditure requirements into mid-2024. We have incurred significant losses since the commencement of our operations. Our consolidated net losses for the years endedDecember 31, 2022 and 2021 were$116.3 million and$89.8 million , respectively, and we expect to continue to incur significant and increasing losses for the foreseeable future as we continue to advance our product candidates and any future product candidates from discovery through preclinical development and into clinical trials as we seek regulatory approval for these product candidates. Our net losses may fluctuate significantly from period to period, depending on the timing of expenditures on our research and development activities. As ofDecember 31, 2022 , we had an accumulated deficit of$259.4 million .
We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities as we:
• advance our RAF and FGFR programs through clinical development;
• advance the development of our other small molecule research programs,
including our CDK12 inhibitor and next-generation programs for our product
candidates;
• expand our pipeline of product candidates through our own product discovery and
development efforts;
• seek to discover and develop additional product candidates;
• seek regulatory approvals for any product candidates that successfully complete
clinical trials;
• establish a sales, marketing and distribution infrastructure to commercialize
any approved product candidates and related additional commercial manufacturing
costs;
• implement operational, financial and management systems;
• attract, hire and retain additional clinical, scientific, management and
administrative personnel;
• maintain, expand, protect and enforce our intellectual property portfolio,
including patents, trade secrets and know how; and
• operate as a public company.
We will require substantial additional funding to develop our product candidates and support our continuing operations. Until such time that we can generate significant revenue from product sales or other sources, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets inthe United States and worldwide caused by COVID-19, the ongoing conflict betweenRussia andUkraine , inflation rates, and other factors. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition, including requiring us to have to delay, reduce or eliminate our product development or future commercialization efforts. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our development efforts. We cannot provide assurance that we will ever be profitable or generate positive cash flow from operating activities. We were incorporated in theState of Delaware inJanuary 2018 , and our principal executive offices are inSan Francisco, California . Our research and development team is primarily based inSan Diego, California , with a portion of our management team based inSan Francisco, California .
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue and we do not expect to generate any revenue from the sale of products or from other sources in the foreseeable future.
114--------------------------------------------------------------------------------
Table of Contents Operating Expenses Research and Development
Research and development expenses account for a significant portion of our operating expenses and consist primarily of external and internal expenses incurred in connection with the discovery and development of our product candidates.
External expenses include:
• expenses incurred in connection with the discovery, preclinical and clinical
development of our product candidates, including under agreements with third
parties, such as consultants and CROs;
• the cost of manufacturing compounds for use in our preclinical and clinical
studies, including under agreements with third parties, such as consultants and
CMOs; and
• costs associated with consultants for chemistry, manufacturing and controls
(CMC) development, regulatory, statistics and other services, including expenses for technology and facilities.
Internal expenses include employee-related expenses, including salaries and benefits, travel and stock-based compensation expense for employees engaged in research and development functions.
We expense research and development expenses in the periods in which they are incurred. External expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers or our estimate of the level of service that has been performed at each reporting date. We track external expenses on the basis of lead programs and other programs. However, we do not track internal costs on a program specific basis because these costs are deployed across multiple programs and, as such, are not separately classified. We utilize third party contractors for our research and development activities and CMOs for our manufacturing activities and we do not have our own laboratory or manufacturing facilities. Therefore, we have no material facilities expenses attributed to research and development. Product candidates in later stages of development generally have higher development costs than those in earlier stages. As a result, we expect that our research and development expenses will increase substantially over the next several years as we advance our product candidates through preclinical studies into and through clinical trials, continue to discover and develop additional product candidates and expand our pipeline, maintain, expand, protect and enforce our intellectual property portfolio, and hire additional personnel. The successful development of our product candidates is highly uncertain, and we do not believe it is possible at this time to accurately project the nature, timing and estimated costs of the efforts necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. To the extent our product candidates continue to advance into clinical trials, as well as advance into larger and later-stage clinical trials, our expenses will increase substantially and may become more variable. We are also unable to predict when, if ever, we will generate revenue from our product candidates to offset these expenses. Our expenditures on current and future preclinical and clinical programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
• the timing and progress of preclinical and clinical development activities;
• the number and scope of preclinical and clinical programs we decide to pursue;
• our ability to maintain our current research and development programs and to
establish new ones;
• establishing an appropriate safety profile with IND-enabling toxicology
studies;
• successful patient enrollment in, and the initiation and completion of,
clinical trials;
• per-subject clinical trial costs;
• the number of clinical trials required for regulatory approval;
• the countries in which the clinical trials are conducted;
• the length of time required to enroll eligible subjects and initiate clinical
trials;
• the number of subjects that participate in the clinical trials;
• the drop-out and discontinuation rate of subjects;
• potential additional safety monitoring requested by regulatory authorities;
115
--------------------------------------------------------------------------------
Table of Contents
• the duration of subject participation in the clinical trials and follow-up;
• the successful completion of clinical trials with safety, tolerability and
efficacy profiles that are satisfactory to applicable regulatory authorities;
• the receipt of regulatory approvals from applicable regulatory authorities;
• the timing, receipt and terms of any marketing approvals and post-marketing
approval commitments from applicable regulatory authorities;
• the extent to which we establish collaborations, strategic partnerships or
other strategic arrangements with third parties, if any, and the performance of
any such third party;
• obtaining and retaining research and development personnel;
• establishing commercial manufacturing capabilities or making arrangements with
CMOs;
• development and timely delivery of commercial-grade drug formulations that can
be used in our planned clinical trials and for commercial launch; and
• obtaining, maintaining, defending and enforcing patent claims and other
intellectual property rights.
Any changes in the outcome of any of these factors could significantly impact the costs, timing and viability associated with the development of our product candidates. General and Administrative General and administrative expenses consist of salaries and benefits, travel and stock-based compensation expense for personnel in executive, human resources, finance and administrative functions; professional fees for legal, patent, consulting, accounting and audit services; and expenses for technology and facilities. We expense general and administrative expenses in the periods in which they are incurred. We expect that our general and administrative expenses will increase over the next several years as we hire additional personnel to support the continued research and development of our programs and growth of our business. We also expect to continue to incur increased expenses as a result of operating as a public company, including expenses related to accounting, audit, legal, regulatory, compliance with the rules and regulations of theSEC , Sarbanes-Oxley Act of 2002, as amended (Sarbanes-Oxley Act) and those of the Nasdaq Global Select Market or any other national securities exchange on which our securities are traded, director and officer insurance, investor and public relations, and other administrative and professional services.
Other Income, Net
Other Income, Net
Other income, net primarily consists of interest income generated from our cash equivalents in interest-bearing money market accounts and short-term and long-term investments.
Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the periods
indicated:
Year Ended December 31,
2022 2021 Change
(in thousands)
Operating expenses:
Research and development $ 88,150 $ 67,166 $ 20,984
General and administrative 30,371 22,945 7,426
Total operating expenses 118,521 90,111 28,410
Loss from operations (118,521 ) (90,111 ) (28,410 )
Other income, net 2,250 348 1,902
Net loss (116,271 ) (89,763 ) (26,508 )
Net loss attributable to redeemable convertible noncontrolling interests - - -
Net loss attributable to Kinnate $ (116,271 ) $ (89,763 ) $ (26,508 )
116--------------------------------------------------------------------------------
Table of Contents
Research and Development Expenses
The following table summarizes our research and development expenses incurred during the periods indicated:
Year Ended December 31, Increase
2022 2021 (Decrease)
(in thousands)
External expenses:
RAF $ 23,713 $ 23,436 $ 277
FGFR 13,588 11,085 2,503Other programs and other unallocated costs 16,924 10,859
6,065
Total external expenses 54,225 45,380 8,845
Internal expenses 33,925 21,786 12,139
Total research and development expenses
Research and development expenses were$88.2 million for the year endedDecember 31, 2022 compared to$67.2 million for the year endedDecember 31, 2021 , an increase of$21.0 million . The increase was primarily attributable to an increase of$2.5 million in external expenses for our FGFR program given the increased activity as this program advanced into the clinic, an increase of$6.1 million in external expenses for non-lead programs reflecting increased spend in early-stage pipeline research, as well as an increase of$12.1 million in internal research and development expenses as a result of a significant increase in research and development personnel and higher stock-based compensation. Research and development expenses included$3.3 million incurred at Kinnjiu during the year endedDecember 31, 2022 compared to$0.8 million during the year endedDecember 31, 2021 as the entity began operations in the second quarter of 2021.
General and Administrative Expenses
General and administrative expenses were$30.4 million for the year endedDecember 31, 2022 compared to$22.9 million for the year endedDecember 31, 2021 , an increase of$7.5 million . This increase was primarily driven by an increase in headcount and higher stock-based compensation, as well as increased consulting and professional services expenses. General and administrative expenses included$2.0 million incurred at Kinnjiu during the year endedDecember 31, 2022 compared to$0.6 million during the year endedDecember 31, 2021 . Other Income, Net
Other income, net was
Liquidity and Capital Resources
Sources of Liquidity
OnDecember 7, 2020 , we completed our IPO. In connection with our IPO, we issued and sold 13,800,000 shares of our common stock at a price to the public of$20.00 per share resulting in gross proceeds of$276.0 million before deducting underwriting discounts and commissions and other offering expenses. Additionally, inJanuary 2022 , we filed a shelf registration with theSEC on Form S-3ASR (File No. 333-261970). The shelf registration statement included a prospectus supplement for an at-the-market offering (ATM Offering) to sell up to an aggregate of$150.0 million of shares of our common stock that may be issued and sold from time to time under a sales agreement withSVB Leerink LLC . To date, no shares have been issued and sold pursuant to the ATM Offering. InMarch 2022 , we filed certain post-effective amendments to the Form S-3ASR for the purpose of, among other things, converting the registration statement to the current submission type for a non-automatic shelf registration statement and providing that the base prospectus included in the registration statement covers the offering, sale and issuance by us of up to$350.0 million in the aggregate of the securities identified in the registration statement in one or more offerings. The$150.0 million of common stock that may be offered, issued and sold in the ATM Offering is included in the$350.0 million of securities that may be offered, issued and sold by us under the base prospectus. Prior to our IPO, we funded our operations primarily through private placements of our convertible preferred stock with aggregate gross proceeds of$191.6 million .
Our primary uses of cash to date have been to fund our research and development activities, including with respect to our RAF and FGFR programs and other research programs, business planning, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.
117--------------------------------------------------------------------------------
Table of Contents
Future Funding Requirements
To date, we have not generated any revenue. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if, that will occur. Until such time as we can generate significant revenue from product sales, if ever, we will continue to require substantial additional capital to develop our product candidates and fund operations for the foreseeable future. We expect our expenses to increase significantly in connection with our ongoing activities as described in greater detail below. We are subject to all the risks incident in the development of new biopharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business. We expect our expenses to increase significantly, as we:
• advance our RAF and FGFR programs through clinical development;
• advance the development of our other small molecule research programs,
including our CDK12 inhibitor;
• expand our pipeline of product candidates through our own product discovery and
development efforts;
• seek to discover and develop additional product candidates;
• seek regulatory approvals for any product candidates that successfully complete
clinical trials;
• establish a sales, marketing and distribution infrastructure to commercialize
any approved product candidates and related additional commercial manufacturing
costs;
• implement operational, financial and management systems;
• attract, hire and retain additional clinical, scientific, management and
administrative personnel;
• maintain, expand, protect and enforce our intellectual property portfolio,
including patents, trade secrets and know how; and
• operate as a public company.
In order to complete the development of our product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding. Until we can generate a sufficient amount of revenue from the commercialization of our product candidates, we may seek to raise any necessary additional capital through the sale of equity, debt financings or other capital sources, which could include income from collaborations, strategic partnerships or marketing, distribution, licensing or other strategic arrangements with third parties, or from grants. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, including restricting our operations and limiting our ability to incur liens, issue additional debt, pay dividends, repurchase our common stock, make certain investments or engage in merger, consolidation, licensing or asset sale transactions. If we raise funds through collaborations, strategic partnerships and other similar arrangements with third parties, we may be required to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets inthe United States and worldwide. If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts. Based on our current operating plan, we believe that our current cash and cash equivalents and short-term and long-term investments will be sufficient to fund our planned operating expenses and capital expenditure requirements into mid-2024. We have based our projections of operating capital requirements on our current operating plan, which includes several assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect.
Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount and timing of our working capital requirements. Our future funding requirements will depend on many factors, including:
• the scope, timing, progress, results and costs of researching and developing
our product candidates, and conducting preclinical studies and clinical trials;
• the scope, timing, progress, results and costs of researching and developing
other product candidates that we may pursue;
118--------------------------------------------------------------------------------
Table of Contents
• the costs, timing and outcome of regulatory review of our product candidates;
• the costs of future activities, including product sales, medical affairs,
marketing, manufacturing and distribution, for any of our product candidates
for which we receive marketing approval;
• the costs of manufacturing commercial-grade products and sufficient inventory
to support commercial launch;
• the revenue, if any, received from commercial sale of our products, should any
of our product candidates receive marketing approval;
• the cost and timing of attracting, hiring and retaining skilled personnel to
support our operations and continued growth;
• the costs of preparing, filing and prosecuting patent applications, maintaining
and enforcing our intellectual property rights and defending intellectual
property-related claims;
• our ability to establish and maintain collaborations, strategic partnerships or
marketing, distribution, licensing or other strategic arrangements with third
parties on favorable terms, if at all;
• the extent to which we acquire or in-license other product candidates and
technologies, if any;
• the timing, receipt and amount of sales of, or milestone payments related to or
royalties on, our current or future product candidates, if any; and
• the costs associated with operating as a public company.
A change in the outcome of any of these or other factors 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 may need additional funds to meet operational needs and capital requirements associated with such operating plans. We lease office space inSan Diego, California andSan Francisco, California . InJune 2021 , we entered into an agreement to lease 8,088 rentable square feet of office space located inSan Diego, California (SD Lease) for a period of five years and four months with a lease commencement date ofMarch 2022 . Additionally, we have an option to extend the SD Lease for an additional five years at the end of the initial term. InAugust 2021 , we entered into an agreement to lease 5,698 rentable square feet of office space located inSan Francisco, California (SF Lease) for an initial term that commenced onJanuary 1, 2022 and expiresJune 30, 2026 . Additionally, we have an option to extend the SF Lease for an additional three years at the end of the initial term. As ofDecember 31, 2022 we have$1.0 million and$3.2 million in current and long-term operating lease liabilities, respectively. In addition, we have entered into agreements in the normal course of business with certain vendors for the provision of goods and services, which includes manufacturing services with CMOs and development services with CROs. 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. These obligations and commitments are not separately presented.
Cash Flows
The following tables summarizes our cash flow for the periods indicated:
Year Ended December 31,
2022 2021
(in thousands)
Net cash used in operating activities $ (89,034 ) $ (71,065 )
Net cash used in investing activities (6,830 ) (180,574 )
Net cash provided by financing activities 1,160 36,237
Effect of exchange rate changes on cash and cash equivalents 1 -
Net decrease in cash, cash equivalents and restricted cash
119
--------------------------------------------------------------------------------
Table of Contents
Operating Activities
Net cash used in operating activities during the year endedDecember 31, 2022 was$89.0 million . This consisted of our net loss of$116.3 million offset by a net increase in working capital of$6.4 million , primarily due to an increase in accounts payable and accrued expenses and decrease in prepaid expenses and other assets, net of stock-based compensation expense of$19.6 million , depreciation expense of$0.6 million and amortization/accretion of investments of$0.7 million . Net cash used in operating activities during the year endedDecember 31, 2021 was$71.1 million . This consisted of our net loss of$89.8 million offset by a net increase in working capital of$1.6 million , primarily due to an increase in accounts payable and accrued expenses partially offset by an increase in prepaid expenses and other assets, net of stock-based compensation expense of$15.0 million and amortization/accretion of investments of$1.9 million .
Investing Activities
Net cash used in investing activities during the year endedDecember 31, 2022 was$6.8 million and related primarily to purchases of short-term and long-term investments totaling$176.5 million partially offset by the sales and maturities of short-term and long-term investments totaling$172.4 million . Additionally, purchases of property and equipment totaled$2.7 million during the year endedDecember 31, 2022 . Net cash used in investing activities during the year endedDecember 31, 2021 was$180.6 million and related primarily to purchases of short-term and long-term investments totaling$247.1 million partially offset by the sales and maturities of short-term and long-term investments totaling$67.3 million .
Financing Activities
Net cash provided by financing activities during the year endedDecember 31, 2022 was$1.2 million , which consisted of proceeds from the issuance of common stock upon stock option exercises and under our employee stock purchase plan of$0.9 million and$0.6 million , respectively, partially offset by the payment of deferred offering costs in the amount of$0.4 million . Net cash provided by financing activities during the year endedDecember 31, 2021 was$36.2 million . This consisted primarily of contributions from noncontrolling interest owners of$34.9 million , net of offering costs, proceeds from the issuance of common stock upon stock option exercises of$0.7 million and proceeds from the issuance of common stock under our employee stock purchase plan of$0.9 million .
Off-Balance Sheet Arrangements
We currently do not have, and did not have during the periods presented, any off-balance sheet arrangements, as defined in the rules and regulations of theSEC .
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States . 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, and the disclosure of contingent assets and liabilities in our consolidated financial statements. 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 evaluate our estimates and assumptions on a periodic basis. Our actual results may differ from these estimates. While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are critical to understanding our historical and future performance, as the policies relate to the more significant areas involving management's judgments and estimates used in the preparation of our consolidated financial statements.
Research and Development Expenses
As part of the process of preparing our consolidated financial statements, we
are required to estimate our accrued research and development expenses as of
each balance sheet date. This process involves reviewing open contracts and
purchase orders, communicating with our personnel to identify services that have
been performed on our behalf and 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, based on a pre-determined schedule
or when contractual milestones are met, but some require advance payments. We
make estimates of our accrued expenses as of each balance sheet date in the
consolidated financial statements based on facts and circumstances known to us
at that time. If timelines or contracts are modified based upon changes in the
protocol or scope of work to be performed, we modify our estimates and accruals
accordingly on a prospective basis.
120--------------------------------------------------------------------------------
Table of Contents
We base our expenses related to external research and development services on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. 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 expenses 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
Stock-based compensation expense represents the cost of the grant date fair value of employee, officer, director and non-employee awards, estimated in accordance with the applicable accounting guidance, recognized on a straight-line basis over the vesting period. The vesting period generally approximates the expected service period of the awards. We recognize forfeitures as they occur.
The fair value of stock options and employee stock plan awards under the 2020 ESPP is estimated using a Black-Scholes valuation model on the date of grant. The Black-Scholes option-pricing model requires inputs based on certain subjective assumptions. Changes to these assumptions can materially affect the fair value of stock options and employee stock plan awards, and ultimately the amount of stock-based compensation expense recognized in our consolidated financial statements. These assumptions include:
• Fair Value of Common Stock: Since the completion of our initial public
offering, the fair value of each share of common stock underlying stock option
grants is based on the closing price of our common stock on the Nasdaq Global
Select Market as reported on the date of grant.
• Expected Term: We have opted to use the "simplified method" for estimating the
expected term of options, whereby the expected term equals the arithmetic
average of the vesting term and the original contractual term of the option,
which is generally 10 years.
• Expected Volatility: Due to the limited trading history of our common stock, we
have based our estimate of expected volatility on the historical volatility of
a group of similar companies that are publicly traded. The historical
volatility data was computed using the daily closing prices for the selected
companies' shares during the equivalent period of the calculated expected term
of the stock-based awards. We will continue to apply this process until a
sufficient amount of historical information regarding the volatility of our own
stock price becomes available.
• Risk-Free Interest Rate: The risk-free interest rates used are based on the
treasury notes with maturities approximately equal to the expected term of the
stock options.
• Expected Dividend: To date, we have not issued any dividends and do not expect
to issue dividends over the life of the options and therefore have estimated
the dividend yield to be zero.
The assumptions underlying these valuations represent our board's and management's best estimates, which involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.
The fair value of RSUs is estimated based on the fair value of our common stock on the date of grant.
Variable Interest Entity Our consolidated financial statements include the accounts of our variable interest entity (VIE), Kinnjiu. We evaluate our ownership, contractual and other interests in entities that are not wholly-owned to determine if these entities are VIEs, and, if so, whether we are the primary beneficiary of the VIE. In determining whether we are the primary beneficiary of a VIE and therefore required to consolidate the VIE, we apply a qualitative approach that determines whether we have both (1) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance and (2) the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE. As ofDecember 31, 2022 , prior to the acquisition of the minority ownership stake discussed elsewhere in this Annual Report on Form 10-K, we held an approximately 58% equity interest in Kinnjiu. Based on our assessment, we concluded that Kinnjiu is a VIE and we are the primary beneficiary. 121
--------------------------------------------------------------------------------
Table of Contents
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Emerging Growth Company and Smaller Reporting Company Status
We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, as amended (JOBS Act). We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have$1.235 billion or more in annual revenue; (ii) the date we qualify as a "large accelerated filer," with at least$700 million of equity securities held by non-affiliates; (iii) the date on which we have issued more than$1.0 billion in non-convertible debt securities during the prior three-year period; and (iv)December 31, 2025 . As a result of this status, we have taken advantage of reduced reporting requirements in this Annual Report on Form 10-K and may elect to take advantage of other reduced reporting requirements in our future filings with theSEC . In particular, in this Annual Report on Form 10-K, we have provided only two years of audited financial statements and have not included all of the executive compensation related information that would be required if we were not an emerging growth company. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to use the extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date on which we (i) are no longer an emerging growth company and (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. We are also a "smaller reporting company" meaning that the market value of our stock held by non-affiliates 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 and other matters.
© Edgar Online, source
