LONGBOARD PHARMACEUTICALS, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

You should read the following discussion and analysis of our financial condition
and results of operations together with our unaudited condensed financial
statements and related notes included elsewhere in this Quarterly Report and our
audited consolidated financial statements and related notes included in our
Annual Report on Form 10-K for the year ended December 31, 2021, filed with the
Securities and Exchange Commission ("SEC") on March 3, 2022 (our "2021 Annual
Report").

Forward-Looking Statements

Some of the information contained in this discussion and analysis or set forth
elsewhere in this Quarterly Report, including information with respect to our
plans and strategy for our business and related financing, 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 Quarterly Report, 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. You should carefully read Part II, Item
1A, "Risk Factors" of this Quarterly Report to gain an understanding of the
important factors that could cause actual results to differ materially from our
forward-looking statements.

Overview and Recent Developments

We are a clinical-stage biopharmaceutical company focused on developing novel,
transformative medicines for neurological diseases. We were formed in January
2020 by Arena Pharmaceuticals, Inc. ("Arena") to advance a portfolio of
centrally acting product candidates designed to be highly selective for specific
G protein-coupled receptors ("GPCRs"). Our small molecule product candidates
were discovered out of the same platform at Arena that represents a culmination
of more than 20 years of GPCR research. Our pipeline includes:

•

LP352, an oral, centrally acting, 5-hydroxytryptamine 2C receptor subtype
("5-HT2C") superagonist, currently in a Phase 1b/2a clinical trial ("the PACIFIC
Study") expected to evaluate approximately 50 participants ages 12 to 65 years
old with developmental and epileptic encephalopathies ("DEEs"), which may
include Dravet syndrome, Lennox-Gastaut syndrome ("LGS"), tuberous sclerosis
complex ("TSC"), CDKL5 deficiency disorder, SCN2A-related disorders, among
others, with topline data expected in the second half of 2023;

•

LP659, a centrally acting, sphingosine-1-phosphate ("S1P") receptor subtypes 1
and 5 ("S1P1,5") receptor modulator, for which we have a pre-investigational new
drug ("IND") meeting with the FDA to finalize details regarding the clinical
development plan for use of LP659 in rare neuroinflammatory indications
scheduled in the fourth quarter of 2022; and

•

LP143, a centrally acting, full cannabinoid type 2 receptor ("CB2") agonist in preclinical studies for central nervous system ("CNS") diseases and disorders.

In October 2020, we entered into a License Agreement with Arena (the "Arena
License Agreement"), pursuant to which Arena granted us an exclusive, royalty
bearing, sublicensable, worldwide license to develop and commercialize LP352,
LP659, LP143 and certain 5-HT2A compounds (pharmaceutical products containing
any such product candidates, the "Licensed Products"). We further amended the
Arena License Agreement in January and September 2022. See the discussion of the
Arena License Agreement under "Agreements with Arena" below.


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The following table provides an overview of the current product candidates we are focusing on:[[Image Removed: img8596771_0.jpg]] * We hold rights to our product candidates through the Arena License Agreement.

We are also eligible to receive royalties of 9.5% to 18.5% on sales of lorcaserin if approved for commercialization through the Royalty Purchase Agreement.

We were incorporated in January 2020. Since our inception, we have devoted
substantially all of our resources to research and development activities,
organizing and staffing our company, business planning, raising capital,
in-licensing intellectual property rights and establishing our intellectual
property portfolio, and providing general and administrative support for these
operations. We have principally financed our operations to date through the
private placement of convertible preferred stock and the completion of our
initial public offering (the "IPO") of our common stock in March 2021. To date,
we have raised gross proceeds of approximately $56.0 million from the issuance
of our convertible preferred stock and $84.8 million from our IPO. As of
September 30, 2022, we had cash, cash equivalents and short-term investments of
$77.3 million.

We have incurred net losses since our inception. Our net losses were $11.6
million, $32.6 million, $6.3 million and $19.0 million, respectively, for the
three and nine months ended September 30, 2022 and 2021. As of September 30,
2022, we had an accumulated deficit of $74.8 million. Our net losses may
fluctuate significantly from quarter-to-quarter and year-to-year, depending on
the timing of our clinical trials and preclinical studies and our expenditures
on other research and development activities. We expect that our expenses and
operating losses will increase substantially as product candidates advance
through preclinical studies and clinical trials, and as we expand our clinical,
regulatory, quality and manufacturing capabilities, incur significant
commercialization expenses for marketing, sales, manufacturing and distribution,
if we obtain marketing approval for any of our product candidates, and incur
additional costs associated with operating as a public company. We expect that
our existing cash, cash equivalents and short-term investments will be
sufficient to fund our operations for at least the next 12 months. However, our
forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that involves
risks and uncertainties, and actual results could vary materially. We base our
estimate on assumptions that may prove to be wrong, and we could deplete our
capital resources sooner than we expect.

We do not expect to generate any revenues from product sales unless and until we
successfully complete development and obtain regulatory approval for one or more
product candidates, which will not be for many years, if ever. Accordingly,
until such time as we can generate significant revenue from sales of our product
candidates, if ever, we expect to finance our cash needs through a combination
of public or private equity offerings, debt financings or other capital sources,
including potential collaborations, licenses and other similar arrangements.
However, we may be unable to raise additional funds or enter into such other
arrangements when needed on favorable terms or at all. Our failure to raise
capital or enter into such other arrangements when needed would have a negative
impact on our financial condition and could force us to delay, limit, reduce or
terminate our research and development programs, future commercialization
efforts or other operations, or grant rights to develop and market our product
candidates that we would otherwise prefer to develop and market ourselves, which
would have a negative impact on our financial condition.

The global COVID-19 pandemic continues to evolve. As a result of the COVID-19
pandemic, we have faced and may continue to face delays in meeting our
anticipated timelines for our ongoing and planned clinical trials. For example,
the initiation of the multiple-ascending dose ("MAD") portion of the Phase 1
clinical trial of LP352 was previously delayed, in part, as a result of the
impact of the COVID-19 pandemic on the clinical site in the United Kingdom that
conducted the single-ascending dose ("SAD") portion of the Phase 1 clinical
trial for LP352, and subsequently we modified the protocol and relocated the MAD
portion of such trial

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to a new clinical site in the United States. We completed the MAD portion of the
Phase 1 clinical trial of LP352 in September 2021. The extent of the impact of
COVID-19 on our business, operations and development timelines and plans remains
uncertain, and will depend on certain developments, including the duration and
spread of the outbreak and its impact on our development activities, planned
clinical trial enrollment, future trial sites, contract research organizations
("CROs"), third-party manufacturers, and other third parties with whom we do
business, as well as its impact on regulatory authorities and our key scientific
and management personnel. To the extent possible, we are conducting business as
usual, with necessary or advisable modifications to employee travel and work
locations. We will continue to actively monitor the evolving impacts of the
COVID-19 pandemic and may take further actions that alter our operations,
including those that may be required by federal, state or local authorities, or
that we determine are in the best interests of our employees and other third
parties with whom we do business. The extent to which the COVID-19 pandemic or a
similar health epidemic may affect our business, operations and development
timelines and plans, including the resulting impact on our expenditures and
capital needs, remains highly uncertain and subject to change. For a discussion
of risks related to the impact of the ongoing COVID-19 pandemic on our business,
see Part II, Item 1A, "Risk Factors-Risks Related to Our Business Operations,
Employee Matters and Managing Growth-COVID-19 has impacted and could continue to
adversely impact our business."

In addition, the ongoing geopolitical turmoil caused by the conflict in Ukraine
has contributed to further disruption, instability and volatility of the
financial markets, which may have an adverse impact on our business or ability
to access the capital markets in the future. For a discussion of risks related
to the impact of the ongoing conflict in Ukraine on our business, see Part II,
Item 1A, "Risk Factors-Risks Related to Our Limited Operating History, Financial
Position and Need For Additional Capital-We will need substantial additional
capital to finance our operations, which may not be available on acceptable
terms, or at all. A recession or other unfavorable market conditions, including
economic slowdowns, recessions, inflation, rising interest rates and tightening
of credit markets caused by the ongoing COVID-19 pandemic, the conflict in
Ukraine or otherwise, may limit our access to capital. Failure to obtain this
necessary capital when needed may force us to delay, limit or terminate certain
of our product development efforts or other operations."

Agreements with Arena

Below is a summary of the key terms for our license and other agreements with
Arena. On March 11, 2022, Pfizer, Inc. ("Pfizer") announced it completed its
acquisition of Arena, and Arena became a wholly-owned subsidiary of Pfizer. For
a discussion of risks related to Pfizer's acquisition of Arena, see Part II,
Item 1A, "Risk Factors-Risk Related to Arena Having Been Acquired by
Pfizer-Arena was acquired by Pfizer on March 11, 2022, and Arena's acquisition
may negatively impact our development programs and stock price."

License Agreement

In October 2020, we entered into the Arena License Agreement, pursuant to which
we obtained an exclusive, worldwide license of certain intellectual property for
the Licensed Products. In January 2022, we amended the Arena License Agreement
to add an additional program, and in September 2022 we further amended the Arena
License Agreement to expand the field of the license of LP659 and provide Arena
a right of first negotiation to acquire certain development and commercial
rights to LP659 products. The Arena License Agreement imposes various
development, regulatory and/or commercial diligence obligations on our company,
and requires the payment of royalties, including a mid-single digit royalty on
net sales of Licensed Products of LP352, and a low-single digit royalty on net
sales of all other Licensed Products, by our company, its affiliates or its
sublicensees, subject to standard reductions, and other obligations.

Royalty Purchase Agreement

In October 2020, we entered into a Royalty Purchase Agreement with Arena and 356
Royalty Inc., a wholly-owned subsidiary of Arena ("356 Royalty"), pursuant to
which we purchased the right to receive all milestone payments, royalties,
interest and other payments relating to net sales of lorcaserin in all countries
and territories of the world owed or otherwise payable to 356 Royalty by Eisai
Inc. and Eisai Co., Ltd., pursuant to a Transaction Agreement dated December 28,
2016, as amended, by and among 356 Royalty, Eisai Inc. and Eisai Co., Ltd., for
an upfront payment of $0.1 million. Lorcaserin is currently in a Phase 3
clinical trial for Dravet syndrome.



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Services Agreement

In October 2020, we entered into a services agreement (the "Services Agreement")
with Arena under which Arena agreed to perform certain research and development
services, general administrative services, management services and other
mutually agreed services for us and receive service fees therefore on an hourly
rate based on an annual full time equivalent rate agreed upon by the parties. We
have significantly reduced our activities under the Services Agreement,
including as a result of our having hired employees or contracted with third
parties with the requisite expertise, and we are no longer substantially
dependent on such services from Arena.

Components of Our Results of Operations

Operating Expenses

Our operating expenses consist of (i) research and development expenses and (ii) general and administrative expenses.

Research and Development

Our research and development expenses consist primarily of direct and indirect
costs incurred in connection with the preclinical and clinical development of
our product candidates.

Direct costs include:

•

external research and development expenses incurred under agreements with CROs, investigative sites, consultants and other third parties to conduct our preclinical studies and clinical trials; and

•

costs related to manufacturing our product candidates for preclinical studies and clinical trials, including fees paid to third-party manufacturers.

Indirect costs include:

•

personnel-related costs, which include salaries, payroll taxes, employee benefits and other employee-related costs, including stock-based compensation, for personnel engaged in research and development functions; and

•

facilities and other various expenses.

Research and development expenses are recognized as incurred and payments made
prior to the receipt of goods or services to be used in research and development
are capitalized until the goods or services are received. We track direct costs
by stage of program, clinical or preclinical. However, we do not track indirect
costs on a program specific or stage of program basis because these costs are
deployed across multiple programs and, as such, are not separately classified.

We expect that our research and development expenses will increase substantially
for the foreseeable future as we continue the development of our product
candidates, particularly as product candidates in later stages of development
generally have higher development costs than those in earlier stages of
development. We cannot determine with certainty the timing of the initiation,
duration or completion costs of future clinical trials and preclinical studies
of our product candidates due to the inherently unpredictable nature of clinical
and preclinical development. Clinical and preclinical development timelines, the
probability of success and development costs can differ materially from
expectations.

We anticipate that we will make determinations as to which product candidates
and development programs to pursue and how much funding to direct to each
product candidate or program on an ongoing basis in response to the results of
ongoing and future preclinical studies and clinical trials, regulatory
developments and our ongoing assessments as to each product candidate's
commercial potential. We will need to raise substantial additional capital in
the future. In addition, we cannot forecast which product candidates may be
subject to future collaborations, when such arrangements may occur, if at all,
and to what degree such arrangements would affect our development plans and
capital requirements.

Our research and development expenses may vary significantly based on a variety of factors, such as:

•

the scope, rate of progress, expense and results of our preclinical development activities;

•

the phase of development of our product candidates;

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•

per patient clinical trial costs;

•

the number of clinical trials required for approval;

•

the number of sites included in our ongoing and planned clinical trials;

•

the number of patients that participate in our ongoing and planned clinical trials;

•

the countries in which our clinical trials are conducted;

•

uncertainties in clinical trial design and patient enrollment or drop out or
discontinuation rates, particularly in light of the ongoing COVID-19 pandemic
and the conflict in Ukraine;

•

potential additional safety monitoring requested by regulatory agencies;

•

the duration of patient participation in our ongoing and planned clinical trials and follow-up;

•

the efficacy and safety profile of our product candidates;

•

the timing, receipt and terms of any approvals from applicable regulatory authorities, including the FDA and foreign regulatory authorities;

•

significant and changing government regulation and regulatory guidance;

•

potential additional trials requested by regulatory agencies;

•

the cost and timing of manufacturing our product candidates;

•

establishing clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers in order to ensure that we or our third-party manufacturers are able to make product successfully;

•

the extent to which we establish additional strategic collaborations or other arrangements;

•

the impact of any business interruptions to our operations or to those of the
third parties with whom we work, particularly in light of the ongoing COVID-19
pandemic, the conflict in Ukraine and general disruption of global supply chains
and financial markets; and

•

maintaining a continued acceptable safety profile of our product candidates following approval, if any, of our product candidates.

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.

General and Administrative

General and administrative expenses consist primarily of personnel-related
costs, which include salaries, payroll taxes, employee benefits and other
employee-related costs, including stock-based compensation, for personnel in
executive, finance and other administrative functions. Other significant costs
include legal fees relating to corporate matters, professional fees for
accounting and consulting services and facility-related costs.

We expect that our ongoing general and administrative expenses will increase
modestly for the foreseeable future to support our increased research and
development activities and increased costs of operating as a public company and
in building our internal resources. These increased costs will include increased
expenses related to audit and legal services associated with maintaining
compliance with exchange listing and SEC requirements, prosecuting and
maintaining our patent portfolio, and investor and public relations activities
associated with operating as a public company.


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Financial Operations Overview

Results of Operations

The following table summarizes our results of operations for the three and nine months ended September 30, 2022 and 2021:

                                   Three Months Ended September 30,               Nine Months Ended September 30,
(in thousands)                        2022                   2021                   2022                   2021
Operating expenses:
Research and development        $           9,403       $         4,093       $         25,445       $         13,406
General and administrative                  2,481                 2,262                  7,626                  5,639
Total operating expenses                   11,884                 6,355                 33,071                 19,045
Loss from operations                      (11,884 )              (6,355 )              (33,071 )              (19,045 )
Interest income, net                          287                    23                    446                     40
Other income (expense)                          1                   (13 )                   25                    (19 )
Net loss                        $         (11,596 )     $        (6,345 )     $        (32,600 )     $        (19,024 )

Research and Development Expenses

The following table summarizes our research and development expenses for the three and nine months ended September 30, 2022 and 2021:

                                            Three Months Ended September 30,              Nine Months Ended September 30,
(in thousands)                                2022                     2021                 2022                  2021
Direct costs:
LP352                                   $          5,965         $          1,332      $        14,228       $         5,815
Preclinical programs                               1,043                    1,265                4,274                 4,134
Indirect costs:
Personnel-related                                  2,177                    1,315                6,058                 2,937
All other                                            218                      181                  885                   520

Total research and development expenses $ 9,403 $ 4,093 $ 25,445 $ 13,406

Research and development expenses were $9.4 million for the three months ended
September 30, 2022, an increase of $5.3 million, or 130%, compared to $4.1
million for the three months ended September 30, 2021. The net increase of $5.3
million is primarily related to increases of $4.6 million in clinical trial and
preclinical expenses related to LP352, $0.9 million in personnel-related
expenses, and a $0.2 million decrease in preclinical expenses related to LP659
and LP143.

Research and development expenses were $25.4 million for the nine months ended
September 30, 2022, an increase of $12.0 million, or 90%, compared to $13.4
million for the nine months ended September 30, 2021. The increase of $12.0
million is primarily related to increases of $8.4 million in clinical trial and
preclinical expenses related to LP352, $3.1 million in personnel-related
expenses, $0.1 million in preclinical expenses related to LP659 and LP143, and
$0.4 million in other miscellaneous R&D expenses.

General and Administrative Expenses

General and administrative expenses were $2.5 million for the three months ended
September 30, 2022, an increase of $0.2 million, or 10%, compared to $2.3
million for the three months ended September 30, 2021. The net increase of $0.2
million is primarily related to an increase in personnel-related costs.

General and administrative expenses were $7.6 million for the nine months ended
September 30, 2022, an increase of $2.0 million, or 35%, compared to $5.6
million for the nine months ended September 30, 2021. The increase of $2.0
million is primarily related to increases of $1.3 million in personnel-related
costs, $0.2 million in insurance expense, $0.2 million in rent expense and $0.3
million in other miscellaneous G&A expenses.

Liquidity and Capital Resources

As of September 30, 2022, we had cash, cash equivalents and short-term
investments of $77.3 million and working capital of $71.6 million to fund future
operations. As of December 31, 2021, we had cash, cash equivalents and
short-term investments of $106.7 million and working capital of $102.9 million
to fund future operations.


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Sources of Liquidity

We have funded our operations primarily through available cash, cash equivalents
and short-term investments, and the sale and issuance of common stock and
convertible preferred stock. In October 2020, we completed a $56.0 million
private placement of our Series A convertible preferred stock. In connection
with our IPO in March 2021, we issued and sold 5,298,360 shares of common stock,
which included 298,360 shares of our common stock issued pursuant to the
over-allotment option granted to the underwriters to purchase additional shares
of common stock, at a public offering price of $16.00 per share. We raised $76.2
million in net proceeds from the IPO after deducting underwriters' discounts and
commissions of $5.9 million and issuance costs of $2.6 million.

Sales Agreement

In September 2022, we entered into a Controlled Equity OfferingSM Sales
Agreement (the "Sales Agreement") with Cantor Fitzgerald & Co., as sales agent
("Cantor Fitzgerald"), pursuant to which we may issue and sell our common stock
from time to time through an "at the market offering" ("ATM") program under the
Sales Agreement. We have no obligation to sell any shares of common stock under
the Sales Agreement and may at any time suspend sales under the Sales Agreement.
Cantor Fitzgerald will be entitled to compensation in an amount of 3% of the
gross proceeds of any shares of common stock sold under the Sales Agreement. A
maximum of $20.0 million of shares of common stock may be sold under the Sales
Agreement. We did not sell any shares of our common stock under the Sales
Agreement as of September 30, 2022.

Material Cash Requirements

We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future.

We expect that our existing cash, cash equivalents and short-term investments
will be sufficient to fund our operations for at least the next 12 months. We
believe we will meet longer-term expected future cash requirements and
obligations beyond the next 12 months by utilizing our existing cash, cash
equivalents and short-term investments and through a combination of equity
offerings, debt financings, collaborations, licenses and other similar
arrangements. However, our forecast of the period of time through which our
financial resources will be adequate to support our operations is a
forward-looking statement that involves risks and uncertainties, and actual
results could vary materially. We have based our estimate on assumptions that
may prove to be wrong, and we could deplete our capital resources sooner than we
expect. Additionally, the process of testing product candidates in clinical
trials is costly, and the timing of progress and expenses in these trials is
uncertain. Our ability to fund longer-term operating needs will depend on our
ability to commercialize product candidates for which we may obtain regulatory
approval, our ability to access the capital markets and other factors, including
those discussed in Part II, Item 1A, "Risk Factors" of this Quarterly Report.

Our future capital requirements will depend on many factors, including:

•

the type, number, scope, progress, expansions, results, costs and timing of our
preclinical studies and clinical trials for our current and any future product
candidates and the potential indications which we are pursuing or may choose to
pursue in the future;

•

the outcome, timing and costs of regulatory review of our product candidates;

•

the costs and timing of manufacturing for our product candidates, including commercial manufacturing;

•

our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;

•

the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase;

•

the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;

•

the costs of obtaining, expanding, maintaining and enforcing our patent and other intellectual property rights;

•

the costs and timing of establishing or securing sales and marketing and distribution capabilities, whether alone or with third parties, to commercialize product candidates for which we may obtain regulatory approval, if any;

•

the timing and amount of the payments we are obligated to make under the Arena License Agreement;

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•

our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;

•

patients' willingness to pay out-of-pocket for any approved products in the absence of coverage and/or adequate reimbursement from third-party payors;

•

costs associated with any product candidates, products or technologies that we may in-license or acquire; and

•

if we experience any delays or encounter any issues with any of the above, which
may be exacerbated by macroeconomic events stemming from the ongoing COVID-19
pandemic or evolving geopolitical developments such as the conflict in Ukraine.

Developing pharmaceutical products, including conducting preclinical studies and
clinical trials, is a time-consuming, expensive and uncertain process that takes
years to complete, and we may never generate the necessary data or results
required to obtain marketing approval for any product candidates or generate
revenue from the sale of any product candidate for which we may obtain marketing
approval. In addition, our product candidates, if approved, may not achieve
commercial success. Our commercial revenues, if any, will be derived from sales
of products that we do not expect to be commercially available for at least
several years, if ever. As a result, we will need substantial additional
financing to support our continuing operations and further the development of
and commercialize our product candidates.

Until such time as we can generate significant revenue from sales of our product
candidates, if ever, we expect to finance our cash needs through a combination
of public or private equity offerings, debt financings or other capital sources,
including potential collaborations, licenses and other similar arrangements.
However, we may be unable to raise additional funds or enter into such other
arrangements when needed 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 in the United States and worldwide resulting from the
ongoing COVID-19 pandemic, the conflict in Ukraine or otherwise. To the extent
that we raise additional capital through the sale of equity or convertible debt
securities, the ownership interest of our stockholders will be or could be
diluted, and the terms of these securities may include liquidation or other
preferences that adversely affect the rights of our common stockholders. Debt
financing and equity financing, if available, may involve agreements that
include covenants limiting or restricting our ability to take specific actions,
such as incurring additional debt, making capital expenditures or declaring
dividends. If we raise funds through collaborations, or other similar
arrangements with third parties, we may have to relinquish valuable rights to
our product candidates, future revenue streams or research programs or may have
to grant licenses on terms that may not be favorable to us and/or may reduce the
value of our common stock. If we are unable to raise additional funds through
equity or debt financings when needed, we may be required to delay, limit,
reduce or terminate our research and development programs, future
commercialization efforts or other operations, or grant rights to develop and
market our product candidates that we would otherwise prefer to develop and
market ourselves, which would have a negative impact on our financial condition.

Cash Flows

The following table sets forth a summary of our cash flows for the nine months ended September 30, 2022 and 2021:

                                                           Nine Months Ended September 30,
(in thousands)                                               2022           

2021

Net cash used in operating activities                  $        (28,392 )     $        (19,030 )
Net cash used in investing activities                           (19,209 )              (37,276 )
Net cash provided by financing activities                             -                 76,451

Net (decrease) increase in cash and cash equivalents $ (47,601 )

  $         20,145



Operating Activities

Net cash used in operating activities was $28.4 million and $19.0 million for
the nine months ended September 30, 2022 and 2021, respectively. Net cash used
in operating activities for the nine months ended September 30, 2022 was
primarily due to our net loss of $32.6 million, adjusted for $2.1 million of
stock-based compensation expense and $1.9 million from changes in operating
assets and liabilities. Net cash used in operating activities for the nine
months ended September 30, 2021 was primarily due to our net loss of $19.0
million, adjusted for $1.4 million of stock-based compensation expense and $1.5
million from changes in operating assets and liabilities.

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Investing Activities

Net cash used in investing activities was $19.2 million and $37.3 million for
the nine months ended September 30, 2022 and 2021, respectively. Net cash used
in investing activities for the nine months ended September 30, 2022 was related
to $50.8 million of short-term investment purchases, which was offset by $31.6
million in short-term investment maturities. Net cash used in investing
activities for the nine months ended September 30, 2021 primarily consisted of
$37.3 million of short-term investment purchases.

Financing Activities

Net cash provided by financing activities was none and $76.5 million for the
nine months ended September 30, 2022 and 2021, respectively. Net cash provided
by financing activities during the nine months ended September 30, 2021 was
comprised of net proceeds of $76.5 million from our IPO, which excludes $0.2
million of IPO expenses that were paid in 2020.

Critical Accounting Estimates

Our financial statements are prepared in accordance with generally accepted
accounting principles in the United States. The preparation of our 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 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 financial statements appearing in our 2021 Annual Report, 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 financial statements. There have been no significant changes
in our critical accounting policies and estimates during the nine months ended
September 30, 2022, as compared to the critical accounting policies and
estimates disclosed in Part II, Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in our 2021 Annual
Report.

Accrued Research and Development Expenses

As part of the process of preparing our 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 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.

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 differences between
our estimates of such expenses and the amounts actually incurred.

Emerging Growth Company and Smaller Reporting Company Status

We are an "emerging growth company" under the Jumpstart Our Business Startups
Act of 2012 ("JOBS Act"), and as such, we can take advantage of an extended
transition period for complying with new or revised accounting standards. This
provision allows an emerging growth company to delay the adoption of accounting
standards that have different effective dates for public and private companies
until those standards would otherwise apply to private companies. We have
elected to avail ourselves of this exemption

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from new or revised accounting standards, and therefore we will not be subject
to the same requirements to adopt new or revised accounting standards as other
public companies that are not emerging growth companies.

We will cease to be an emerging growth company prior to the end of December 31,
2026, if certain earlier events occur, including if we become a "large
accelerated filer" as defined in Rule 12b-2 under the Exchange Act, our annual
gross revenues exceed $1.235 billion or we issue more than $1.0 billion of
non-convertible debt in any three-year period.

We are also a "smaller reporting company" as defined in the Exchange Act. We may
continue to be a smaller reporting company even after we are no longer an
emerging growth company. We may take advantage of certain of the scaled
disclosures available to smaller reporting companies and will be able to take
advantage of these scaled disclosures for so long as our voting and non-voting
common stock held by non-affiliates is less than $250.0 million measured on the
last business day of our second fiscal quarter, or our annual revenue is less
than $100.0 million during the most recently completed fiscal year and our
voting and non-voting common stock held by non-affiliates is less than $700.0
million measured on the last business day of our second fiscal quarter.

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