Shattuck Labs, Inc.: Form 10-Q for the period ended Sep 30, 2023

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 appearing in this Quarterly Report on Form 10-Q, as well as the audited financial statements, notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022. This discussion and other parts of this Quarterly Report on Form 10-Q contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. 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 discussed in the “Risk Factors” section of our Annual Report on Form 10-K. You should carefully read the “Cautionary Note About Forward-Looking Statements” of this Quarterly Report on Form 10-Q and the “Risk Factors” section of our Annual Report on Form 10-K to gain an understanding of the important factors that could cause actual results to differ materially from the results described below.

Overview

We are an innovative clinical-stage biotechnology company pioneering the development of dual-sided fusion proteins as an entirely new class of biologic medicine. We have created a novel approach to immune modulation by designing biologics with structural characteristics that may not be achievable by existing therapeutic modalities, including monoclonal or bispecific antibodies. Compounds derived from our proprietary Agonist Redirected Checkpoint, or ARC®, platform simultaneously inhibit checkpoint molecules and activate costimulatory molecules with a single therapeutic.

Our lead product candidate, SL-172154, is designed to simultaneously inhibit the CD47/SIRPα macrophage checkpoint interaction and activate the CD40 costimulatory receptor to induce an antitumor immune response. Coupling CD40 activation with CD47 inhibition differentiates SL-172154 from all other clinical-stage CD47/SIRPα inhibitors in development, and in our published preclinical studies, SL-172154 resulted in superior antitumor immunity as compared to certain CD47/SIRPα inhibitors. We are pursuing a broad clinical development strategy in both solid and hematologic tumors, with multiple ongoing clinical trials. SL-172154 is in an ongoing Phase 1 clinical trial for the treatment of patients with ovarian cancer. We are also evaluating SL-172154 in an ongoing Phase 1 clinical trial for the treatment of patients with certain hematologic malignancies, including acute myeloid leukemia, or AML, and higher-risk myelodysplastic syndromes, or HR-MDS. We believe our clinical development plan may provide both first-in-class and best-in-class development opportunities for SL-172154.

We believe that data shared to date in human cancer patients have demonstrated that the unique protein engineering and physical properties of the ARC platform have led to a differentiated profile in terms of safety and on-target immune activation, demonstrated by unique pharmacodynamic findings, as compared to monoclonal or bispecific antibodies.

In addition to our clinical-stage ARC product candidate, we possess a deep pipeline of potential product candidates in preclinical development. As an example, SL-9258, an ARC compound in preclinical development, is designed to inhibit the TIGIT/PVR checkpoint interaction while simultaneously activating HVEM and LTβ costimulatory receptors.

Longer-term, we are pursuing additional disease areas, including autoimmune diseases, where our dual-sided fusion protein platforms may provide advantages over current treatment modalities.

Recent Developments

SL-172154 as Monotherapy and in Combination with Azacitidine in Relapsed/Refractory AML or HR-MDS

On November 2, 2023, we announced that topline data from the dose escalation portion of our Phase 1 A/B clinical trial of SL-172154 as monotherapy and in combination with azacitidine, or AZA, in primarily relapsed/refractory, or R/R, acute myeloid leukemia, or AML, and higher-risk myelodysplastic syndromes, or HR-MDS, patients will be featured in a poster presentation at the 65th American Society of Hematology Annual Meeting, which is being held both virtually and in San Diego, CA from December 9-12, 2023.

SL-172154 monotherapy response was observed in a heavily pretreated patient with R/R AML after just a single cycle of treatment, as well as early efficacy signals for SL-172154 in combination with AZA in previously untreated HR-MDS with TP53 mutant patients. SL-172154 was tolerable at 3 mg/kg as a monotherapy and in combination with AZA.

• Data Overview: As of the abstract data cut-off date of May 25, 2023, 37 adult patients with R/R AML and HR-MDS had received SL-172154 as monotherapy or in combination with AZA in the parallel staggered dose-escalation portion of a Phase 1A/B clinical trial. Patients had a median of two prior lines of therapy.
• Preliminary signs of anti-leukemic activity: As of the data cut-off date of July 10, 2023 used for efficacy evaluation for the ASH abstract, a monotherapy response in a R/R AML patient and early signals of anti-leukemic activity (in the form of blast count reductions) in patients with R/R AML who received SL-172154 in combination with AZA were observed in a dose-dependent manner. Early signals of activity with SL-172154 in combination with AZA in frontline patients with TP53 mutant HR-MDS were observed.
• SL-172154 monotherapy response (Morphologic Leukemia-Free State) (n=1 at 6 mg/kg) was observed in a heavily pretreated R/R AML patient who subsequently proceeded to allogeneic hematopoietic cell transplantation (allo-HCT).
• Anti-leukemic activity, in the form of blast count reductions, was observed in R/R AML patients in combination with AZA (n=2 at 1 mg/kg, n=5 at 3 mg/kg) and one patient subsequently proceeded to allo-HCT.
• Out of four evaluable previously untreated HR-MDS with TP53m patients, there was one confirmed complete response (3 mg/kg), one marrow complete response (1 mg/kg), and two stable diseases (n=1 at 1 mg/kg, n=1 at 6 mg/kg). Two patients subsequently proceeded to allo-HCT.
• SL-172154 had an acceptable safety profile as monotherapy and in combination with AZA.
• Infusion-related reactions (IRRs) were the most common SL-172154-related treatment-emergent AEs (TEAEs) and were reported in 13 patients (68%) as monotherapy and 8 patients (44%) in combination with AZA.
• Other TEAEs observed were increased AST (aspartate aminotransferase) (4; 21%), ALT (alanine aminotransferase) (3; 16%) and nausea (3; 17%) in monotherapy cohorts, and nausea (3; 17%) in combination cohorts. All events of increased AST/ALT were transient.
• SL-172154 in combination with AZA had an acceptable safety profile with one dose-limiting toxicity event at 6 mg/kg of SL-172154. The dose of 3 mg/kg is being evaluated in the dose expansion.
• CD47 and CD40 target engagement and CD40-dependent pharmacodynamic effects observed at the 3 mg/kg dose.
• SL-172154 induced elevations in serum IL-12p40, IP-10, IL-8, IL-10, MIP3α, and MCP1 with greater response at 3 mg/kg compared to 1 mg/kg and similar response between 3 mg/kg and 6 mg/kg.
• In bone marrow, abundant staining of SL-172154 was observed, along with a dose-dependent increase in phagocytic cells within mature myeloid immune cell compartments. Reduction in leukemic blasts was associated with an increase in mature myeloid and phagocytic cell phenotypes.

SL-172154 in Combination with Pegylated Liposomal Doxorubicin in Platinum-Resistant Ovarian Cancer

On November 9, 2023, we announced interim data from our Phase 1B clinical trial of SL-172154 in combination with pegylated liposomal doxorubicin, or PLD. We observed three partial responses (one confirmed with 58% reduction in the sum of target lesion diameters and two unconfirmed with 100% and 31% reductions in the sum of the target lesion diameters) out of 11 evaluable patients with PROC for SL-172154 in combination with PLD. The preliminary data suggest SL-172154 had an acceptable safety profile in combination with PLD.

• Data overview: As of the data cut-off date of October 31, 2023, 16 adult patients with PROC have been dosed in the ongoing Phase 1B clinical study, of which 11 patients were evaluable for response. Patients had a median of 1.5 prior lines of systemic therapy, 47% had bulky disease measuring >5 cm, 56% were pre-treated with bevacizumab and 88% were resistant to frontline platinum regimen.
• Preliminary anti-tumor activity: As of the data cut-off date of October 31, 2023, three partial responses (one confirmed, two unconfirmed) had been observed for SL-172154 in combination with PLD. As of November 9, 2023, both patients with unconfirmed partial responses remain on study and have not reached the date of confirmatory response assessment.
• Response rate benchmark for PLD: The patient population treated in this study to date is similar to the population enrolled in the Pfizer-sponsored JAVELIN Ovarian 200 clinical trial, wherein PLD monotherapy provided an overall response rate of 4%.
• Safety profile of SL-172154 plus PLD is consistent with the safety profile of the individual agents:
• As of the data cut-off date of October 31, 2023, among the 16 treated patients, the most common SL-172154-related adverse events were infusion related reaction, nausea, fatigue, headache and neutropenia, mostly in Grade 1-2. SL-172154-related adverse events in Grade 3 or 4 were observed in 6 patients: anemia (n=2), aspartate aminotransferase increased (n=2), neutropenia (n=2), alanine aminotransferase increased (n=1), embolism (n=1) and thrombocytopenia (n=1). SL-172154-related IRRs occurred in four patients but were manageable and did not prevent the completion of dosing or lead to discontinuation. There were no Grade 5 adverse events.
• The Phase 1B combination trial in PROC of SL-172154 in combination with PLD is using the 3 mg/kg dose of SL-172154.
• Next steps and anticipated milestones:
• Completion of planned enrollment of the Phase 1B dose-expansion cohort of SL-172154 in combination with PLD in PROC expected in the fourth quarter of 2023.

Overview of Operations

Since our inception in 2016, we have devoted substantially all of our resources to conducting research and development activities, including undertaking nonclinical studies of our product candidates, conducting clinical trials of our most advanced product candidates, manufacturing our product candidates, developing and perfecting our intellectual property rights, organizing and staffing our company, business planning and raising capital. We do not have any products approved for sale, and we have not generated any revenue from product sales. We have funded our operations as of the filing date of this Quarterly Report on Form 10-Q through the net proceeds from our initial public offering, or IPO, of approximately $213.5 million, the sale of redeemable convertible preferred stock for approximately $152.9 million, the issuance of convertible notes for approximately $10.5 million and payments received pursuant to our collaboration agreements for approximately $82.9 million.

For the nine months ended September 30, 2023 and 2022, our net loss was $69.6 million and $76.5 million, respectively. We have not been profitable since inception, and as of September 30, 2023, we had an accumulated deficit of $288.6 million and $101.1 million in cash and cash equivalents and investments. We expect to continue to incur significant expenses and operating losses in the near term in connection with our ongoing activities, as we:

• continue to advance the nonclinical and clinical development of our clinical-stage product candidate, SL-172154;
• initiate nonclinical studies and clinical trials for additional product candidates that we may identify in the future;
• manufacture sufficient quantities of bulk drug substance and drug product to support our ongoing and planned nonclinical studies and clinical trials;
• continue our process development efforts for our current and future product candidates;
• maintain our operational, financial, and management systems;
• retain key personnel and infrastructure to support our clinical development, research and manufacturing efforts;
• utilize our in-house process development and manufacturing capabilities;
• continue to develop, perfect, and defend our intellectual property portfolio; and
• incur additional legal, accounting, or other expenses in operating our business, including the additional costs associated with operating as a public company and expenses incurred in connection with ongoing and future litigation, if any.

We do not expect to generate significant product revenue unless and until we successfully complete development and obtain regulatory and marketing approval of, and begin to sell, one or more of our product candidates, if ever, which we expect will take several years. We expect to spend a significant amount in development and marketing costs prior to such time. We may never succeed in achieving regulatory and marketing approval for our product candidates. We may obtain unexpected results from our nonclinical studies and clinical trials. We may elect to discontinue, delay, or modify nonclinical studies and clinical trials of our product candidates. We may be adversely affected by inflationary pressures and the macroeconomic environment, which are beyond our control. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. Accordingly, until such time as we can generate significant product revenue, if ever, we expect to continue to seek private or public equity and debt financing, and/or additional collaborations with third-parties, to meet our capital requirements. There can be no assurance that such funding may be available to us on acceptable terms, or at all, or that we will be able to commercialize our product candidates. In addition, we may not be profitable even if we commercialize any of our product candidates.

Global Economic Considerations

In addition, the global macroeconomic environment is uncertain, and could be negatively affected by, among other things, increased U.S. trade tariffs and trade disputes with other countries, instability in the global capital and credit markets, supply chain weaknesses, instability in the geopolitical environment, including as a result of the Russian invasion of Ukraine and other political tensions, and lingering effects of the COVID-19 pandemic. Such challenges have caused, and may continue to cause, recession fears, rising interest rates, foreign exchange volatility and inflationary pressures. At this time, we are unable to quantify the potential effects of this economic instability on our future operations.

Components of our Results of Operation

Collaboration Revenue

We have no products approved for commercial sale, and we have not generated any revenue from commercial product sales. Our total revenue to date has been generated from our collaboration and research agreements with various third parties, including a clinical trial collaboration agreement with ImmunoGen, Inc., or ImmunoGen, under which we expect to recognize up to $2.0 million of revenue, beginning in 2023 and continuing into or through 2024.

We continue to explore other potential collaborations and expect that collaboration revenue we may generate, if any, will fluctuate from period to period.

Operating Expense

Research and Development Expense

Our research and development expenses consist primarily of costs incurred in connection with the discovery and development of our current and potential future product candidates. These expenses include:

• expenses incurred to conduct our nonclinical studies and clinical trials;
• costs of manufacturing nonclinical study and clinical trial materials, including the costs of raw materials required for manufacturing;
• process development activities to optimize manufacturing processes;
• employee-related expenses, including salaries, benefits, and stock-based compensation;
• laboratory materials and supplies used to support our research activities;
• fees paid to third parties who assist with research and development activities;
• expenses relating to regulatory activities, including filing fees paid to regulatory agencies; and
• allocated expenses for facility-related costs.

The following table summarizes our research and development expenses by product candidate:

(in thousands)

(unaudited)

(unaudited)

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials, including increased demand for clinical trial material. We expect to incur significant research and development expenses throughout 2023. While it is difficult for us to predict with certainty, we expect increasing year-over-year operating expense over the next several years in the event that we conduct additional nonclinical studies and clinical trials (beyond our currently planned clinical trials), including later-stage clinical trials, for our current and future product candidates, pursue regulatory approval of our product candidates, or advance our preclinical pipeline. In addition, we have several early-stage research and development initiatives, including, but not limited to, an anti-TNFRSF25 antibody, and the mRNA delivery of certain fusion proteins (for potential evaluation in oncology, autoimmune, or cardiometabolic indications.) Should any of these programs advance into clinical development, we expect our operating expense, and capital requirements, to increase.

The process of conducting the necessary nonclinical and clinical research to obtain regulatory approval is costly and time consuming. The actual probability of success for our product candidates may be affected by a variety of factors including:

• the safety and efficacy of our product candidates;
• early clinical data for our product candidates;
• investment in our clinical programs;
• competition;
• manufacturing capability; and
• commercial viability.

We may never succeed in achieving regulatory approval for any of our product candidates due to the uncertainties discussed above. We are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of our product candidates, if ever.

General and Administrative Expense

General and administrative expense consists primarily of personnel expenses, including salaries, benefits, and stock-based compensation expense, for employees and consultants in executive, finance, accounting, legal, information technology, business development and human resource functions. General and administrative expense also includes corporate facility costs, including rent, utilities, depreciation, and maintenance, not otherwise included in research and development expense, as well as legal fees related to intellectual property, corporate, and litigation matters and fees for accounting and tax services.

We expect that our general and administrative expense may increase in the future to support our ongoing research and development activities and as a result of the costs of operating as a public company. These increases may include increased costs related to the retention of personnel and fees paid to outside consultants, lawyers, and accountants, among other expenses. Additionally, we anticipate that we will continue to incur significant costs associated with being a public company, including expenses related to services associated with maintaining compliance with the requirements of Nasdaq and the Securities and Exchange Commission, or SEC, insurance, and investor relations costs. If any of our current or future product candidates advances to later-stage clinical development or obtains regulatory approval, we expect that we would incur significantly increased expenses associated with building the appropriate general and administrative support for our increased research and development activities, or building a sales and marketing team, respectively.

Other Income

Other income consists of interest earned on our cash, cash equivalents and investments, which consists of amounts held in a money market fund and at various times in government obligations as well as investment fees and realized gain or losses on investments (if any).

Income Taxes

Since our inception, we have not recorded any income tax benefits for the net operating losses, or NOLs, we have incurred or for our research and development tax credits, as we believe, based upon the weight of available evidence, that it is more likely than not that all of our NOLs and tax credits will not be realized. Our NOLs and tax credit carryforwards will begin to expire in 2024. We have recorded a full valuation allowance against our deferred tax assets at each balance sheet date.

Results of Operations

Comparison of the Three Months Ended September 30, 2023 and 2022

The following table sets forth our results of operations for the three months ended September 30, 2023 and 2022.

(in thousands)

(unaudited)

Collaboration Revenue

Collaboration revenue increased by $0.5 million, or 223.6%, to $0.7 million for the three months ended September 30, 2023 from $0.2 million for the three months ended September 30, 2022. The increase in revenue was primarily attributable to an increase in clinical activity associated with our clinical trial collaboration agreement with ImmunoGen.

Research and Development Expense

Research and development expenses increased by $5.3 million, or 28.4%, to $24.2 million for the three months ended September 30, 2023 from $18.9 million for the three months ended September 30, 2022. The increase in research and development cost was primarily a result of an increase in expense associated with supply chain and manufacturing activities, including the good manufacturing practice, or GMP, manufacture of clinical trial material of $3.7 million, an increase in clinical trial cost of $1.1 million as a result of increased activity in our ongoing clinical trials for SL-172154 and an increase in costs related to our pipeline candidates of $0.3 million.

General and Administrative Expense

General and administrative expenses decreased by $1.5 million, or (22.9)%, to $5.1 million the three months ended September 30, 2023 from $6.6 million for the three months ended September 30, 2022. The decrease was primarily related to recognition of the litigation settlement of $1.4 million in the third quarter of 2022.

Results of Operations

Comparison of the Nine Months Ended September 30, 2023 and 2022

The following table sets forth our results of operations for the nine months ended September 30, 2023 and 2022.

(in thousands)

(unaudited)

Collaboration Revenue

Collaboration revenue increased by $0.7 million, or 259.9%, to $0.9 million for the nine months ended September 30, 2023 from $0.3 for the nine months ended September 30, 2022. The increase in revenue was attributable to an increase in clinical activity associated with our clinical trial collaboration agreement with ImmunoGen.

Research and Development Expense

Research and development expenses decreased by $1.9 million, or (3.2)%, to $59.1 million for the nine months ended September 30, 2023 from $61.0 million for the nine months ended September 30, 2022. The decrease in research and development cost was primarily a result of a decrease in the GMP manufacture of clinical trial material of $8.7 million and a decrease in materials consumed in our lab of $0.5 million, offset by increases in costs associated with the conduct of clinical trials for SL-172154 of $3.8 million, employee compensation and benefits of $1.5 million, costs related to other pipeline candidates of $1.2 million, and an increase in depreciation of fixed assets of $1.0 million related to the expansion of our in-house manufacturing and development capabilities

General and Administrative Expense

General and administrative expenses decreased $1.4 million, or (8.8)% to $14.9 million for the nine months ended September 30, 2023 from $16.3 million for the nine months ended September 30, 2022. The decrease was a result of recognizing the litigation settlement of $1.4 million during the nine months ended September 30, 2022.

Liquidity and Capital Resources

Since our inception, our primary sources of liquidity have been generated by sales of our preferred stock and common stock, including our IPO, and through our collaboration and research agreements with various third parties.

In July 2022, we entered into a sales agreement, or the Sales Agreement, with Leerink Partners LLC (formerly known as SVB Securities LLC), or the Sales Agent, pursuant to which we may offer and sell up to $75.0 million of shares of our common stock from time to time in the at-the-market facility, or ATM Facility. The Sales Agent is generally entitled to compensation at a commission equal to 3.0% of the aggregate gross sales price per share sold under the Sales Agreement. As of September 30, 2023, there were no sales pursuant to the ATM Facility.

Capital Resources and Funding Requirements

Our primary uses of cash and cash equivalents and investments are to fund our operations, which consist primarily of research and development expenditures related to our programs, product development costs, research expenses, administrative support, capital expenditures related to bringing in-house certain process development and manufacturing capabilities and working capital requirements. We anticipate incurring additional net losses and negative cash flows from operations in the near future until such time, if ever, that we can generate significant sales of our product candidates currently in development. Our future funding requirements will depend on many factors, including:

• the scope, timing, progress and results of discovery, nonclinical development, laboratory testing, and clinical trials for our product candidates;
• the costs of process development and scale up of a commercially ready manufacturing process to support registrational clinical trials;
• the costs of manufacturing our product candidates for clinical trials and in preparation for marketing approval and commercialization;
• the extent to which we enter into collaborations or other arrangements with additional third parties in order to further develop our product candidates;
• the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending other intellectual property-related claims;
• the costs and fees associated with the discovery, acquisition or in-license of additional product candidates or technologies;
• the costs of future commercialization activities, if any, including establishing sales, marketing, manufacturing, distribution and storage capabilities, for any of our product candidates for which we receive marketing approval; and
• revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval.

Until we obtain regulatory approval to market our product candidates, if ever, we cannot generate revenues from sales of our products. Even if we are able to sell our products, we may not generate a sufficient amount of product revenues to finance our cash requirements. Accordingly, it will be necessary for us to seek to raise additional capital through equity offerings and/or debt financings or from other potential sources of liquidity, which may include new collaborations, licensing or other commercial agreements for one or more of our development programs or patent portfolios. There can be no assurance that such funding may be available to us on acceptable terms, or at all. The issuance of equity securities may result in dilution to stockholders and the issuance of debt securities may have rights, preferences and privileges senior to those of our common stock and the terms of any such debt securities could impose significant restrictions on our operations. The failure to raise funds as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. Additionally, if additional funding is not secured when required, we may need to delay or curtail our operations until such funding is received, which would have a material and adverse impact on our business prospects and results of operations.

We believe that our cash and cash equivalents and investments as of September 30, 2023 are sufficient to fund projected operations through year-end 2024.

Cash Flows

The following table shows a summary of our cash flows for the periods indicated:

(in thousands)

(unaudited)

Net Cash Used in Operating Activities

During the nine months ended September 30, 2023, net cash used in operating activities was $61.8 million and primarily reflected our net loss of $69.6 million and noncash charges of $5.3 million in stock-based compensation and $2.3 million in depreciation expense, accretion of investments and non-cash operating lease expense. We expect to continue to use cash in our operating activities as we conduct our clinical trials and nonclinical studies, incur costs of manufacturing clinical trial and nonclinical study materials and continue process development activities to optimize our manufacturing processes.

During the nine months ended September 30, 2022, net cash used in operating activities was $70.7 million and primarily reflected our net loss of $76.5 million and a $3.5 million net change in our operating assets and liabilities, offset by noncash charges of $4.8 million in stock-based compensation, $3.7 million in depreciation expense, amortization of investments and non-cash operating lease expense and $0.8 million in impairment loss.

Net Cash Provided by Investing Activities

During the nine months ended September 30, 2023, net cash provided by investing activities was $55.0 million, of which $55.4 million represents the net change in investments and $0.4 million was used to purchase property and equipment.

During the nine months ended September 30, 2022, net cash used in investing activities was $18.0 million, of which $28.9 million represents the net change in investments and $10.9 million was used to purchase property and equipment, primarily attributable to our continued efforts to bring in-house certain process development, manufacturing and laboratory capabilities.

Net Cash Provided by Financing Activities

During the nine months ended September 30, 2023, net cash provided by financing activities was $0.1 million and was primarily from the exercise of stock options and purchases pursuant to our employee stock purchase plan.

During the nine months ended September 30, 2022, net cash provided by financing activities was $0.2 million and was primarily from the exercise of stock options and purchases pursuant to our employee stock purchase plan.

Contractual Obligations and Other Commitments

See Note 5 to our financial statements found elsewhere in this Quarterly Report on Form 10-Q for additional disclosures. There have been no other material changes from the Contractual Obligations and Other Commitments disclosed in Note 6 and 7 of our Annual Report on Form 10-K for the year ended December 31, 2022.

Critical Accounting Policies

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 with accounting principles generally accepted in

the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, the accrual for research and development expenses, and the valuation of stock-based awards. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be 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. Actual results may differ from these estimates under different assumptions or conditions.

Our critical accounting policies are those policies which require the most significant judgments and estimates in the preparation of our financial statements. We believe that the assumptions and estimates associated with our most critical accounting policies are those relating to revenue, accrued research and development costs and stock-based compensation.

There have been no material changes in our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Recent Accounting Pronouncements

See Note 2 to our financial statements found elsewhere in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.

Emerging Growth Company and Smaller Reporting Company Status

We are an emerging growth company as defined in the JOBS Act. Under the JOBS Act, an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards and delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this exemption from complying with new or revised accounting standards and, therefore, will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

We have evaluated the benefits of relying on other exemptions and reduced reporting requirements under the JOBS Act. Subject to certain conditions, as an emerging growth company, we may rely on certain of these exemptions, including without limitation exemptions to the requirements for (1) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (2) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an emerging growth company until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the completion of our IPO, (ii) in which we have total annual gross revenues of at least $1.235 billion or (iii) in which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the prior June 30th, or (b) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

We are also a “smaller reporting company” as defined under the Securities and Exchange Act of 1934, as amended, or the Exchange Act. 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 $250.0 million or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700.0 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

We are a smaller reporting company, as defined by Rule 12b-2 under the Exchange Act and in Item 10(f)(1) of Regulation S-K, and are not required to provide the information under this item.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures. Based on this evaluation of our disclosure controls and procedures as of September 30, 2023, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the third quarter of the year ending December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our business is subject to various risks, including those described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes from the risk factors disclosed in Item 1A of our Annual Report on Form 10-K.