SENSEI BIOTHERAPEUTICS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

Certain statements contained in this Quarterly Report on Form 10-Q may
constitute forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The words and phrases “designed to,” “may,” “might,”
“can,” “will,” “to be,” “could,” “would,” “should,” “expect,” “intend,” “plan,”
“objective,” “anticipate,” “believe,” “estimate,” “predict,” “project,”
“potential,” “likely,” “continue,” “ongoing” or similar expressions, or the
negative of such words, are intended to identify “forward-looking statements.”
We have based these forward-looking statements on our current expectations and
projections about future events. Because such statements include risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause or
contribute to these differences include those below in this Quarterly Report
under the caption “Risk Factors,” and in our other filings with the Securities
and Exchange Commission
, or SEC. Statements made herein are as of the date of
the filing of this Form 10-Q with the SEC and should not be relied upon as of
any subsequent date. Unless otherwise required by applicable law, we do not
undertake, and we specifically disclaim, any obligation to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or circumstances after the date of such statement.

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed
consolidated financial statements and related notes that appear in Item 1 of
this Quarterly Report on Form 10-Q and with our audited consolidated financial
statements and related notes for the year ended December 31, 2021, which are
included in our Annual Report on Form 10-K filed with the SEC on March 15, 2022.

Overview

We are an immuno-oncology company focused on the discovery and development of
next-generation therapeutics for cancer patients. Through our TMAb™ (Tumor
Microenvironment Activated Biologics) platform, we are developing highly
selective therapeutics designed to disable checkpoints and other
immunosuppressive signals selectively in the tumor microenvironment to unleash T
cells against tumors. Our strategy is to generate novel product candidates that
incorporate next-generation technologies or approaches using our robust set of
R&D capabilities. We plan to efficiently develop these product candidates by
incorporating state-of-the-art biomarker approaches and mechanistic
understanding into clinical trial designs targeted to well-defined patient
populations.

Our Pipeline

We currently have three investigational products in various stages of
development:

SNS-101 is our conditionally active monoclonal antibody targeting the immune
checkpoint VISTA (V-domain Ig suppressor of T cell activation) and is currently
in IND-enabling studies.


o

We expect to submit an IND in the first half of 2023 for a Phase 1/2 clinical
trial. Subject to regulatory clearance, the Company is planning a first-in-human
Phase 1/2 open-label, multi-center, dose escalation and expansion study to
evaluate the safety, tolerability, pharmacokinetics, pharmacodynamics and
efficacy of SNS-101 as monotherapy and/or in combination with PD-1 blockade in
patients with advanced solid tumors.


o

We expect the primary objectives for the Phase 1 portion of the clinical trial
will be to evaluate safety and tolerability and determine the maximum tolerated
dose and recommended monotherapy and combination dose for the Phase 2 portion of
the trial. Secondary objectives are expected to include determination of the
pharmacokinetic profile of SNS-101, immunogenicity and preliminary evidence of
anti-tumor activity as monotherapy and in combination with PD-1 blockade. As
exploratory endpoints we plan to assess biomarkers of SNS-101, which may include
serum cytokine/chemokine analysis; blood cell phenotyping; and tumor and blood
sequencing/phenotyping.


o

For the Phase 2 portion of the clinical trial, in addition to continuing to
evaluate the safety and efficacy of SNS-101 as monotherapy and in combination
with PD-1 blockade, we plan to evaluate exploratory endpoints such as multiplex
immunohistochemistry; circulating tumor DNA; tumor and blood cell sequencing
(RNA and DNA); and single-cell RNA sequencing.


o

We hypothesize that SNS-101, either alone or in combination, may yield clinical
benefit in at least three settings where significant unmet medical need
persists: (1) improving responses in patients who will be treated with PD-1
blockade therapy; (2) improving responses in patients who have received PD-1
blockade therapy, but who have experienced disease progression; and (3) tumor
types which are inflamed but where PD-1 blockade monotherapy is largely
ineffective, such as micro satellite stable colorectal cancer.

SNS-102 is our conditionally active monoclonal antibody targeting VSIG4 (V-Set
and Immunoglobulin Domain Containing 4), an immune checkpoint often expressed on
macrophages. We have identified eight parental pH-sensitive


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VSIG4 antibodies, and a lead antibody set is currently undergoing further
optimization. We expect to select a product candidate in 2023.

SNS-103 is our conditionally active monoclonal antibody targeting ENTPDase1
(ecto-nucleoside triphosphate diphosphohydrolase-1), also known as CD39. We
began screening the first set of parental antibodies in September 2022 and
expect to select a product candidate in 2023.

Upon successful candidate selection, we expect to initiate IND-enabling studies
for at least one product candidate in 2023.

In November 2022, we announced the suspension of development efforts related to
our ImmunoPhageTM platform, including our product candidate SNS-401-NG which we
had been developing initially for the treatment of Merkel cell carcinoma. We no
longer plan to develop any product candidates using our ImmunoPhage platform,
and instead expect to focus all our resources and efforts on our TMAb platform.

We do not have any product candidates approved for sale, have not generated any
revenue from product sales, and do not expect to generate any revenue from
product sales for at least the next several years. We have largely funded our
operations with proceeds from the sale of convertible preferred stock, common
stock and convertible debt. Through the date of this report, we have raised an
aggregate of $123.4 million of gross proceeds from private placements of our
equity and convertible debt securities and net proceeds of $138.5 million from
our initial public offering, or IPO, in February 2021.

We have incurred significant operating losses over the last several years. Our
net loss was $36.4 million and $27.4 million for the nine months ended September
30, 2022
and 2021, respectively. As of September 30, 2022, we had an accumulated
deficit of $185.6 million. We expect to continue to incur significant expenses
and operating losses for the foreseeable future. We anticipate that our expenses
will increase significantly in connection with our ongoing activities, as we:

prepare to submit INDs and then initiate clinical development of product
candidates, including SNS-101;

continue the research and development of our other product candidates;

invest in our TMAb platform;

seek to discover and develop additional product candidates or acquire or
in-license drugs, product candidates or technologies;

seek regulatory approvals for any product candidates that successfully complete
clinical trials;

ultimately establish a sales, marketing and distribution infrastructure and
scale up manufacturing capabilities to commercialize any product candidates for
which we may obtain regulatory approval;

manufacture our product candidates or otherwise secure the clinical and
commercial supply of our product candidates;

hire additional research and development and selling, general and administrative
personnel;

maintain, expand and protect our intellectual property portfolio; and

incur additional costs associated with operating as a public company.

Cash used to fund operating expenses is impacted by the timing of when we pay
these expenses, as reflected in the change in our accounts payable and accrued
expenses. We expect to continue to incur net losses and negative cash flows for
the foreseeable future, and we expect our research and development expenses,
general and administrative expenses, and capital expenditures will continue to
increase. In particular, we expect our expenses to increase as we continue our
development of, and seek regulatory approvals for, our product candidates, as
well as hire additional personnel, pay fees to outside consultants, lawyers and
accountants, and incur other increased costs associated with being a public
company. In addition, if we seek and obtain regulatory approval to commercialize
any product candidate, we will also incur increased expenses in connection with
commercialization and marketing of any such product.

Impact of COVID-19

The length of time and full extent to which the COVID-19 pandemic will directly
or indirectly impact our business, results of operations and financial condition
will depend on future developments that are highly uncertain, subject to change
and are difficult to predict. While we continue to conduct our research and
development activities, the COVID-19 pandemic may cause disruptions that impact
the timing of our planned clinical and preclinical studies and ongoing
preclinical studies.

In addition, a further recurrence of COVID-19 cases could cause other widespread
or more severe impacts depending on where infection rates are highest. We plan
to continue to closely monitor the ongoing impact of the COVID-19 pandemic on
our employees and our business operations, and will take actions as may be
required or recommended by government authorities or as we determine that which
is in the best interests of our employees and other business partners in light
of the pandemic. To date, there has not been a


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significant impact on our product candidate development; however we cannot at
this time predict the specific extent, duration, or full impact that the
COVID-19 pandemic could potentially have on our ongoing business plan, financial
condition and operations.

Components of Our Results of Operations

Operating Expenses

Research and Development Expense

Our research and development expense consists of expenses incurred in connection
with the discovery and development of our product candidates. These expenses
include:

expenses incurred under agreements with contract research organizations, or
CROs, as well as investigative sites and consultants that conduct our
preclinical studies and clinical trials;

the cost of manufacturing our product candidates including the potential cost of
contract manufacturing organizations, or CMOs, that manufacture product for use
in our preclinical studies and planned clinical trials and perform analytical
testing, scale-up and other services in connection with our development
activities;

the cost of outsourced professional scientific development services;

employee-related expenses, including salaries, benefits and stock-based
compensation for employees engaged in the research and development function;

expenses relating to regulatory activities, including filing fees paid to
regulatory agencies;

fees for maintaining licenses and other amounts due under our third party
licensing agreements;

laboratory materials and supplies used to support our research activities; and

allocated expenses for utilities and other facility-related costs.

We expense all research and development costs in the periods in which they are
incurred. Costs for certain research and development activities are recognized
based on an evaluation of the progress to completion of specific tasks using
information and data provided to us by our vendors and third-party service
providers.

Our direct external research and development expenses consist primarily of
external costs, such as fees paid to CROs, CMOs, research/testing laboratories
and outside consultants in connection with our preclinical development, process
development, manufacturing and clinical development activities. We do not
allocate these costs to specific product candidates because many of them are
deployed across several of our development programs and, as such, are not
separately classified. We use internal resources primarily to conduct research
and manage our preclinical development, outsourced clinical trials, process
development, manufacturing and clinical development activities. These employees
work across multiple development programs and, therefore, we do not track their
costs by program and, as such, are not separately classified. 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. We expect our
research and development expenses to increase significantly over the next
several years as we increase personnel costs, including stock-based
compensation, conduct our preclinical studies and planned clinical trials, and
prepare regulatory filings for our product candidates.

The successful development of our product candidates is highly uncertain. At
this time, we cannot reasonably estimate or know the nature, timing and costs of
the efforts that will be necessary to complete the remainder of the development
of, or when, if ever, material net cash inflows may commence from any of our
other product candidates. This uncertainty is due to the numerous risks and
uncertainties associated with the duration and cost of clinical trials, which
vary significantly over the life of a project as a result of many factors,
including:

the scope, progress, outcome and costs of our preclinical studies, our current
product candidates and any other product candidates we may acquire or develop;

manufacturing of our product candidates or making arrangements with potential
third-party manufacturers for both clinical and commercial supplies of these
product candidates;

successful patient enrollment in, and the initiation, duration and completion of
clinical trials;


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the cost of gaining regulatory approvals for our product candidates, subject to
the successful outcome of ongoing and future clinical trials; and

the extent of any required post-marketing approval commitments to applicable
regulatory authorities.

Our expenditures are subject to additional uncertainties, including the terms
and timing of regulatory approvals, and the expense of filing, prosecuting,
defending and enforcing any patent claims or other intellectual property rights.
We may never succeed in achieving regulatory approval for any of our product
candidates. We may obtain unexpected results from our planned clinical trials.
We may elect to discontinue, delay or modify clinical trials of some product
candidates or focus on others. 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. For example, if the FDA or other regulatory authorities were to
require us to conduct clinical trials beyond those that we currently anticipate,
or if we experience significant delays in enrollment in any of our planned
clinical trials, we could be required to expend significant additional financial
resources and time on the completion of clinical development. Product
commercialization will take several years and significant additional development
costs.

General and Administrative Expense

General and administrative expenses consist principally of salaries and related
costs for personnel in executive, administrative, finance and legal functions,
including stock-based compensation, travel expenses and recruiting expenses.
Other general and administrative expenses include facility related costs, patent
filing and prosecution costs and professional fees for legal, auditing and tax
services, and insurance costs.

We anticipate that our general and administrative expenses will increase as a
result of increased payroll, expanded infrastructure and higher consulting,
legal and tax-related services associated with maintaining compliance with
Nasdaq listing and SEC requirements, accounting and investor relations costs,
and director and officer insurance premiums associated with being a public
company.

Other Income (Expense)

Our other income (expense) consists of realized gain or loss on short-term
investments, gain on debt extinguishments, accretion expense on short-term
investments and interest expense.

Income Taxes

Since our inception, we have not recorded any income tax benefits for the net
losses we have incurred or for the research and development tax credits earned
in each year, as we believe, based upon the weight of available evidence, that
it is more likely than not that all of our net operating loss carryforwards and
tax credit carryforwards will not be realized.

Results of Operations

Comparison of the Three Months Ended September 30, 2022 and 2021

The following sets forth our results of operations for the three months ended
September 30, 2022 and 2021:


                                Three Months Ended September 30,
(in thousands)                     2022                   2021            Change
Operating expenses:
Research and development     $          9,190       $          6,443     $  2,747
General and administrative              4,751                  3,873          878
Total operating expenses               13,941                 10,316        3,625
Loss from operations                  (13,941 )              (10,316 )     (3,625 )
Total other income                        525                    631         (106 )
Net loss                     $        (13,416 )     $         (9,685 )   $ (3,731 )

Research and Development Expenses

Research and development expenses were $9.2 million for the three months ended
September 30, 2022, compared to $6.4 million for the three months ended
September 30, 2021. The increase of $2.7 million was primarily attributable to
$2.1 million of increased expenses relating to manufacturing contracts, $1.2
million
of higher preclinical contract research and $0.5 million related to
higher external research fees, partially offset by a $0.8 million lower expense
associated with clinical trials, $0.1 million decrease in


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lab supply purchases and equipment, $0.1 million in lower personnel cost,
including stock-based compensation and incentives, to support our research,
development and manufacturing activities, and $0.1 million less expense for
licensing agreements.

General and Administrative Expenses

General and administrative expenses were $4.8 million for the three months ended
September 30, 2022, compared to $3.9 million for the three months ended
September 30, 2021. The increase of $0.9 million was primarily attributable to
$0.5 million relating to higher external professional fees, $0.1 million of
increased personnel cost, including stock-based compensation and incentives and
$0.1 million higher franchise, net worth, and other non-income tax expense.

Other Income

Other income was $0.5 million for the three months ended September 30, 2022,
compared to other income of $0.6 million for the three months ended September
30, 2021
. The other income decrease of $0.1 million was primarily attributable
to a $0.6 million gain on debt extinguishment relating to the Small Business
Administration
, or SBA, approving the forgiveness for the full amount of the
Paycheck Protection Program loan, or PPP Loan, in 2021, primarily offset by $0.5
million
of higher investment related interest income in 2022.

Comparison of the Nine Months Ended September 30, 2022 and 2021

The following sets forth our results of operations for the nine months ended
September 30, 2022 and 2021:

                                 Nine Months Ended September 30,
(in thousands)                     2022                   2021            Change
Operating expenses:
Research and development     $         23,038       $         15,706     $  7,332
General and administrative             14,102                 12,363        1,739
Total operating expenses               37,140                 28,069        9,071
Loss from operations                  (37,140 )              (28,069 )     (9,071 )
Total other income                        784                    641          143
Net loss                     $        (36,356 )     $        (27,428 )   $ (8,928 )

Research and Development Expenses

Research and development expenses were $23.0 million for the nine months ended
September 30, 2022, compared to $15.7 million for the nine months ended
September 30, 2021. The increase of $7.3 million was primarily attributable to
$4.4 million of increased expenses relating to manufacturing contracts, $1.6
million
of higher preclinical contract research, $1.4 million more expense
relating to lab supplies and equipment purchases, $1.3 million of increased
personnel cost, including stock-based compensation and incentives, to support
our research, development and manufacturing activities, $0.9 million of
increased external research fees and $0.3 million of higher facilities expense
and equipment, partially offset by $1.6 million less expense associated with
clinical trials, $0.9 million of lower consulting fees and $0.2 million less
expense for licensing agreements.

General and Administrative Expenses

General and administrative expenses were $14.1 million for the nine months ended
September 30, 2022, compared to $12.4 million for the nine months ended
September 30, 2021. The increase of $1.7 million was primarily attributable to
$0.7 million of higher franchise, net worth, and other non-income tax expense,
$0.3 million of increased directors and officers insurance costs, $0.3 million
of higher facilities expense, $0.3 million of increased external professional
fees, $0.2 million increase relating to board fees and $0.1 million of increased
personnel cost, including stock-based compensation.

Other Income

Other income was $0.8 million for the nine months ended September 30, 2022,
compared to other income of $0.6 million for the nine months ended September 30,
2021
. The other income increase of $0.1 million was primarily attributable to
$0.8 million of higher investment related interest income, primarily offset by
$0.6 million gain on debt extinguishment relating to the SBA approving the
forgiveness for the full amount of the PPP Loan in 2021 and $0.1 million of
higher interest expense for finance leases.

Liquidity and Capital Resources


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Sources of Liquidity

We have not generated any product revenue and have incurred net losses and
negative cash flows from our operations. We have financed our operations through
sales of our common stock, convertible preferred stock and convertible debt.
Through the date of this report, we have raised an aggregate of $123.4 million
of gross proceeds from private placements of our equity and convertible debt
securities and net proceeds of $138.5 million from our IPO in February 2021. Our
net loss was $36.4 million and $27.4 million for the nine months ended September
30, 2022
and 2021, respectively. As of September 30, 2022, we had an accumulated
deficit of $185.6 million. Our primary use of cash is to fund operating
expenses, which consist primarily of research and development expenditures, and
to a lesser extent, general and administrative expenditures.

As of September 30, 2022, we had cash, cash equivalents and marketable
securities of $116.6 million. From December 2020 to January 2021, we issued and
sold 165,956,208 shares of Series BB convertible preferred stock to a group of
investors, in exchange for $34.4 million of new gross proceeds, of which
approximately $23.5 million was received in January 2021. In February 2021, we
issued an aggregate of 8,030,295 shares of common stock in our IPO at a price to
the public of $19.00 per share, for aggregate gross proceeds of $152.6 million.
We paid underwriting discounts and commissions of $10.7 million, and we also
incurred expenses of $3.4 million in connection with the offering. As a result,
the net offering proceeds to us, after deducting underwriting discounts and
commissions and offering expenses, were $138.5 million.

Cash Flows

The following table summarizes our sources and uses of cash for each of the
periods below:


                                                            Nine Months Ended September 30,
(in thousands)                                               2022                   2021
Net cash used in operating activities                   $       (29,452 )     $         (22,391 )
Net cash provided by (used in) investing activities              33,906                (148,730 )
Net cash (used in) provided by financing activities                (163 )               164,058

Net increase (decrease) in cash and cash equivalents $ 4,291 $ (7,063 )




Operating Activities

During the nine months ended September 30, 2022, our operating activities used
$29.5 million of cash, primarily resulting from our $36.4 million net loss
partially offset by increases in non-cash charges of $6.6 million, primarily
related to $4.4 million of stock compensation expense and $0.9 million of
non-cash lease expense, and a $0.4 million increase in our operating assets and
liabilities. During the nine months ended September 30, 2021, our operating
activities used $22.4 million of cash, primarily resulting from our $27.4
million
net loss, partially offset by increases in non-cash charges of $5.0
million
primarily related to stock compensation expense of $4.8 million.

Investing Activities

During the nine months ended September 30, 2022, net cash provided by investing
activities was $33.9 million, primarily due to $99.2 million in sales and
maturities of short-term investments, partially offset by $65 million in
purchases of short-term investments and $0.3 million in purchases of property
and equipment. During the nine months ended September 30, 2021, net cash used in
investing activities was $148.7 million primarily related to $173.8 million for
purchases of short-term investments using the net proceeds of our IPO and Series
AA and Series BB convertible preferred stock financings and $1.5 million for
purchases of property and equipment, partially offset by $26.3 million in sales
and maturities of short-term investments and $0.3 million from proceeds of
property and equipment disposals.

Financing Activities

During the nine months ended September 30, 2022, net cash used in financing
activities was $0.2 million, primarily from $0.5 million of principal payments
under our financing leases, offset by $0.2 million of proceeds from the exercise
of stock options and $0.1 million relating to ESPP purchases. During the nine
months ended September 30, 2021, net cash provided by financing activities was
$164.1 million, primarily from the net proceeds from the issuance of common
stock as part of our IPO of $140.6 million, as well as proceeds from the
issuance of Series BB convertible preferred stock prior to the initial public
offering of $23.5 million.


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Material Cash Requirements

Our material cash requirements will have an impact on our future liquidity. Our
material cash requirements represent material expected or contractually
committed future payment obligations. We believe that we will be able to fund
these obligations through cash from our existing balances of cash, cash
equivalents and marketable securities.

Operating Leases

We have operating lease arrangements for our corporate offices, lab facilities
and an executive residence. As part of its adoption of ASC 842, we recorded
operating right-of-use assets and operating lease liabilities for these leases
as of January 1, 2022. As of September 30, 2022, we had operating lease payment
obligations of $6.8 million, with $0.4 million payable for the remainder of
2022. See Note 7 in our condensed consolidated financial statements included
elsewhere in this Form 10-Q for additional information.

Finance Leases

We lease research equipment, furniture and a vehicle under finance leases. As
part of its adoption of ASC 842, we recorded financing right-of-use assets and
financing lease liabilities for these leases as of January 1, 2022. As of
September 30, 2022, we had finance lease payment obligations of $2.6 million,
with $0.2 million payable for the remainder of 2022. See Note 7 in our financial
statements included elsewhere in this Form 10-Q for additional information.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities,
particularly as we continue the research and development of, or initiate
clinical trials of, and potentially seek marketing approval for, our product
candidates. In addition, we expect to continue to incur significant costs
associated with operating as a newly public company, including significant
legal, accounting, investor relations and other expenses that we did not incur
as a private company. The timing and amount of our operating expenditures will
depend largely on:

the initiation, progress, timing, costs and results of current and future
preclinical studies and clinical trials for our current and future product
candidates;

the cost and timing of the manufacture of additional clinical trial material as
well as any costs related to the scale-up of manufacturing activities;

the costs to seek regulatory approvals for any product candidates that
successfully complete clinical trials;

the extent to which we or any third-party service providers on whom we rely
experience delays or interruptions to preclinical studies and clinical trials,
or to our supply chain due to the COVID-19 pandemic;

the need to hire additional clinical, quality assurance, quality control and
other scientific personnel;

the number and characteristics of product candidates that we develop or may
in-license;

the outcome, timing and cost of meeting and maintaining compliance with
regulatory requirements;

the cost of filing, prosecuting, defending and enforcing our patent claims and
other intellectual property rights;

the terms of any collaboration agreements we may choose to enter into, including
the achievement of milestones or occurrence of other developments that trigger
payments under any license or collaboration agreements we might have at such
time;

the cost associated with the expansion of our operational, financial and
management systems and increased personnel, including personnel to support our
operations as a public company; and

the cost of establishing sales, marketing and distribution capabilities for any
product candidates for which we may receive regulatory approval in regions where
we choose to commercialize our products, if approved, on our own.

We expect our existing cash and cash equivalents will enable us to fund our
operating expenses and capital expenditure requirements at least into the first
quarter of 2025. We have based this estimate on assumptions that may prove to be
wrong, and we may use our available capital resources sooner than we currently
expect. Our future capital requirements will depend on many factors, including:

the scope, progress, results and costs of product discovery, preclinical studies
and clinical trials;

the scope, prioritization and number of our research and development programs;


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

our ability to establish and maintain collaborations on favorable terms, if at
all;

the extent to which we are obligated to reimburse, or entitled to reimbursement
of, clinical trial costs under collaboration agreements, if any;

the costs of preparing, filing and prosecuting patent applications, maintaining
and enforcing our intellectual property rights and defending intellectual
property-related claims;

the extent to which we acquire or in-license other product candidates and
technologies;

the costs of securing manufacturing arrangements for commercial production;

the costs of establishing or contracting for sales and marketing capabilities if
we obtain regulatory approvals to market our product candidates; and

the impact of the COVID-19 pandemic and the corresponding responses of
businesses and governments.

Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our operations through a combination of equity offerings, debt
financings, collaborations, strategic alliances and marketing, distribution or
licensing arrangements. We do not currently have any committed external source
of funds. To the extent that we raise additional capital through the sale of
equity or convertible debt securities, your ownership interest may be materially
diluted, and the terms of such securities could include liquidation or other
preferences that adversely affect your rights as a common stockholder. Debt
financing and preferred equity financing, if available, may involve agreements
that include restrictive covenants limiting or restricting our ability to take
specific actions, such as incurring additional debt, making capital expenditures
or declaring dividends. In addition, debt financing would result in fixed
payment obligations.

If we raise additional funds through collaborations, strategic alliances or
marketing, distribution or licensing arrangements with third parties, we may
have to relinquish valuable rights to our future revenue streams, research
programs or product candidates or grant licenses on terms that may not be
favorable to us. If we are unable to raise additional funds through equity or
debt financings or other arrangements when needed, we may be required to delay,
limit, reduce or terminate our research, product development or future
commercialization efforts or grant rights to develop and market product
candidates that we would otherwise prefer to develop and market ourselves.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
U.S. Securities and Exchange Commission.

Critical Accounting Policies and Significant Judgements and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of
Operations is based on our financial statements, which are prepared in
accordance with US GAAP. The preparation of our financial statements requires us
to make estimates, assumptions and judgments that affect the reported amounts of
assets, liabilities, costs and expenses. We base our estimates and assumptions
on historical experience and other factors that we believe to be reasonable
under the circumstances. We evaluate our estimates and assumptions on an ongoing
basis. Our actual results may differ from these estimates.

We define our critical accounting policies as those accounting principles that
require us to make subjective estimates and judgments about matters that are
uncertain and are likely to have a material impact on our financial condition
and results of operations, as well as the specific manner in which we apply
those principles. During the nine months ended September 30, 2022, there were no
significant changes to our critical accounting policies disclosed in our audited
financial statements for the year ended December 31, 2021, which are included in
our Annual Report on Form 10-K, as filed with the SEC on March 15, 2022.

Recent Accounting Pronouncements

See Note 2 in our condensed consolidated financial statements included elsewhere
in this Form 10-Q for a description of recent accounting pronouncements
applicable to our financial statements. Other than as disclosed in our financial
statements, we do not expect that any recently issued accounting standards will
have a material impact on our financial statements or will otherwise apply to
our operations.


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Emerging Growth Company and Smaller Reporting Company Status

We qualify as an EGC, as defined in the JOBS Act. As an EGC, we may take
advantage of specified reduced disclosure and other requirements that are
otherwise applicable generally to public companies, including reduced disclosure
about our executive compensation arrangements, exemption from the requirements
to hold non-binding advisory votes on executive compensation and golden
parachute payments and exemption from the auditor attestation requirement in the
assessment of our internal control over financial reporting.

We may take advantage of these exemptions until the last day of the fiscal year
following the fifth anniversary of our initial public offering or such earlier
time that we are no longer an emerging growth company. We would cease to be an
EGC earlier if we have more than $1.235 billion in annual revenue, we have more
than $700.0 million in market value of our stock held by non-affiliates (and we
have been a public company for at least 12 months and have filed one annual
report on Form 10-K) or we issue more than $1.0 billion of non-convertible debt
securities over a three-year period. For so long as we remain an EGC, we are
permitted, and intend, to rely on exemptions from certain disclosure
requirements that are applicable to other public companies that are not EGCs. We
may choose to take advantage of some, but not all, of the available exemptions.

In addition, the JOBS Act provides that an EGC can take advantage of an extended
transition period for complying with new or revised accounting standards. This
allows an EGC to delay the adoption of certain accounting standards until those
standards would otherwise apply to private companies. We have elected not to
“opt out” of such extended transition period, which means that when a standard
is issued or revised and it has different application dates for public or
private companies, we will adopt the new or revised standard at the time private
companies adopt the new or revised standard and will do so until such time that
we either (i) irrevocably elect to “opt out” of such extended transition period
or (ii) no longer qualify as an EGC. Therefore, the reported results of
operations contained in our consolidated financial statements may not be
directly comparable to those of other public companies.

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 is 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 EGC, 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
EGCs, smaller reporting companies have reduced disclosure obligations regarding
executive compensation.


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