VAXCYTE, INC. Discussion and analysis of management’s financial situation and results of operations. (Form 10-Q)

VAXCYTE, INC.  Discussion and analysis of management’s financial situation and results of operations.  (Form 10-Q)
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our condensed financial statements
and related notes and other financial information included elsewhere in this
Quarterly Report on Form 10-Q and our audited financial statements and notes
thereto for the year ended December 31, 2021 filed with the Securities and
Exchange Commission, or the SEC, on February 28, 2022. This discussion and
analysis contains forward-looking statements based upon our current beliefs,
plans and expectations that involve risks, uncertainties and assumptions, such
as statements regarding our plans, objectives, expectations, intentions and
beliefs. Our actual results and the timing of events could differ materially
from those anticipated in these forward-looking statements as a result of
various factors, including those set forth under the section titled "Risk
Factors" and elsewhere in this Quarterly Report on Form 10-Q. You should
carefully read the "Risk Factors" section of this Quarterly Report on Form 10-Q
to gain an understanding of the important factors that could cause actual
results to differ materially from our forward-looking statements. Please also
see the section titled "Special Note Regarding Forward-Looking Statements."

Overview


We are a clinical-stage vaccine innovation company engineering high-fidelity
vaccines to protect humankind from the consequences of bacterial diseases. We
are developing broad-spectrum conjugate and novel protein vaccines to prevent or
treat bacterial infectious diseases. We are re-engineering the way highly
complex vaccines are made through modern synthetic techniques, including
advanced chemistry and the XpressCF cell-free protein synthesis platform,
exclusively licensed from Sutro Biopharma, Inc., or Sutro Biopharma. Unlike
conventional cell-based approaches, our system for producing difficult-to-make
proteins and antigens is intended to accelerate our ability to efficiently
create and deliver high-fidelity vaccines with enhanced immunological benefits.

Our pipeline includes:

•
Pneumococcal conjugate vaccine, or PCV, candidates that we believe are among the
most broad-spectrum PCV candidates currently in development, targeting the
approximately $7 billion global pneumococcal vaccine market. Pneumococcal
disease is an infection caused by Streptococcus pneumoniae, or pneumococcus,
bacteria. It can result in invasive pneumococcal disease, or IPD, including
meningitis and bacteremia, and non-invasive pneumococcal disease, including
pneumonia, otitis media and sinusitis.

Our lead vaccine candidate, VAX-24, is a 24-valent broad-spectrum investigational PCV being developed for the prevention of IPD. VAX-24 aims to improve standard-of-care PCV vaccines for both children and adults by covering serotypes that are responsible for the majority of pneumococcal diseases currently in circulation.

VAX-24 Adult Program: On January 6, 2022, we announced that the U.S. Food and
Drug Administration, or FDA, cleared our investigational new drug, or IND,
application for VAX-24 in adults. On February 23, 2022, we announced the
initiation of our Phase 1/2 clinical proof-of-concept study in adults 18 to 64
years of age. The Phase 1 portion of the study included 64 healthy adults 18 to
49 years of age and the Phase 2 portion of the study includes 771 healthy adults
50 to 64 years of age. On April 4, 2022, we announced the initiation of the
Phase 2 portion of this study, which occurred after an independent Data
Monitoring Committee completed a prespecified review of Phase 1 safety and
tolerability data and recommended that the study progress as planned. On July
12, 2022, we announced the completion of enrollment in this Phase 2 portion of
the study. On October 24, 2022, we announced positive topline results from both
the Phase 1 and Phase 2 portions of the study as described below. We also
announced on July 12, 2022 the initiation of a separate Phase 2 study in
approximately 200 healthy adults aged 65 and older, and we anticipate announcing
topline safety, tolerability and immunogenicity results from this study in the
first half of 2023. We anticipate final results with the 6-month safety data
from both Phase 2 adult studies in the first half of 2023 and regulatory
interactions to inform the Phase 3 program in the second half of 2023. Topline
safety, tolerability and immunogenicity data from the Phase 3 non-inferiority
study in adults are expected in 2025.

VAX-24 Pediatric Program: For the VAX-24 pediatric program, we anticipate
submitting an infant IND application to the FDA and initiating a Phase 2 study
in the first half of 2023. We expect topline safety, tolerability and
immunogenicity data from the infant Phase 2 study primary 3-dose immunization
series by 2025. The study design will include a primary immunization series
consisting of three doses followed by a subsequent booster dose.

Our second PCV candidate, VAX-XP, builds on what has been established with VAX-24 and is designed to expand coverage to 31 strains without compromising immunogenicity due to carrier.

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suppression. VAX-XP was designed to provide coverage for approximately 95% of
the pneumococcal disease currently circulating in the U.S. population. We
anticipate submitting an IND application to the FDA for VAX-XP in adults in the
second half of 2023. We expect topline safety, tolerability and immunogenicity
data from a Phase 1/2 study in adults in 2024.

VAX-A1, a novel conjugate vaccine candidate designed to prevent Group A Strep, a
pervasive disease that results in 700 million cases of illness annually,
including pharyngitis, or strep throat, and certain severe invasive infections
such as sepsis, necrotizing fasciitis and toxic shock syndrome. There is
currently no vaccine against Group A Strep, which is one of the leading
infectious disease-related causes of death and disability worldwide. We believe
we have demonstrated preclinical proof of concept for VAX-A1, the data for which
were published in December 2020. We nominated the final vaccine candidate for
VAX-A1 in the first quarter of 2021 and initiated IND-enabling activities in the
second half of 2021. We expect to provide guidance for an anticipated IND
application submission to the FDA in the second half of 2022.

VAX-PG, a novel protein vaccine candidate targeting the keystone pathogen
responsible for periodontitis, a chronic oral inflammatory disease affecting an
estimated 65 million adults in the United States. We believe we have
demonstrated preclinical proof of concept, the data for which was published in
February 2019. We expect to nominate a final vaccine candidate for VAX-PG by the
end of 2022. Our initial goal is to develop a therapeutic vaccine to slow or
stop disease progression; however, the results from clinical trials may inform
the potential adoption of prophylactic immunization.

We have other discovery-stage programs leveraging our cell-free protein synthesis platform that, if proven successful in preclinical studies, could also move into IND-enabling activities and clinical studies.

As June 30, 2022Key developments affecting our business include the following:

Enrollment Completed for the Phase 2 Portion of the VAX-24 Phase 1/2 Proof-of-Concept Clinical Study in Adults 18 to 64 Years of Age: In july 2022We announce the completion of enrollment in the Phase 2 portion of the VAX-24 Phase 1/2 proof-of-concept clinical study in adults 18 to 64 years of age.

Initiated Separate VAX-24 Phase 2 Clinical Study in Adults 65 Years and Older:
In July 2022, we announced that we also dosed the first participants in a
separate Phase 2 study for VAX-24 in adults 65 years of age and older. This
study is intended to further build the body of clinical evidence to support the
potential of VAX-24 as the broadest-spectrum PCV in adults.

Received FDA Fast Track Designation for VAX-24 in Adults: In August 2022, we
announced that the FDA granted Fast Track designation to VAX-24 in adults ages
18 and older. The Fast Track designation is an FDA process that has been
designed to facilitate the development and expedite the review of drugs,
including vaccines, that treat or prevent serious conditions and fill an unmet
medical need.

Completed Successful Pre-IND Meeting with FDA Regarding VAX-24 Pediatric
Development Program, Supporting Path to Proceed Directly into Infants: In August
2022, we announced successful completion of a pre-IND meeting with the FDA
regarding the pediatric clinical program for VAX-24. We received positive
written feedback from the FDA supporting the initiation of a pediatric study
that proceeds directly into infants contingent on satisfactory topline safety,
tolerability and immunogenicity results from the VAX-24 Phase 1/2 clinical
proof-of-concept study in adults 18 to 64 years of age. This approach provides
us with an accelerated clinical path to deliver a potentially best-in-class PCV,
VAX-24, to the pediatric population, which represents the largest portion of the
pneumococcal vaccine market in the United States.

Completed Enrollment of Phase 2 Study Evaluating Safety, Tolerability and
Immunogenicity of VAX-24 in Adults 65 Years and Older: In September 2022, we
announced the completion of enrollment in the Phase 2 portion of the ongoing
VAX-24 Phase 1/2 clinical proof-of-concept study in adults 65 years and older.

Announced Positive Topline Results from VAX-24 Phase 1/2 Clinical
Proof-of-Concept Study in Adults 18-64 Years of Age: In October, 2022, we
announced positive topline results from the Phase 1/2 clinical proof-of-concept
study evaluating the safety, tolerability and immunogenicity of VAX-24 in
healthy adults aged 18-64. In this study, VAX-24 met the primary safety and
tolerability objectives, demonstrating a safety profile similar to Prevnar 20™
(PCV20) for all doses studied. In the study, VAX-24 met or exceeded the
established regulatory immunogenicity standards for all 24 serotypes at the
conventional 2.2mcg dose, which we intend to move forward into a Phase 3
program. At this dose, VAX-24 met the standard opsonophagocytic activity
response non-inferiority criteria for all 20 serotypes common with PCV20, of
which 16 achieved higher immune responses. Additionally, at all three doses,

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VAX-24 met the standard superiority criteria for all four serotypes unique to
VAX-24. These four incremental serotypes cover 10-15 percent of strains causing
IPD over the current standard-of-care in adults.

Confirmed VAX-XP Serotype Composition and Expected IND Submission Timing: In
October 2022, we unveiled the serotype composition for VAX-XP, the follow-on
vaccine in our carrier-sparing PCV franchise, which is designed to contain 31
serotypes that collectively cover approximately 95% of the circulating strains
causing IPD in adults in the United States.

Published New Research Supporting the Potential of Our Technology Platform: The
paper, "Non-Native Amino Acid Click Chemistry-Based Technology for Site-Specific
Polysaccharide Conjugation to a Bacterial Protein Serving as Both Carrier and
Vaccine Antigen," published in the July 2022 edition of the journal ACS Omega,
demonstrates the potential advantages of our site-specific conjugation
technology, the XpressCF™ cell-free protein synthesis platform, over random
conjugation associated with the limitations of traditional chemistry.
Specifically, this study used our platform technology to preserve B-cell and
T-cell epitopes that are critical for generating T-cell help and protective
immune responses against Group A Streptococcus, or Strep.

Expanded Executive Leadership Team with Key Appointments: In October, 2022, we
announced the appointment of Mark Wiggins as Chief Business Officer and Jakub
Simon, M.D., as Chief Medical Officer.

Completed Successful $690 Million Follow-On Offering: In October 2022, we
completed an underwritten public offering of 17,812,500 shares of our common
stock, which included the full exercise of the underwriters' option to purchase
an additional 2,812,500 shares, at a price of $32.00 per share and pre-funded
warrants to purchase 3,750,000 shares of our common stock at a price of $31.999
per underlying share. In aggregate, we received approximately $650.7 million in
net proceeds after deducting underwriting discounts and commissions and other
offering expenses payable by us, and excluding the exercise of any pre-funded
warrants.

Since our inception in November 2013, we have devoted substantially all of our
resources to performing research and development, undertaking preclinical
studies, advance our vaccine candidates through clinical trials and enabling
manufacturing activities in support of our product development efforts,
acquiring and developing our technology and vaccine candidates, organizing and
staffing our company, establishing our intellectual property portfolio and
raising capital to support and expand such activities. We do not have any
products approved for sale and have not generated any revenue from product
sales. To date, we have financed our operations primarily with proceeds from the
sales of our common stock, pre-funded warrants to purchase our common stock and,
prior to our initial public offering, or IPO, in June 2020, redeemable
convertible preferred stock. We will continue to require additional capital to
develop and commercialize our vaccine candidates and fund operations for the
foreseeable future. Accordingly, until such time as we can generate significant
revenue from sales of our vaccine candidates, if ever, we expect to finance our
cash needs through public or private equity or debt financings, third-party
(including government) funding and marketing and distribution arrangements, as
well as other collaborations, strategic alliances and licensing arrangements, or
any combination of these approaches.

We have incurred net losses in each year since inception and expect to continue
to incur net losses in the foreseeable future. Our net losses may fluctuate
significantly from quarter-to-quarter and year-to-year, depending in large part
on the timing of our preclinical studies, clinical trials and manufacturing
activities, and our expenditures on other research and development activities.
Our net loss was $57.9 million for the three months ended September 30, 2022. As
of September 30, 2022, we had an accumulated deficit of $444.1 million. As of
September 30, 2022, we had cash, cash equivalents and investments of $366.2
million, which we believe will be sufficient to fund our operating expenses and
capital expenditure requirements through at least the next 12 months from the
filing date of this Quarterly Report on Form 10-Q.

We do not expect to generate any revenue from commercial product sales unless
and until we successfully complete development and obtain regulatory approval
for one or more of our vaccine candidates, which we expect will take a number of
years. We expect our expenses will increase substantially in connection with our
ongoing activities, as we:

advancing our candidate vaccines through preclinical studies and clinical trials;

expand our manufacturing capabilities;

manufacture supplies for our preclinical studies and clinical trials, in particular our PCV candidates, VAX-24 and VAX-XP;

invest to establish additional manufacturing capacity to meet potential incremental supply requirements following the initial commercial launch of the VAX-24;

seek regulatory approval of our candidate vaccines;

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•
hire additional personnel;

•
operate as a public company;

•

acquire, discover, validate and develop additional candidate vaccines; Y

obtain, maintain, expand and protect our portfolio of intellectual property.


We rely and will continue to rely on third parties to conduct our preclinical
studies and clinical trials and for manufacturing and supply of our vaccine
candidates. We have no internal manufacturing capabilities, and we will continue
to rely on third parties, of which the main suppliers are single-source
suppliers, for our preclinical and clinical trial materials. Given our stage of
development, we do not yet have a marketing or sales organization or commercial
infrastructure. Accordingly, if we obtain regulatory approval for any of our
vaccine candidates, we also would expect to incur significant commercialization
expenses related to product sales, marketing, manufacturing and distribution.

Because of the numerous risks and uncertainties associated with vaccine
development, we are unable to predict the timing or amount of increased expenses
or when or if we will be able to achieve or maintain profitability. Even if we
are able to generate revenue from the sale of our vaccines, we may not become
profitable. If we fail to become profitable or are unable to sustain
profitability on a continuing basis, then we may be unable to continue our
operations at planned levels and may be forced to reduce our operations.

Certain Significant Relationships

Lonza


In October 2016, we entered into a development and manufacturing services
agreement, as amended, with Lonza Ltd., or the Lonza DMSA, pursuant to which
Lonza Ltd., or Lonza, is obligated to perform services including manufacturing
process development and the manufacture of components for VAX-24, including the
polysaccharide antigens, our proprietary eCRM protein carrier and conjugated
drug substances.

In September 2017, we and Lonza agreed to defer the completion payments for any
stage that commenced after December 31, 2019 or had not been completed by
December 31, 2019 until the earlier of the completion of all IND-enabling
activities or December 31, 2020. In March 2020, Lonza agreed to defer the
completion payments until the earlier of the completion of all IND-enabling
activities or April 30, 2021. In April 2021, Lonza further agreed to defer 50%
of the completion payments until the earlier of the completion of all
IND-enabling activities or December 31, 2021.

In June 2018, we entered into a letter agreement with Lonza, pursuant to which
we agreed to certain terms for potential future payments in shares of our common
stock as partial satisfaction of future obligations to Lonza. Specifically, we
and Lonza agreed that the initial pre-IND cash payments made by us to Lonza
would be subject to a specified dollar cap, or the Initial Cash Cap. After the
Initial Cash Cap has been reached, then at our election, we would have the
option to make any further pre-IND payments owed to Lonza in cash, in shares of
our common stock at then market prevailing prices, or a combination of both,
provided that (i) Lonza had the right to elect to receive up to 25% of pre-IND
payments in shares of our common stock, up to a maximum of $2.5 million, and
(ii) we had the right to issue no more than $10.0 million of pre-IND payments in
shares of our common stock. In April 2021, we reached the Initial Cash Cap and
notified Lonza that we would be exercising our option to issue approximately
$10.0 million in shares of our common stock as payment for a portion of pre-IND
payments due April 30, 2021. In June 2021, we issued 399,680 shares of our
common stock to Lonza at a price of $25.02 per share to pay for $10.0 million of
the pre-IND payments due April 30, 2021.

In October 2018, we entered into a second development and manufacturing services
agreement with Lonza (the "Lonza 2018 DMSA," and together with the Lonza DMSA,
the "Lonza Agreements"), pursuant to which Lonza is obligated to perform
services including manufacturing process development and the manufacture and
supply of VAX-24 finished drug product.

In April 2022, we entered into a master services agreement for drug product
development and manufacturing (the "Master Services Agreement") with Lonza
effective as of March 22, 2022, pursuant to which Lonza will perform
manufacturing process development and clinical manufacture and supply of our
proprietary PCV. Unless terminated earlier, the Master Services Agreement will
remain in place for a period of five years. Either party may terminate the
Master Services Agreement for any reason with prior written notice to the other
party, provided that Lonza may not exercise such right until a specified future
date. In addition, either party may terminate the Master Services Agreement (i)
within a given time period upon any material breach that is left uncured by the
other party, or (ii) immediately if the other party becomes insolvent. We may
also terminate the Master Services Agreement upon an

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extended force majeure event. Upon expiration and/or termination of the Master
Services Agreement and/or any purchase order, we will pay Lonza for all services
rendered, all costs incurred, all unreimbursed capital equipment and any
cancellation fees.

Under the Lonza Agreements, we will pay Lonza agreed upon fees for Lonza's
performance of manufacturing services, and we will reimburse Lonza for its
out-of-pocket costs associated with purchasing raw materials, plus a customary
handling fee. Each Lonza Agreement is managed by a steering committee and any
dispute at the steering committee will be resolved by senior executives of the
parties.

Sutro Biopharma

Vaxcyte was formed through its relationship with Sutro Biopharma, in 2013 by our
co-founders with the goal of utilizing Sutro Biopharma's proprietary XpressCF
platform for protein synthesis in the field of vaccines addressing infectious
diseases.

In addition to receiving funding, we entered into a license agreement with Sutro
Biopharma, or the Sutro License, on August 1, 2014. The Sutro License was
amended on October 12, 2015 and again on May 9, 2018 and May 29, 2018. Under
this license, we received an exclusive, worldwide, royalty-bearing,
sublicensable license under Sutro Biopharma's patents and know-how relating to
cell-free expression of proteins to (i) research, develop, use, sell, offer for
sale, export, import and otherwise exploit specified vaccine compositions, such
rights being sublicensable, for the treatment or prophylaxis of infectious
diseases, excluding cancer vaccines, and (ii) manufacture, or have manufactured
by an approved contract manufacturing organization, or CMO, such vaccine
compositions from extracts supplied by Sutro Biopharma pursuant to the Sutro
Biopharma Supply Agreement (as described below). We are obligated to use
commercially reasonable efforts to develop, obtain regulatory approval for and
commercialize the vaccine compositions. In consideration of the rights granted
under the Sutro License, we are obligated to pay Sutro Biopharma a 4% royalty on
worldwide aggregate net sales of vaccine products for human health and a 2%
royalty on such net sales of vaccine products for animal health. Such royalty
rates are subject to specified reductions, including standard reductions for
third-party payments and for expiration of relevant patent claims. Royalties are
payable on a vaccine composition-by-vaccine composition and country-by-country
basis until the later of expiration of the last valid claim in the licensed
patents covering such vaccine composition in such country and ten years after
the first commercial sale of such vaccine composition.

In May 2018, we entered into a supply agreement, or the Sutro Biopharma Supply
Agreement, with Sutro Biopharma pursuant to which we purchase from Sutro
Biopharma extract and custom reagents for use in manufacturing non-clinical and
certain clinical supply of vaccine compositions utilizing the technology
licensed under the Sutro License at prices not to exceed a specified percentage
above Sutro Biopharma's fully burdened manufacturing cost. If any extracts or
custom reagents do not meet the specifications and warranties provided, then we
will not have an obligation to pay for the non-conforming product, and Sutro
Biopharma will be obligated to replace the non-conforming product within the
shortest possible time with conforming product at our cost. The term of the
Sutro Biopharma Supply Agreement is from execution until the later of July 31,
2022 and the date the parties enter into and commence activities under the
supply agreement unless extended through a subsequent supply agreement for the
supply of extract and custom reagents for vaccine compositions for Phase 3 and
commercial uses as contemplated in the Supply Agreement. We are currently in the
process of negotiating and extending the term of the Sutro Biopharma Supply
Agreement.

For additional details regarding our relationship with Sutro Biopharma, see Note
13, "Related Party Transactions," to our condensed financial statements included
in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For additional details on our outstanding non-cancellable purchase commitments with our manufacturing partners, please see Note 6, “Commitments and Contingencies,” to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Impact of COVID-19


We are continuing to closely monitor the impact of the global COVID-19 pandemic
on our business and are taking proactive efforts designed to protect the health
and safety of our employees and to maintain business continuity. We believe that
the measures we have implemented and continue to implement are appropriate, and
we will continue to monitor and seek to comply with guidance from governmental
authorities and adjust our activities as appropriate. Based on guidance issued
by federal, state and local authorities, we transitioned to a remote work model
for our non-lab-based employees in March 2020, while maintaining essential
in-person laboratory functions in order to advance key research and development
initiatives, supported by the implementation of updated onsite safety
procedures, including routine testing of employees. In 2021, we began to allow
non-lab employees who have been fully vaccinated to return to the office on a
voluntary and limited basis. In addition, we implemented requirements for
employees to obtain COVID-19 booster shots. In April 2022, we began to require
non-lab employees to return to the office pursuant to a hybrid approach, which
allows for partial remote work.

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In particular, the COVID-19 pandemic has slowed raw material supply chains and
travel restrictions delayed the qualification of key analytical equipment used
in manufacturing and curtailed in-person CMO, oversight of manufacturing,
affecting our manufacturing processes. As the pandemic continues, we could see
an additional impact on our ability to advance our programs, obtain supplies
from our contract manufacturers and other manufacturers, enroll participants in
our clinical trials or interact with regulators, ethics committees or other
important agencies due to limitations in regulatory authority, employee
resources or otherwise. In any event, if the COVID-19 pandemic continues to
persist for an extended period of time, we could experience significant
disruptions to our development timelines, which would adversely affect our
business, financial condition, results of operations and growth prospects.

In addition, while the potential economic impact brought by, and the duration
of, the COVID-19 pandemic may be difficult to assess or predict, the pandemic
could result in significant and prolonged disruption of global financial
markets, reducing our ability to access capital, which could in the future
negatively affect our liquidity. In addition, a recession or market correction
resulting from the continued spread of COVID-19 could materially affect our
business and the potential value of our common stock.

The extent of the impact of the COVID-19 pandemic on our development and
regulatory efforts, our ability to raise sufficient additional capital on
acceptable terms, if at all, and the value of and market for our common stock
will depend on future developments that are highly uncertain and cannot be
predicted with confidence at this time, such as the ultimate duration of the
pandemic, travel restrictions, quarantines, social distancing and business
closure requirements in the United States and in other countries, and the
effectiveness of actions taken globally to contain and treat COVID-19. For
additional information about risks and uncertainties related to the COVID-19
pandemic that may impact our business, financial condition and results of
operations, see the section titled "Risk Factors."

Components of Results of Operations

operating expenses

Investigation and development


Research and development expenses represent costs incurred in performing
research, development and manufacturing activities in support of our own product
development efforts and include personnel-related costs (such as salaries,
employee benefits and stock-based compensation) for our personnel in research
and development functions; costs related to acquiring, developing and
manufacturing supplies for preclinical studies, clinical trials and other
studies, including fees paid to CMOs; costs and expenses related to agreements
with contract research organizations, investigative sites and consultants to
conduct non-clinical and preclinical studies and clinical trials; professional
and consulting services costs; research and development consumables costs;
laboratory supplies and equipment costs; and facility and other allocated costs.

Research and development expenses are expensed as incurred. Non-refundable
advance payments for services that will be used or rendered for future research
and development activities are recorded as prepaid expenses and recognized as
expenses as the related services are performed. We do not allocate our costs by
vaccine candidates, as our vaccine candidates are at an early stage of
development and our research and development expenses include internal costs,
such as payroll and other personnel expenses, which are not tracked by vaccine
candidate. In particular, with respect to internal costs, several of our
departments support multiple vaccine candidate research and development
programs.

We expect our research and development expenses to increase substantially in
absolute dollars for the foreseeable future as we advance our vaccine candidates
into and through preclinical studies and clinical trials, scale up our
manufacturing activities, pursue regulatory approval of our vaccine candidates
and expand our pipeline of vaccine candidates. The process of conducting the
necessary preclinical and clinical research and completing the manufacturing
requirements to obtain regulatory approval is costly and time-consuming. The
actual probability of success for our vaccine candidates may be affected by a
variety of factors, including the safety and efficacy of our vaccine candidates,
early clinical data, investment in our clinical programs, competition,
manufacturing capability and commercial viability. We may never succeed in
achieving regulatory approval for any of our vaccine candidates. As a result of
the uncertainties discussed above, we are unable to determine the duration and
completion costs of our research and development projects or if, when and to
what extent we will generate revenue from the commercialization and sale of our
vaccine candidates.

We accrue for costs related to research and development activities based on our
estimates of the services received and efforts expended pursuant to quotes and
contracts with vendors, including CMOs and clinical research organizations, or
CROs, 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 exceed the level of services provided and result in a
prepayment of the research and development expense. Advance payments for goods
and

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services to be used in future research and development activities are expensed
when the activity has been performed or when the goods have been received. We
make significant judgments and estimates in determining accrued research and
development liabilities as of each reporting period based on the estimated time
period over which services will be performed and the level of effort to be
expended. If the actual timing of the performance of services or the level of
effort varies from our estimate, we adjust the accrual or prepaid expense
accordingly.

Although we do not expect our estimates to be materially different from amounts
actually incurred, if our estimates of the status and timing of services
performed differ from the actual status and timing of services performed, it
could result in us reporting amounts that are too high or too low in any
particular period.

Our research and development costs can vary significantly based on factors such as:

the costs and timing of our chemistry, manufacturing and controls, activities,
including fulfilling GMP-related standards and compliance, and identifying and
qualifying second suppliers;

costs related to raw material estimates from our third-party manufacturing and supply partners;

the costs of clinical trials of our candidate vaccines;

changes in the standard of care on which a clinical development plan was based, which may require new or additional trials;

the number of sites included in the trials;

the countries in which the trials are carried out;

delays in adding a sufficient number of trial sites and recruiting suitable volunteers to participate in our clinical trials;

the number of subjects participating in the trials;

the number of doses subjects receive;

subjects who dropped out of a study or were lost to follow-up;

possible additional safety monitoring requested by regulatory agencies;

the duration of the subjects’ participation in the trials and follow-up;

the cost and manufacturing time of our candidate vaccines;

the stage of development of our candidate vaccines;

the costs of establishing additional manufacturing capacity to meet potential incremental supply requirements following the initial commercial launch of the VAX-24; Y

the efficacy and safety profile of our candidate vaccines.

General and administrative


General and administrative expenses consist primarily of costs and expenses
related to personnel (including salaries, employee benefits and stock-based
compensation) in our executive, legal, finance and accounting, human resources
and other administrative functions; legal services, including relating to
intellectual property and corporate matters; accounting, auditing, consulting
and tax services; insurance; and facility and other allocated costs not
otherwise included in research and development expenses. We expect our general
and administrative expenses to increase substantially in absolute dollars for
the foreseeable future as we increase our headcount to support our continued
research and development activities and grow our business. We expect continued
increases in general and administrative expenses related to compliance with the
rules and regulations of the SEC and The Nasdaq

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Stock Market LLC (“Nasdaq”), additional insurance expenses, investor relations activities and corporate communications and other administrative and professional services.

Other Income (Expenses), Net


Other income (expense), net includes interest income earned from our cash, cash
equivalents and investments, grant income, realized gains (losses) on marketable
securities and foreign currency transaction gains (losses) related to our Swiss
Franc cash and liability balances (see Note 2, "Basis of Presentation and
Summary of Significant Accounting Policies" and Note 3, "Fair Value Measurements
and Fair Value of Financial Instruments" to our condensed financial statements
included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more
detail).

Grant income


In July 2019, we received a cost-reimbursement research award from Combating
Antibiotic Resistant Bacteria Biopharmaceutical Accelerator, or CARB-X, a
public-private partnership funded under a Cooperative Agreement from Assistant
Secretary for Preparedness and Response/Biomedical Advanced Research and
Development Authority and by awards from Wellcome Trust, Germany's Federal
Ministry of Education and Research, the United Kingdom Global Antimicrobial
Resistance Innovation Fund and the Bill & Melinda Gates Foundation. In
connection with this funding, we entered into a cost-reimbursement sub-award
agreement with the Trustees of Boston University, the administrator of the
program, or the CARB-X agreement. CARB-X awarded us up to $1.6 million in
initial funding to advance the development of a universal vaccine to prevent
infections caused by Group A Strep Bacteria. In July 2020, the CARB-X agreement
was amended with the initial funding amount increased from $1.6 million to $2.7
million. In December 2020, we reached the maximum CARB-X funding limit for this
initial funding period, and subsequently submitted our funding proposal to
CARB-X for the next period under our agreement. In April 2021, we received
approval for the next phase of CARB-X development and executed the
cost-reimbursement sub-award agreement with the Trustees of Boston University in
August 2021. Pursuant to the CARB-X agreement, the award committed additional
funding of $3.2 million for IND-enabling activities and total potential funding
of up to $29.7 million (including the current $3.2 million award and the prior
$2.7 million award) upon the achievement of future VAX-A1 development
milestones. In January 2022, CARB-X revised the parameters for the contribution
of CARB-X funding and implemented maximum funding levels for all grant
recipients. As a result, our total funding available upon achievement of
development milestones through Phase 1 human clinical trials was revised from
$29.7 million to $13.9 million (inclusive of the $5.9 million awarded to date).
Separately, the National Institute of Health, or NIH, awarded us up to $0.5
million in April 2021 to advance the development of a vaccine against Shigella
infection. Grant income pursuant to our award agreements is recognized as we
incur and pay qualifying expenses over the periods of the awards. We recognized
$0.2 and $0.3 million in grant income for funding research and development
during the three months ended September 30, 2022 and 2021, respectively, and $1
million and $0.7 million during the nine months ended September 30, 2022 and
2021, respectively. Grant income is included as a component of Other income
(expense), net in the condensed statements of operations.

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Results of Operations

Comparison of the three months ended September 30, 2022 and 2021


The following table summarizes our results of operations for the periods
presented:


                                        Three Months Ended September 30,               Change
                                           2022                2021               $             %
                                                        (in thousands)
Operating expenses:
Research and development                $   47,679       $         20,428     $  27,251          133.4 %
General and administrative                  10,898                  6,523         4,375           67.1 %
Total operating expenses                    58,577                 26,951        31,626          117.3 %
Loss from operations                       (58,577 )              (26,951 )     (31,626 )        117.3 %
Other income (expense), net:
Interest expense                                 -                      -             -              -
Interest income                              1,190                     90         1,100              *
Grant income                                   157                    299          (142 )        (47.5 )%
Realized gain on marketable                      -                      1
securities                                                                           (1 )       (100.0 )%
Foreign currency transaction gains
(losses)                                      (687 )                  (54 )        (633 )            *
Total other income (expense), net              660                    336           324           96.4 %
Net loss                                $  (57,917 )     $        (26,615 )   $ (31,302 )        117.6 %




* not meaningful

Operating Expenses

Research and development expenses


The following table summarizes our research and development expenses for the
periods presented:

                                            Three Months Ended September 30,                 Change
                                               2022                  2021               $             %
                                                            (in thousands)

Product and clinical development (1) $22,034 $10,099 $11,935 118.2% Personnel-related

                                   8,957                 4,305         4,652          108.1 %
Professional and consulting services                1,447                 1,153           294           25.5 %
Research and development consumables                8,797                 1,651         7,146          432.8 %
Facility related and other allocated                4,313                 2,173         2,140           98.5 %
Laboratory supplies and equipment                   1,654                   810           844          104.2 %
Other (2)                                             477                   237           240          101.3 %

Total research and development expenses $47,679 $20,428 $27,251 133.4%

(1)

Includes third-party manufacturing expenses and outsourced contract services, including outsourced preclinical studies and trials. (2) Includes travel expenses and other miscellaneous office expenses.


Research and development expenses increased by $27.3 million, or 133.4%, during
the three months ended September 30, 2022 compared to the corresponding period
in 2021. The increase of $11.9 million in product and clinical development
expenses was primarily due to VAX-24 Phase 3 and VAX-XP IND readiness activities
and the initiations of our VAX-24 Phase 1/2 clinical proof-of-concept study in
adults 18-64 years of age and VAX-24 Phase 2 clinical study in adults 65 years
and older, partially offset by a decrease in VAX-24 IND readiness activities as
the IND application for our VAX-24 adult program was submitted in late 2021. The
increase of $4.7 million in personnel-related expenses was primarily due to
higher salaries, benefits and stock-based compensation expense resulting from an
increase in the number of options and restricted stock units, or RSUs, granted
and the growth in the number of employees in our research and development
functions. The increase of $7.1 million in research and development consumables
was primarily related to costs incurred for extracts and reagents for our VAX-24
Phase 3 readiness activities. The increase of $2.1 million in facility related
and other allocated expenses was primarily due to increases in lease expense
related to our new corporate headquarters allocated to research and development.

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General and adminsitrative expenses


General and administrative expenses increased by $4.4 million, or 67.1%, during
the three months ended September 30, 2022 compared to the corresponding period
in 2021. The increase was primarily due to increases of $3.1 million in
personnel-related expenses, which was related to higher salaries, benefits and
stock-based compensation expense resulting from an increase in the number of
options and RSUs granted and the growth in the number of employees in our
general and administrative functions, and $1.3 million in professional and
consulting services.

Other Income (Expenses), Net


Other income (expense), net increased by $0.3 million, during the three months
ended September 30, 2022 compared to the corresponding period in 2021. The
increase was primarily attributable to a $1.1 million increase in interest
income, partially offset by a $0.1 million decrease in grant income related to
increased CARB-X activities and a $0.6 million increase in foreign currency
losses generated from a decrease in Swiss Franc cash balances and appreciation
of the U.S. dollar against the Swiss Franc.

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


The following table summarizes our results of operations for the periods
presented:
                                         Nine Months Ended September 30,               Change
                                           2022                2021               $             %
                                                        (in thousands)
Operating expenses:
Research and development                $   117,825       $        55,337     $  62,488          112.9 %
General and administrative                   27,858                18,487         9,371           50.7 %
Total operating expenses                    145,683                73,824        71,859           97.3 %
Loss from operations                       (145,683 )             (73,824 )     (71,859 )         97.3 %
Other income (expense), net:
Interest expense                                 (2 )                  (7 )           5          (71.4 )%
Interest income                               1,723                   245         1,478          603.3 %
Grant income                                  1,006                   677           329           48.6 %
Realized gain on marketable                       -                     2
securities                                                                           (2 )       (100.0 )%
Foreign currency transaction gains
(losses)                                     (2,479 )               1,393        (3,872 )       (278.0 )%
Total other income (expense), net               248                 2,310        (2,062 )        (89.3 )%
Net loss                                $  (145,435 )     $       (71,514 )   $ (73,921 )        103.4 %


Operating Expenses

Research and development expenses


The following table summarizes our research and development expenses for the
periods presented:
                                          Nine Months Ended September 30,              Change
                                             2022               2021              $             %
                                                         (in thousands)

Product and clinical development (1) $52,193 $26,746

   $  25,447           95.1 %
Personnel-related                             22,394               12,325        10,069           81.7 %
Professional and consulting services           4,153                3,245           908           28.0 %
Research and development consumables          20,631                4,792        15,839          330.5 %
Facility related and other allocated          12,851                5,261         7,590          144.3 %
Laboratory supplies and equipment              4,028                2,377         1,651           69.5 %
Other (2)                                      1,575                  591           984          166.5 %
Total research and development expenses   $  117,825       $       55,337     $  62,488          112.9 %




(1)

Includes third-party manufacturing expenses and outsourced contract services, including outsourced preclinical studies and trials. (2) Includes travel expenses and other miscellaneous office expenses.


Research and development expenses increased by $62.5 million, or 112.9%, during
the nine months ended September 30, 2022 compared to the corresponding period in
2021. The increases of $25.4 million in product and clinical development
expenses and $1.7 million in laboratory supplies and equipment were primarily
due to increased VAX-XP IND readiness activities, the initiation of

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our VAX-24 Phase 1/2 clinical proof-of-concept study in adults 18-64 years of
age in the first quarter of 2022, increased VAX-24 Phase 3 readiness activities,
and the initiation of our VAX-24 Phase 2 clinical study in adults 65 years and
older, partially offset by a decrease in VAX-24 IND readiness activities as the
IND application for our VAX-24 adult program was submitted in late 2021. The
increase of $10.1 million in personnel-related expenses was primarily due to
higher salaries, benefits and stock-based compensation expense resulting from an
increase in the number of options and RSUs granted and the growth in the number
of employees in our research and development functions. The increase of $15.8
million in research and development consumables was primarily related to costs
incurred for extracts and reagents for our VAX-24 Phase 3 readiness activities.
The increase of $7.6 million in facility related and other allocated expenses
was primarily due to increases in lease expense related to our new corporate
headquarters allocated to research and development.

General and adminsitrative expenses


General and administrative expenses increased by $9.4 million, or 50.7%, during
the nine months ended September 30, 2022 compared to the corresponding period in
2021. The increase was primarily due to increases of $7.3 million in
personnel-related expenses, which was related to higher salaries, benefits and
stock-based compensation expense resulting from an increase in the number of
options and RSUs granted and the growth in the number of employees in our
general and administrative functions, and $1.7 million in professional and
consulting services.

Other Income (Expenses), Net


Other income (expense), net decreased by $2.1 million, or 89.3%, during the nine
months ended September 30, 2022 compared to the corresponding period in 2021.
The decrease was primarily attributable to a $1.5 million increase in interest
income, partially offset by a $0.3 million increase in grant income related to
increased CARB-X activities and a $3.9 million increase in foreign currency
losses generated from a decrease in Swiss Franc cash balances and appreciation
of the U.S. dollar against the Swiss Franc.

Liquidity and Capital Resources


From inception through September 30, 2022, we have incurred losses and negative
cash flows from operations and have funded our operations primarily through the
issuance of common stock, pre-funded warrants to purchase our common stock and,
prior to our IPO, redeemable convertible preferred stock, totaling approximately
$796.6 million in aggregate gross proceeds and $761.5 million net of
underwriting discounts, commissions and offering expenses. As of September 30,
2022, we had $278.4 million of cash and cash equivalents, $87.8 million in
investments and an accumulated deficit of $444.1 million.

On July 2, 2021, we filed a shelf registration statement on Form S-3ASR, or the
Shelf Registration Statement, under which we may, from time to time, sell
securities in one or more offerings of our common stock, preferred stock, debt
securities or warrants. The Shelf Registration Statement became automatically
effective upon the filing of the Form S-3ASR on July 2, 2021.

In July 2021, we entered into an Open Market Sales AgreementSM, or the ATM Sales
Agreement, with Jefferies LLC, which provides that, upon the terms and subject
to the conditions and limitations set forth in the ATM Sales Agreement, we may
elect to issue and sell, from time to time, shares of our common stock having an
aggregate offering price of up to $150.0 million through Jefferies acting as our
sales agent or principal. Under the ATM Sales Agreement, Jefferies may sell the
shares of common stock by any method permitted by law deemed to be an
"at-the-market offering" as defined under the Securities Act of 1933, as
amended, in block transactions or in privately-negotiated transactions with our
consent. Jefferies will use commercially reasonable efforts to sell the shares
of common stock subject to the ATM Sales Agreement from time to time, based upon
our instructions (including any price, time or size limits or other customary
parameters or conditions that we may impose). We will pay Jefferies a commission
of up to 3.0% of the gross sales proceeds of any common stock sold through
Jefferies under the ATM Sales Agreement; however, we are not obligated to make
any sales of common stock. As of September 30, 2022, we have sold 4,383,810
shares of our common stock under the ATM Sales Agreement at an average price of
$25.56 per share for aggregate gross proceeds of $112.0 million ($108.7 million
net of commissions and offering expenses).

In January 2022, we completed an underwritten public offering in which we issued
2,500,000 shares of common stock at a price of $20.00 per share and pre-funded
warrants to purchase 2,500,000 shares of our common stock at a price of $19.999
per underlying share. In February 2022, the underwriters exercised their option
to purchase an additional 750,000 shares of common stock. In aggregate, we
received approximately $107.6 million in net proceeds after deducting
underwriting discounts and commissions and other offering expenses payable by
us.

In October 2022completed an underwritten public offering of 17,812,500 common shares, which included the full exercise of the underwriters’ option to purchase an additional 2,812,500 shares, at a price of
$32.00 per share and

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pre-funded warrants to purchase 3,750,000 shares of our common stock at a price
of $31.999 per underlying share. In aggregate, we received approximately $650.7
million in net proceeds after deducting underwriting discounts and commissions
and other offering expenses payable by us, and excluding the exercise of any
pre-funded warrants.

Future Funding Requirements

Our primary uses of cash are to fund our operations, which consist primarily of
research and development expenditures related to our programs and, to a lesser
extent, general and administrative expenditures. We anticipate that we will
continue to incur significant expenses for the foreseeable future as we continue
to advance our vaccine candidates, expand our corporate infrastructure,
including the costs associated with being a public company, further our research
and development initiatives for our vaccine candidates and scale our laboratory
and manufacturing operations. We are subject to all of the risks typically
related to the development of new drug candidates, and we may encounter
unforeseen expenses, difficulties, complications, delays and other unknown
factors that may adversely affect our business. We anticipate that we will need
substantial additional funding in connection with our continuing operations.

We believe that our existing cash, cash equivalents and investments as of the
date of this Quarterly Report on Form 10-Q will be sufficient to fund our
operating expenses and capital expenditure requirements through at least 12
months from the filing date of this Quarterly Report on Form 10-Q. We have
raised substantial capital, however, we will need to raise substantial
additional capital to complete development and commercialization of our drug
candidates. Until we can generate sufficient revenue from the commercialization
of our vaccine candidates or from collaboration agreements with third parties,
if ever, we expect to finance our future cash needs through public or private
equity or debt financings, third-party (including government) funding and
marketing and distribution arrangements, as well as other collaborations,
strategic alliances and licensing arrangements, or any combination of these
approaches. The sale of equity, pre-funded warrants or convertible debt
securities may result in dilution to our stockholders and, in the case of
preferred equity securities or convertible debt, those securities could provide
for rights, preferences or privileges senior to those of our common stock. Debt
financings may subject us to covenant limitations or restrictions on our ability
to take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends. Our ability to raise additional funds may
be adversely impacted by deteriorating global economic conditions, including
higher inflation rates and changes in interest rates, and the recent disruptions
to and volatility in the credit and financial markets in the United States and
worldwide. There can be no assurance that we will be successful in acquiring
additional funding at levels sufficient to fund our operations or on terms
favorable or acceptable to us. If we are unable to obtain adequate financing
when needed or on terms favorable or acceptable to us, we may be forced to
delay, reduce the scope of or eliminate one or more of our research and
development programs.

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

the timing, scope, progress, results, and costs of research and development, testing, screening, manufacturing, preclinical development, and clinical trials;

the costs of establishing additional manufacturing capacity to meet potential incremental supply requirements following the initial commercial launch of the VAX-24;

the outcome, timing and cost of seeking and obtaining regulatory approvals from
the FDA and comparable foreign regulatory authorities, including the potential
for such authorities to require that we perform field efficacy studies for our
PCV candidates, require more studies than those that we currently expect or
change their requirements regarding the data required to support a marketing
application;

the cost of building a sales force prior to the commercialization of any product;

the costs of future marketing activities, including manufacturing, marketing, sales, royalties and product distribution, for any of our candidate vaccines for which we receive marketing approval;

our ability to maintain existing, and establish new, strategic collaborations,
licensing or other arrangements and the financial terms of any such agreements,
including the timing and amount of any future milestone, royalty or other
payments due under any such agreement;

any product liability or other claims related to our products;

revenue, if any, received from commercial sales, or sales to foreign governments, of our candidate vaccines for which we may receive marketing approval;

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the costs to establish, maintain, expand, enforce and defend the scope of our
intellectual property portfolio, including the amount and timing of any payments
we may be required to make, or that we may receive, in connection with
licensing, preparing, filing, prosecuting, defending and enforcing our patents
or other intellectual property rights;

expenses necessary to attract, hire and retain qualified personnel;

the costs of operating as a public company; Y

the impact of the COVID-19 pandemic, which may exacerbate the magnitude of the factors discussed above.


A change in the outcome of any of these or other variables could significantly
change the costs and timing associated with the development of our vaccine
candidates. Furthermore, our operating plans may change in the future, and we
may need additional funds to meet operational needs and capital requirements
associated with such change.

Cash flow

The following table summarizes our cash flows for the periods indicated:

                                                          Nine Months Ended September 30,
                                                            2022                   2021
                                                                  (in thousands)
Net cash used in operating activities                 $       (105,376 )     $        (70,300 )
Net cash provided by (used in) investing activities            110,537               (212,390 )
Net cash provided by financing activities                      204,914                  9,042
Effect of exchange rate changes on cash and cash
equivalents                                                       (659 )                  363
Net increase (decrease) in cash, cash equivalents
and restricted cash                                   $        209,416       $       (273,285 )


Cash flows from operating activities


Net cash used in operating activities for the nine months ended September 30,
2022 was $105.4 million, which primarily resulted from a net loss of $145.4
million, partially offset by non-cash charges of $24.0 million and a net change
in our operating assets and liabilities of $16.0 million. Non-cash charges
primarily consisted of $16.6 million in stock-based compensation expense, $5.0
million in amortization of right-of-use, or ROU, assets and $1.9 million in
depreciation and amortization. The net change in operating assets and
liabilities of $16.0 million was primarily due to (i) an increase in operating
lease liabilities of $3.0 million related to our San Carlos office, (ii) an
increase in accrued expenses of $5.5 million (iii) an increase in accrued
manufacturing expenses of $5.8 million and (iv) a decrease in prepaid and other
current assets of $2.9 million related to prepaid insurance and research costs.

Net cash used in operating activities for the nine months ended September 30,
2021 was $70.3 million, which primarily resulted from a net loss of $71.5
million and a net change in our operating assets and liabilities of $9.6
million, partially offset by non-cash charges of $10.8 million. The net change
in operating assets and liabilities of $9.6 million was primarily due to (i) an
increase in prepaid and other current assets of $16.3 million related to prepaid
rent expenses resulting from the San Carlos office leasehold improvements, (ii)
an increase in other assets of $3.0 million related to assets purchased to
support manufacturing activities and (iii) a decrease in accrued manufacturing
expenses of $6.0 million resulting from timing of receipt of invoices, partially
offset by increases in (a) accrued expenses of $8.4 million related primarily to
an increase in outsourced research services for the VAX-24 program and (b)
accounts payable of $5.6 million resulting from the timing of payments. Non-cash
charges primarily consisted of $7.6 million in stock-based compensation expense
and $1.3 million in depreciation and amortization.

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Cash flows from investing activities


Cash provided by investing activities for the nine months ended September 30,
2022 was $110.5 million, which related primarily to $136.2 million in maturities
of investments and $10.5 million in sales of investments, partially offset by
$31.5 million in purchases of investments and $4.7 million of purchases of lab
equipment and leasehold improvements.

Cash used in investing activities for the nine months ended September 30, 2021
was $212.4 million, which related primarily to $295.3 million in purchases of
investments and $5.2 million in purchases of lab equipment, partially offset by
$58.0 million in maturities of investments and $30.1 million in sales of
investments.

Cash flows from financing activities


Cash provided by financing activities for the nine months ended September 30,
2022 was $204.9 million, which primarily consisted of net proceeds from our
follow-on public offering of $107.6 million and under our ATM Sales Agreement of
$95.2 million.

Cash provided by financing activities for the nine months ended September 30,
2021 was $9.0 million, which primarily consisted of net proceeds from shares
issued under our ATM Sales Agreement of $7.1 million and proceeds from exercises
of common stock options and shares issued under our employee stock purchase plan
of $1.9 million.

Contractual Obligations and Commitments

Our material cash requirements include the following contractual and other obligations:

Leases

We have operating lease agreements for our office spaces. As of September 30,
2022, we had total lease payment obligations of $22.2 million, of which $6.6
million is payable within one year.


purchase commitments


We have certain payment obligations under various license agreements. Under
these agreements, we are required to make milestone payments upon successful
completion and achievement of certain intellectual property, clinical,
regulatory and sales milestones. The payment obligations under the license
agreements are contingent upon future events such as our achievement of
specified development, clinical, regulatory and commercial milestones, and we
will be required to make development milestone payments and royalty payments in
connection with the sale of products developed under these agreements. As the
achievement and timing of these future milestone payments are not probable or
estimable, such amounts have not been included in our condensed balance sheets
as of September 30, 2022 or December 31, 2021.

We enter into agreements in the normal course of business with CMOs and other
vendors for manufacturing services and raw materials purchases. We rely on
several third-party manufacturers for our manufacturing requirements. As of
September 30, 2022, we had the following amounts due of non-cancelable purchase
commitments related to manufacturing services and raw materials purchased due to
our key manufacturing partners. These amounts represent our minimum contractual
obligations, including termination fees. If we terminate certain firm orders
with our key manufacturing partners, we will be required to pay for the
manufacturing services scheduled or raw materials purchased under our
arrangements. The actual amounts we pay in the future to the vendors under such
agreements may differ from the purchase order amounts.


Years ending December 31,                                            (in thousands)
Remainder of 2022                                                    $        40,156
2023                                                                          40,837
Total non-cancelable purchase commitments due to our key
manufacturing partners                                               $        80,993


Legal Contingencies

From time to time, we may become involved in legal proceedings arising from the
ordinary course of business. We record a liability for such matters when it is
probable that future losses will be incurred and that such losses can be
reasonably estimated. Significant judgment by us is required to determine both
probability and the estimated amount. We do not believe that there is any
litigation or asserted or unasserted claim pending that could, individually or
in the aggregate, have a material adverse effect on our results of operations or
financial condition.

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Critical accounting policies and significant judgments and estimates


Our management's discussion and analysis of our financial condition and results
of operations are based on our condensed financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these condensed 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 condensed financial statements. On an ongoing
basis, we evaluate our estimates and judgments, including those related to
accrued expenses and stock-based compensation and leases. 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.

While our significant accounting policies are described in the notes to our
financial statements included elsewhere in this Quarterly Report on Form 10-Q,
we believe that the following critical accounting policies are most important to
understanding and evaluating our reported financial results:

accumulated research and development expenses


We have entered into various agreements with CMOs and CROs. As part of the
process of preparing our financial statements, we are required to estimate our
accrued research and development expenses, including accrued manufacturing
expenses, as of each balance sheet date. This process involves reviewing open
contracts and purchase orders, communicating with our personnel and third
parties 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 the
actual cost. We make estimates of our accrued research and development expenses
as of each balance sheet date based on facts and circumstances known to us at
that time. We periodically confirm the accuracy of our estimates with the
service providers and make adjustments, if necessary. The significant estimates
in our accrued research and development expenses include the costs incurred for
services performed by our vendors in connection with research and development
activities for which we have not yet been invoiced.

We accrue for costs related to research and development activities based on our
estimates of the services received and efforts expended pursuant to quotes and
contracts with vendors, including CMOs and CROs, that conduct research,
development and manufacturing 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 research and development expense. Advance payments for goods
and services that will be used in future research and development activities are
expensed when the activity has been performed or when the goods have been
received. We make significant judgments and estimates in determining accrued
research and development liabilities as of each reporting period based on the
estimated time period over which services will be performed and the level of
effort to be expended. If the actual timing of the performance of services or
the level of effort varies from our estimate, we adjust the accrual or prepaid
expense accordingly.

Although we do not expect our estimates to be materially different from amounts
actually incurred, if our estimates of the status and timing of services
performed differ from the actual status and timing of services performed, it
could result in us reporting amounts that are too high or too low in any
particular period. To date, there have been no material differences between our
estimates of such expenses and the amounts actually incurred.

Stock-based compensation expense


Stock-based compensation expense related to awards to employees is measured at
the grant date based on the fair value of the award. The fair value of the award
that is ultimately expected to vest is recognized as expense on a straight-line
basis over the requisite service period, which is generally the vesting period,
net of the impact of actual forfeitures recorded in the period in which they
occur.

Stock-based compensation expense related to awards to non-employees is
recognized based on the then-current fair value at each measurement date over
the associated service period of the award, which is generally the vesting term,
using the straight-line method. The fair value of non-employee stock options is
estimated using the Black-Scholes valuation model with assumptions generally
consistent with those used for employee stock options, with the exception of the
expected term, which is the remaining contractual life at each measurement date.
Refer to Note 2, "Basis of Presentation and Summary of Significant Accounting
Policies" and Note 9, "Equity Incentive Plans," to our condensed financial
statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for
more information on assumptions used in estimating stock-based compensation
expense.


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The Black-Scholes option-pricing model requires the use of subjective
assumptions, such as volatility, which determine the fair value of stock-based
awards. The assumptions utilized in the Black-Scholes option-pricing model are
expected term, expected volatility, expected dividend, risk-free interest rate
and fair value of common stock.

Leases


We adopted Accounting Standards Update, or ASU 2016-02, Leases (Topic 842) on
January 1, 2021, using the modified retrospective transition approach. There was
no cumulative-effect adjustment recorded to retained earnings upon adoption.

Under ASC 842, we assess all arrangements that convey the right to control the
use of property, plant and equipment, at inception, to determine if it is, or
contains, a lease based on the unique facts and circumstances present in the
arrangements. In addition, we determine whether leases meet the classification
criteria of a finance or operating lease at the lease commencement date
considering: (i) whether the lease transfers ownership of the underlying asset
to the lessee at the end of the lease term, (ii) whether the lease contains a
bargain purchase option, (iii) whether the lease term is for a major part of the
remaining economic life of the underlying asset, (iv) whether the present value
of the sum of the lease payments and residual value guaranteed by the lessee
equals or exceeds substantially all of the fair value of the underlying asset,
and (v) whether the underlying asset is of such a specialized nature that it is
expected to have no alternative use to the lessor at the end of the lease term.
As of September 30, 2022, our lease population consisted only of operating real
estate leases.

Once a lease is identified and its classification determined, we recognize a ROU
asset and a corresponding lease liability. Lease liabilities are recorded based
on the present value of lease payments over the expected least term. The
corresponding ROU asset is measured from the initial lease liability, adjusted
by (i) accrued or prepaid rents, (ii) remaining unamortized initial direct costs
and lease incentives, and (iii) any impairments of the ROU asset.

Significant assumptions utilized in recognizing the right-of-use assets and
corresponding lease liabilities included the expected lease term and the
incremental borrowing rate. The expected lease term includes both contractual
lease periods and, as applicable, extensions of the lease term when we have
determined the exercise of the option to extend is reasonably certain to occur.
The incremental borrowing rate was utilized to discount lease payments over the
expected term given our operating leases do not provide an implicit rate. We
estimated the incremental borrowing rate based on an analysis of corporate bond
yields with a credit rating similar to us. The determination of our incremental
borrowing rate requires management judgment, including development of a
synthetic credit rating and cost of debt, as we currently do not carry any debt.
We believe that the estimates used in determining the incremental borrowing rate
are reasonable based upon current facts and circumstances.

For additional details regarding the impact of adoption and disclosure, see Note
5, "Leases," to our condensed financial statements included in Part I, Item 1 of
this Quarterly Report on Form 10-Q.


Recently Adopted Accounting Pronouncements

See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” to our condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for more information.

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