May 18, 2022

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ACUMEN PHARMACEUTICALS, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-K)

The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our audited financial statements
and related notes included elsewhere in this Annual Report on Form
10-K.
This discussion, particularly information with respect to our future results of
operations or financial condition, business strategy, plans and objectives of
management for future operations and the potential impact that the ongoing
COVID-19
pandemic may have on our business, includes forward-looking statements that
involve risks and uncertainties as described under the heading "Special Note
Regarding Forward-Looking Statements" in this Annual Report on Form
10-K.
You should review the disclosure under the heading "Risk Factors" in this Annual
Report on Form
10-K
for a discussion of important factors that could cause our actual results to
differ materially from those anticipated in these forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company developing a novel
disease-modifying approach to target what we believe to be a key underlying
cause of AD. Alzheimer’s disease is a progressive neurodegenerative disease of
the brain that leads to loss of memory and cognitive functions and ultimately
results in death. Our scientific founders pioneered research on soluble AßOs,
which are globular assemblies of the Aß peptide that are distinct from Aß
monomers and amyloid plaques. We are currently focused on advancing a targeted
immunotherapy drug candidate, ACU193, through clinical proof of mechanism trials
in early AD patients. We initiated a Phase 1 clinical trial of ACU193 in the
second quarter of 2021, which we named

“INTERCEPT-AD.”

This trial is enrolling patients with mild dementia or MCI due to AD, conditions
referred to as “early AD.”

INTERCEPT-AD

is a U.S.-based, multi-center, randomized, double-blind, placebo-controlled
clinical trial with overlapping SAD and MAD cohorts involving a total of
approximately 62 patients with early AD. The overall objective of the trial is
to evaluate the safety and tolerability and establish clinical proof of
mechanism of ACU193 administered intravenously. The primary trial endpoints are
focused on safety and immunogenicity. An important safety measure will be the
use of MRI to assess the presence or absence of ARIA. Secondary endpoints
include pharmacokinetics in plasma and CSF and target engagement as evidenced by
detection of ACU193 bound to AßOs in CSF. Clinical scales typically used in AD
trials as well as computerized cognitive testing are included as exploratory
measures. In October 2021, we announced the initial dosing of the first patient
in the

INTERCEPT-AD

trial and the subsequent successful sentinel safety review of the first two
patients. Due to delays in clinical trial site activation and patient enrollment
that we believe are principally related to the effects of the

COVID-19

pandemic, we are expanding the anticipated number of trial sites to support our
enrollment objectives and anticipated timelines. Clinical trial site activation
and patient recruitment and enrollment is ongoing. At present,

INTERCEPT-AD

is in the SAD portion of the trial. Based on current site activations and
enrollment rates, we anticipate reporting our topline data from this trial in
the first half of 2023.

We were incorporated in 1996 and were party to an exclusive license and research
collaboration with Merck in 2003. Although we acquired the exclusive rights to
ACU193 from Merck in 2011 following Merck’s strategic decision to focus its AD
development efforts on a different product candidate, we did not recommence
meaningful operations until we completed our first institutional fundraising in
2018. Since 2018, we have devoted substantially all of our efforts to organizing
and staffing our company, business planning, raising capital, conducting
discovery, research and development activities, and providing general and
administrative support for these operations. We do not have any products
approved for sale and have not generated any revenue from product sales. We have
funded our operations primarily through the sale of our convertible preferred
stock and common stock, the issuance of notes, grant revenue and during our
collaboration with Merck, certain payments received under our collaboration
agreement.

Prior to our IPO, which closed on July 6, 2021, we raised an aggregate of
$99.4 million of gross proceeds through the issuance of convertible preferred
stock, as well as sales of common stock and issuance of notes that were
converted to preferred stock, with the vast majority of this capital being
raised since our Series
A-1
convertible preferred stock, or Series
A-1,
financing in 2018. In 2020, we conducted a Series B convertible preferred stock,
or Series B, financing, with the funding to occur in two tranches. We closed the
first tranche of the Series B financing

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in November 2020, selling 11,862,043 shares of Series B at $3.80 per share for
gross proceeds of $45.1 million. On June 9, 2021, our board of directors and the
holders of more than 67% of the outstanding shares of Series B preferred stock
elected to waive the achievement of the milestone event. On June 17, 2021, we
closed the second tranche of our Series B preferred stock financing, pursuant to
which certain of our investors funded an additional $30.0 million in exchange
for 7,908,027 shares of Series B preferred stock.

On July 6, 2021, we issued 9,999,999 shares of our common stock in the IPO, and
on July 8, 2021, we issued an additional 1,499,999 shares of our common stock
that were purchased by the underwriters pursuant to the underwriters’ option to
purchase additional shares at the public offering price less underwriting
discounts and commissions. The price to the public for each share was $16.00.
The aggregate net proceeds from the IPO, after underwriting discounts and
commissions and other offering expenses of $15.4 million, were $168.6 million.

We have incurred net losses and negative cash flows from operations since our
inception. Our net losses were $100.6 million and $7.3 million for the years
ended December 31, 2021 and 2020, respectively. Approximately $81.2 million, or
81%, of the net loss for the year ended December 31, 2021 was due to increases
in the fair value of the Series B tranche liability and the Series
A-1
warrant liability of $76.2 million and $5.0 million, respectively. As of
December 31, 2021, we had an accumulated deficit of $127.6 million. Our net
losses and cash flows from operations may fluctuate significantly from
quarter-to-quarter
and
year-to-year,
depending on the timing of nonclinical studies, clinical trials and our
expenditures on other research and development activities. We expect our
expenses and operating losses will increase substantially for the foreseeable
future as we advance ACU193 in clinical trials, seek to expand our product
candidate portfolio through developing additional product candidates, grow our
clinical, regulatory and quality capabilities, and incur additional costs
associated with operating as a public company. It is likely that we will seek
third-party collaborators for the future commercialization of ACU193 or any
other product candidate that is approved for marketing. However, we may seek to
commercialize our products at our own expense, which would require us to incur
significant additional expenses for marketing, sales, manufacturing and
distribution.

We will not generate revenue from product sales unless and until we successfully
complete clinical development and obtain regulatory approval for our product
candidates. In addition, if we obtain regulatory approval for our product
candidates and do not enter into a third-party commercialization partnership, we
expect to incur significant expenses related to developing our commercialization
capability to support product sales, marketing, manufacturing and distribution
activities.

As a result, we will need substantial additional funding to support our
continuing operations and pursue our growth strategy. Until we can generate
significant revenue from product sales, if ever, we expect to finance our
operations through a combination of public or private equity offerings and debt
financings or other sources, such as potential collaboration agreements,
strategic alliances and licensing arrangements. We may be unable to raise
additional funds or enter into such other agreements or arrangements when needed
on acceptable terms, or at all. Our failure to raise capital or enter into such
agreements as, and when needed, could have a material adverse effect on our
business, results of operations and financial condition.

As of December 31, 2021, we had cash and cash equivalents of $122.2 million and
$103.7 million in marketable securities. Based on our current operating plan, we
expect that our existing cash and cash equivalents and marketable securities
will be sufficient to enable us to fund our operating expenses and capital
expenditure requirements at least through 2025. We have based this estimate on
assumptions that may prove to be wrong, and we could exhaust our available
capital resources sooner than we expect. See “-Liquidity and Capital Resources.”

COVID-19

Business Update

In March 2020, the World Health Organization declared
COVID-19
a global pandemic and the United States declared a national emergency with
respect to
COVID-19.
In response to the
COVID-19
pandemic, a number of governmental orders and other public health guidance
measures have been implemented across much of the United States, including in
the locations of our office, clinical trial sites and third parties on whom we
rely. We implemented a work-from-home policy allowing employees and consultants
who can work from home to do so.

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Business travel has been limited, and online video and teleconference technology
is used to meet virtually rather than in person. We have taken measures to
secure our research and development activities, while work in laboratories by
our partners has been organized to reduce risk of
COVID-19
transmission.

In October 2021, we announced the initial dosing of the first patient in the

INTERCEPT-AD

trial and the subsequent successful sentinel safety review of the first two
patients. Due to delays in clinical trial site activation and patient enrollment
that we believe are principally related to effects of the

COVID-19

pandemic, we are expanding the anticipated number of trial sites to support our
enrollment objectives and anticipated timelines. However, we cannot assure that
we will not experience additional delays in site activation or enrollment.
Clinical trial site activation and patient recruitment and enrollment is
ongoing. At present,

INTERCEPT-AD

is in the SAD portion of the trial. Based on current site activations and
enrollment rates, we anticipate reporting our topline data from this trial in
the first half of 2023.

The ultimate impact of the
COVID-19
pandemic on our business, results of operations, financial position and cash
flows will depend on future developments, including the duration and spread of
the outbreak and related advisories and restrictions. These developments and the
impact of the
COVID-19
pandemic on the financial markets and the overall economy are highly uncertain
and cannot be predicted. If the financial markets and/or the overall economy are
impacted for an extended period, our business, results of operations, financial
position and cash flows may be materially adversely affected.

Components of Results of Operations

Grants and Other Revenue

To date, we have not generated any revenues from the commercial sale of any
products, and we do not expect to generate revenues from the commercial sale of
any products for the foreseeable future, if ever. For the year ended
December 31, 2020, we derived revenue from a grant awarded by the National
Institutes of Health
, or the NIH, in September 2017 and renewed annually in 2018
through 2020. The grant provided us with funding to support the completion of
preclinical chemistry, manufacturing and control studies, toxicology and
pharmacokinetic studies, submit an IND dossier to the FDA, and then conduct
first in human clinical safety trials for ACU193. We recognized revenue from
this grant when the related costs were incurred and the right to payment was
realized. The full $3.9 million awarded to us was fully recognized as of
December 31, 2020, as the final $1.4 million under the grant was recorded as
revenue during the year ended December 31, 2020.

Operating Expenses

Our operating expenses consist of research and development expenses and general
and administrative expenses.

Research and Development Expenses

Research and development costs primarily consist of direct costs associated with
consultants and materials, biologic storage, third party, contract research
organization costs and contract development and manufacturing expenses, salaries
and other personnel-related expenses. Research and development costs are
expensed as incurred. More specifically, these costs include:

         •   costs of funding research performed by third parties that conduct
             research and development and nonclinical and clinical activities on
             our behalf;



  •   costs of manufacturing drug supply and drug product;



         •   costs of conducting nonclinical studies and clinical trials of our
             product candidates;



         •   consulting and professional fees related to research and development
             activities, including equity-based compensation to
             non-employees;



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  •   costs related to compliance with clinical regulatory requirements; and



         •   employee-related expenses, including salaries, benefits and
             stock-based compensation expense for our research and development
             personnel.

As we currently only have one product candidate, ACU193, in development, we do
not separately track expenses by program. Further, as we have historically
relied exclusively on consultants for research and development activities, we
did not have any material internal research and development costs for the years
ended December 31, 2021 and 2020. We expect that our research and development
expenses will increase substantially in connection with our clinical development
activities for our ACU193 program.

General and Administrative Expenses

General and administrative expenses consist primarily of management and business
consultants and other related costs, including stock-based compensation. General
and administrative expenses also include insurance, professional fees for legal,
consulting, accounting, auditing, tax and patent services, investor and public
relations, board of directors’ expenses, franchise taxes and rent.

We expect that our general and administrative expenses will increase as our
organization and headcount needed in the future grows to support continued
research and development activities and potential commercialization of our
product candidates. These increases will likely include increased costs related
to the hiring of additional personnel and fees to outside consultants, attorneys
and accountants, among other expenses. Additionally, we expect to incur
increased expenses associated with being a public company, including costs of
additional personnel, accounting, audit, legal, regulatory
and tax-related services
associated with maintaining compliance with exchange listing and SEC
requirements, director and officer insurance costs, and investor and public
relations costs.

Other Income (Expense)

Other income (expense) primarily includes changes in fair value of the
Series A-1 warrant
liability and the Series B tranche rights, interest income, net and other
expense, net.

The Series
A-1
warrant liability and the Series B tranche rights were initially recorded at
fair value as liabilities on our balance sheet. Each was
subsequently re-measured at
fair value at the end of each reporting period and also upon the exercise of the
warrant on June 22, 2021 and upon settlement of the tranche rights with the
milestone closing for the Series B on June 17, 2021. Changes in the fair value
were recognized as a component of other income (expense).

Following our IPO, we made investments in marketable securities and the interest
income earned, as well as the amortization and accretion of premiums and
discounts are recorded in interest income, net.

Other income (expense), net generally consists of sublease income offset by fees
incurred on our investments in marketable securities.

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Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

The following table summarizes our results of operations for the years ended
December 31, 2021 and 2020 (in thousands):

                                                          Year Ended
                                                         December 31,
                                                     2021             2020           Change
Grant and other revenue                           $       -         $  1,436        $  (1,436 )
Costs and operating expenses
Research and development                              12,305           7,997            4,308
General and administrative                             7,279           1,351            5,928

Total operating expenses                              19,584           9,348           10,236

Loss from operations                                 (19,584 )        (7,912 )        (11,672 )
Other income (expense)
Change in fair value of preferred stock
tranche rights liability and preferred stock
warrant liability                                    (81,157 )           586          (81,743 )
Interest income, net                                      84               1               83
Other income, net                                         51              -                51

Total other income (expense)                         (81,022 )           587          (81,609 )

Net loss                                            (100,606 )        (7,325 )        (93,281 )

Other comprehensive loss
Unrealized loss on marketable securities                (231 )            -              (231 )

Comprehensive loss                                $ (100,837 )      $ (7,325 )      $ (93,512 )



Grant and Other Revenue

Revenue related to our NIH grant was nil and $1.4 million for the years ended
December 31, 2021 and 2020, respectively. Revenue under the NIH grant was
recognized when the related costs were incurred and the right to payment was
realized.

Research and Development Expenses

Research and development expenses were $12.3 million and $8.0 million for the
years ended December 31, 2021 and 2020, respectively. The $4.3 million increase
was primarily due to increases in expenses of $2.3 million for personnel-related
expenses, $2.3 million for materials and $2.1 million for contract research
organization services, which were partially offset by decreases in expenses of
$1.6 million for drug safety testing, $0.6 million for consulting and
$0.2 million for contract manufacturing. The net increase in research and
development expenses in 2021 from 2020 was primarily due to increased costs
related to initiating our clinical trial in 2021.

General and Administrative Expenses

General and administrative expenses were $7.3 million and $1.4 million for the
years ended December 31, 2021 and 2020, respectively. The $5.9 million increase
was primarily due to increases of $2.2 million for personnel expenses, including
stock compensation costs, $1.5 million for insurance expenses, $0.8 million for
accounting and audit expenses, $0.5 million for legal expenses, $0.3 million for
investor relations, as well as $0.1 million each for marketing/public relations,
board of directors' fees, rent, travel, other general and administrative costs
and the
write-off
of the remaining NIH grant receivable which was not submitted in a timely enough
manner to

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collect these funds from the NIH. Following the IPO, we have added a number of
new personnel and a large portion of the other increases are a direct result of
our transition from a private to a public company.

Other Income (Expense)

Increases in the fair value of the Series B tranche liability and the
Series A-1 warrant
liability of $76.2 million and $5.0 million, respectively, were primarily
responsible for total other expense for the year ended December 30, 2021.
Additionally, these expenses were offset by interest income earned on our
investments in marketable securities, net of amortization and accretion of
premium and discount which are recorded in interest income, net and sublease
income. Other income (expense) for the year ended December 31, 2020 was related
to decreases in the fair value of the Series B tranche liability and the Series
A-1
warrant liability of $0.4 million and $0.2 million, respectively.

Liquidity and Capital Resources

Since our inception up until the time of our IPO in July 2021, we had funded our
operations primarily through the sale of our convertible preferred stock and
common stock, the issuance of notes, grant revenue and, during our collaboration
with Merck, certain payments received under our collaboration agreement. We do
not have any products approved for sale and have not generated any revenue from
product sales. Prior to our IPO, we had raised an aggregate of $99.4 million of
gross proceeds through the issuance of convertible preferred stock, as well as
sales of common stock and issuance of notes that were converted to preferred
stock, with the vast majority of this capital being raised since our Series
A-1 financing
in 2018. In 2020, we conducted a Series B financing, with the funding to occur
in two tranches. We closed the first tranche of the Series B financing in
November 2020 for gross proceeds of $45.1 million and the second tranche closed
on June 17, 2021 for gross proceeds of $30.0 million following the election of
our board of directors and a majority of the Series B investors to waive the
requirement for a certain milestone event for ACU193 to be achieved prior to
funding the second tranche on June 9, 2021.

On July 6, 2021, we issued 9,999,999 shares of common stock in our IPO, and on
July 8, 2021, we issued an additional 1,499,999 shares of common stock that were
purchased by the underwriters pursuant to the underwriters’ option to purchase
additional shares at the public offering price less underwriting discounts and
commissions. The price to the public for each share was $16.00. The aggregate
net proceeds from our IPO, after underwriting discounts and commissions and
other offering expenses of $15.4 million, were $168.6 million.

As of December 31, 2021, our cash and cash equivalents totaled $122.2 million.
Additionally, we had $103.7 million of
available-for-sale
marketable securities as of December 31, 2021, which mature over the next one to
two years. We enter into contracts in the normal course of business with
contract research organizations, or CROs, and contract manufacturing
organizations, or CMOs, for clinical trials, nonclinical research studies and
testing, manufacturing and other services and products for operating purposes.
These contracts do not contain any minimum purchase commitments and are
generally cancelable by us upon prior notice of 30 days. Payments due upon
cancelation consist only of payments for services provided and expenses incurred
up to the date of cancelation.

Future minimum lease payments under our lease agreements for our leases in
Carmel, Indiana and Charlottesville, Virginia total less than $0.3 million.

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Cash Flows

The following table summarizes our sources and uses of cash (in thousands):

                                              Year Ended December 31,
                                                2021              2020

Net cash used in operating activities $ (17,961 ) $ (7,450 )
Net cash used in investing activities

            (104,120 )           -

Net cash provided by financing activities 200,466 44,675

Net change in cash and cash equivalents $ 78,385 $ 37,225

Operating Activities

Net cash used in operating activities was $18.0 million and $7.5 million for the
years ended December 31, 2021 and 2020, respectively. Net cash used in operating
activities during the year ended December 31, 2021 primarily consisted of our
net loss of $100.6 million, which includes $81.2 million of
non-cash
expense related to the change in the fair values of the Series B tranche
liability and the Series
A-1
warrant liability and $0.9 million for stock compensation costs, plus
$3.9 million of cash used for prepaid expenses mainly associated with research
and development activities and insurance; partially offset by cash provided of
$3.6 million from accrued expenses and other current liabilities mainly related
to research and development expenses and employee-related accruals, and
$0.6 million of cash provided by accounts payable. Cash used in operating
activities during the year ended December 31, 2021, was the result of ongoing
research and development activities as we commenced our clinical trial, as well
as costs associated with the transition from a private to a public company. Net
cash used in operating activities during the year ended December 31, 2020
primarily consisted of our net loss of $7.3 million, which includes $0.6 million
of
non-cash
expense related to the change in the fair values of the Series B tranche
liability and the Series
A-1
warrant liability and $0.2 million for stock compensation costs, partially
offset by $0.3 million of cash provided by changes in our operating assets and
liabilities.

Investing Activities

Cash used in investing activities for the year ended December 31, 2021 was
$104.1 million and was predominantly related to the purchase of marketable
securities, but also included less than $0.1 million for purchases of computer
hardware. Cash used in investing activities for the year ended December 31, 2020
was nil.

Financing Activities

Net cash provided by financing activities was $200.5 million and $44.7 million
for the year ended December 31, 2021 and 2020, respectively. Net cash provided
by financing activities during the year ended December 31, 2021 was primarily
due to our IPO for net proceeds of $168.6 million, the closing of the second
tranche of our Series B convertible preferred stock for gross proceeds of
$30.0 million, plus a total of $1.9 million received from the exercise of a
Series
A-1
preferred warrant, as well as exercises of common stock warrants. Net cash
provided by financing activities during the year ended December 31, 2020 was
primarily due to the closing of the first tranche of the Series B financing for
net proceeds of $44.7 million.

Funding Requirements

We expect our expenses to increase in connection with our ongoing activities,
particularly as we continue our research and development, conduct clinical
trials, and seek marketing approval for our current and any of our future
product candidates. Furthermore, we have and expect to incur additional costs
associated with operating as a public company following our July 2021 IPO. It is
likely that we will seek third-party collaborators for the future
commercialization of ACU193 or any other product candidate that is approved for
marketing. However, we may seek to commercialize our products at our own
expense, which would require us to incur significant

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additional expenses for marketing, sales, manufacturing and distribution., which
costs we may seek to offset through entry into collaboration agreements with
third parties. As a result, we expect that we will need to obtain substantial
additional funding in connection with our future operations. If we are unable to
raise capital when needed or on acceptable terms, we could be forced to delay,
reduce or eliminate our research and development programs or future
commercialization efforts.

Based on our current operating plan, we expect that our existing cash and cash
equivalents and our marketable securities will be sufficient to enable us to
fund our operating expenses and capital expenditure requirements at least
through 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 discovery, nonclinical
            development, laboratory testing and clinical trials for other potential
            product candidates we may develop, if any;



      •     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 achievement of milestones or occurrence of other developments that
            trigger payments under any collaboration agreements we might have at
            such time;



      •     the costs and timing of future commercialization activities, including
            product sales, marketing, manufacturing and distribution, for any of
            our product candidates for which we receive marketing approval;



      •     the amount of revenue, if any, received from commercial sales of our
            product candidates, should any of our product candidates receive
            marketing approval;



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



      •     our headcount growth and associated costs as we expand our business
            operations and our research and development activities; and



  •   the costs of operating as a public company.

Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our longer-term cash needs through a combination of equity
offerings, debt financings, collaborations, strategic alliances and licensing
arrangements. We do not 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 interests may be diluted, and the
terms of these securities may include liquidation or other preferences that
could adversely affect your rights as a common stockholder. Any debt financing,
if available, may involve agreements that include restrictive covenants that
limit our ability to take specific actions, such as incurring additional debt,
making capital expenditures or declaring dividends, that could adversely impact
our ability to conduct our business.

If we raise funds through collaborations, strategic alliances or licensing
arrangements with third parties, we may have to relinquish valuable rights to
our technologies, future revenue streams, research programs or product
candidates or to grant licenses on terms that may not be favorable to us. If we
are unable to raise additional funds through equity or debt financings when
needed, we may be required to delay, limit, reduce or terminate our 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.

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our financial statements have been prepared in accordance with U.S. generally
accepted accounting principles, or U.S. GAAP. The preparation of these financial
statements requires us to make estimates and assumptions that

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affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported expenses incurred during the reporting periods. Our
estimates and assumptions are based on our historical experience and on various
other factors that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or
conditions. We believe that the accounting policies discussed below are critical
to understanding our historical and future performance, as these policies relate
to the more significant areas involving management’s judgments and estimates.

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

Stock-Based Compensation Expense

We recognize stock-based compensation expense for all stock-based awards.
Stock-based compensation costs are estimated at the grant date based on the fair
value of the equity and recognized as expense, net of actual forfeitures when
they occur, on a straight-line basis over the requisite service period.

We calculate the fair value of options using the Black-Scholes option-pricing
model, which requires the use of various highly subjective assumptions as
follows:

  •   Fair Value of Common Stock
      -See the subsection titled "
      Common Stock Valuations
      " below.



     •    Expected Term
          -We have opted to use the "simplified method" for estimating the expected
          term of options, whereby the expected term equals the arithmetic average
          of the
          mid-point
          between the vesting date and the end of contractual term of the option
          (generally ten years).



     •    Expected Volatility
          -Due to our limited operating history and a lack of sufficient
          company-specific historical and implied volatility data, we have based
          our estimate of expected volatility on the historical volatility of a
          group of industry peers that are publicly traded. We will continue to
          utilize a group of publicly traded peers to estimate volatility until a
          sufficient amount of historical information regarding the volatility of
          our own stock becomes available.



     •    Risk-Free Interest Rate
          -The risk-free rate assumption is based on the U.S. Treasury yield in
          effect at the time of the grant with maturities consistent with the
          expected term of our options.



     •    Expected Dividend Yield
          -We have not issued any dividends in our history and do not expect to pay
          dividends on our common stock over the life of the options and therefore
          have estimated the dividend yield to be zero.

We will continue to use judgment in evaluating the expected volatility, expected
terms and interest rates utilized for our stock-based compensation expense
calculations on a prospective basis.

For the years ended December 31, 2021 and 2020, stock-based compensation expense
was $0.9 million and $0.2 million, respectively. As of December 31, 2021, we had
approximately $4.7 million of total unrecognized stock-based compensation costs,
which we expect to recognize over an estimated weighted-average period of
3.0 years. We expect to continue to grant options and other stock-based awards
in the future, and to the extent that we do, our stock-based compensation
expense recognized in future periods will likely increase.

Common Stock Valuations

Given the absence of a public trading market of our common stock prior to the
IPO, and in accordance with the American Institute of Certified Public
Accountants Practice Guide
,
Valuation of Privately Held Company Equity

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Securities Issued as Compensation
, the Practice Aid, our board of directors exercised reasonable judgment and
considered numerous and subjective factors to determine the best estimate of
fair value of our common stock prior to the IPO, including, but not limited to:

  •   relevant precedent transactions involving our capital stock;



     •    contemporaneous valuations of our common stock performed by third-party
          specialists;



     •    rights, preferences, and privileges of our redeemable convertible
          preferred stock relative to those of our common stock;



     •    our business, financial condition and results of operations, including
          related industry trends affecting our operations;



     •    likelihood of achieving a liquidity event, such as an initial public
          offering or a sale of our business;



     •    the lack of marketability of our common stock, and the illiquidity of
          stock-based awards involving securities in a private company;



  •   market multiples of comparable publicly-traded companies; and



  •   U.S. and global capital and macroeconomic conditions.

The Practice Aid identifies various available methods for allocating enterprise
value across classes and series of capital stock to determine the estimated fair
value of common stock at each valuation date. In accordance with the Practice
Aid, we considered the following methods:

     •    Option Pricing Method, or OPM.
          Under the OPM, shares are valued by creating a series of call options
          with exercise prices based on the liquidation preferences and conversion
          terms of each equity class. The estimated fair values of the preferred
          and common stock are inferred by analyzing these options. This method is
          appropriate to use when the range of possible future outcomes is so
          difficult to predict that estimates would be highly speculative, and
          dissolution or liquidation is not imminent.



     •    Probability-Weighted Expected Return Method, or PWERM.
          The PWERM is a scenario-based analysis that estimates value per share
          based on the probability-weighted present value of expected future
          investment returns, considering each of the possible outcomes available
          to us, as well as the economic and control rights of each share class.


For valuations performed during fiscal years 2018 through 2020 we used the OPM.
For valuations performed beginning in 2021, prior to the IPO, in accordance with
the Practice Aid, we used a hybrid approach of the OPM and the PWERM methods to
determine the estimated fair value of our common stock as a result of the
increasing likelihood of the occurrence of certain discrete events, such as a
potential IPO, improving market conditions and receptivity of the market to
initial public offerings. The enterprise value determined under the OPM and
PWERM methods was weighted according to our board of directors' estimate of the
probability of the occurrence of a certain discrete event as of the valuation
date. The resulting equity value for the common stock was then divided by the
number of shares of common stock outstanding at the date of the valuation to
derive a per share value on a
non-marketable
basis. In order to determine the fair value of our common stock on a marketable
basis, we then applied a discount for lack of marketability which we derived
based on inputs including a company-specific volatility rate, a term equal to
the expected time to a future liquidity event and a risk-free rate equal to the
yield on treasuries of similar duration.

Application of these approaches involves the use of estimates, judgment and
assumptions that are highly complex and subjective, such as those regarding our
expected future revenue, expenses, cash flows, discount rates, market multiples,
the selection of comparable companies and the probability of future events.
Changes in any or all of these estimates and assumptions, or the relationships
between those assumptions, impact our valuations as of each valuation date and
may have a material impact on the valuation of common stock. The assumptions
underlying these valuations represent our management’s best estimate, which
involve inherent uncertainties and

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the application of management judgment. As a result, if factors or expected
outcomes change and we use significantly different assumptions or estimates, our
stock-based compensation expense could be materially different.

Following the closing of the initial public offering, the fair value of our
common stock has been determined based on the quoted market price of our common
stock.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to
estimate our accrued expenses as of each balance sheet date. This process
involves reviewing open contracts and purchase orders, identifying 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 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. Since our
inception, we have not experienced any material differences between accrued or
prepaid costs and actual costs.

We base our expenses related to research and development activities on our
estimates of the services received and efforts expended pursuant to quotes and
contracts with vendors that conduct research and development on our behalf. The
financial terms of these agreements are subject to negotiation, vary from
contract to contract and may result in uneven payment flows. There may be
instances in which payments made to our vendors will exceed the level of
services provided and result in a prepayment of the research and development
expense. In accruing service fees, we estimate the time period over which
services will be performed and the level of effort to be expended in each
period. If the actual timing of the performance of services or the level of
effort varies from our estimate, we adjust the accrual or prepaid expense
accordingly. 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 rather than when the payment is
made.

Accrued research and development expenses increased to $2.6 million as of
December 31, 2021, compared with $0.1 million as of December 31, 2020, and
prepaid research and development expenses increased to $2.6 million as of
December 31, 2021, compared with $0.4 million as of December 31, 2020. The
increases in both accrued and prepaid research and development are due to
commencement of our clinical trial.

Emerging Growth Company and Smaller Reporting Company Status

In April 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was
enacted. Section 107 of the JOBS Act provides that an “emerging growth company”
can take advantage of the extended transition period provided in
Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with
new or revised accounting standards. Thus, an emerging growth company can delay
the adoption of certain accounting standards until those standards would
otherwise apply to private companies. We elected the extended transition period
for complying with new or revised accounting standards, which delays the
adoption of these accounting standards until they would apply to private
companies.

In addition, as an emerging growth company, we may take advantage of specified
reduced disclosure and other requirements that are otherwise applicable
generally to public companies. These provisions include:

     •    an exception from compliance with the auditor attestation requirements of
          Section 404 of the Sarbanes-Oxley Act of 2002, as amended;



     •    reduced disclosure about our executive compensation arrangements in our
          periodic reports, proxy statements and registration statements;



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     •    exemptions from the requirements of holding
          non-binding
          advisory votes on executive compensation or golden parachute
          arrangements; and



     •    an exemption from compliance with the requirements of the Public Company
          Accounting Oversight Board regarding the communication of critical audit
          matters in the auditor's report on financial statements.


We may take advantage of these provisions until we no longer qualify as an
emerging growth company. We will cease to qualify as an emerging growth company
on the date that is the earliest of: (i) December 31, 2025, (ii) the last day of
the fiscal year in which we have more than $1.07 billion in total annual gross
revenues, (iii) the date on which we are deemed to be a "large accelerated
filer" under the rules of the SEC, which means the market value of our common
stock that is held by
non-affiliates
exceeds $700 million as of the prior June 30th, or (iv) the date on which we
have issued more than $1.0 billion of
non-convertible
debt over the prior three-year period. We may choose to take advantage of some
but not all of these reduced reporting burdens. We have taken advantage of
certain reduced reporting requirements in this Annual Report on Form
10-K
and our other filings with the SEC. Accordingly, the information contained
herein may be different than you might obtain from other public companies in
which you hold equity interests.

We are also a "smaller reporting company," meaning that the market value of our
shares 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 shares held
by non-affiliates is
less than $250 million or (ii) our annual revenue was less than $100 million
during the most recently completed fiscal year and the market value of our
shares held
by non-affiliates is
less than $700 million. If we are a smaller reporting company at the time we
cease to be an emerging growth company, we may continue to rely on exemptions
from certain disclosure requirements that are available to smaller reporting
companies. Specifically, as a smaller reporting company, we may choose to
present only the two most recent fiscal years of audited financial statements in
our Annual Report
on Form 10-K and,
similar to emerging growth companies, smaller reporting companies have reduced
disclosure obligations regarding executive compensation.

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