NEXIMMUNE, INC. Management report and analysis of the financial situation and operating results. (Form 10-K)

You should read the following discussion and analysis of our financial condition
and results of operations together with our financial statements and related
notes appearing elsewhere in this filing on Form 10-K and our final prospectus
for our initial public offering filed pursuant to Rule 424(b)(4) under the
Securities Act of 1933, as amended, or the Securities Act, on February 11, 2021,
or the Prospectus. Some of the information contained in this discussion and
analysis or set forth elsewhere in this Form 10-K, including information with
respect to our plans and strategy for our business and related financing,
includes forward-looking statements that involve risks and uncertainties. As a
result of many factors, including those factors set forth in
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the “Risk Factors” section of this Form 10-K, our actual results could differ materially from the results described or implied by the forward-looking statements contained in the following discussion and analysis.

Investors and others should note that we routinely use the Investor Relations
section of our website to announce material information to investors and the
marketplace. While not all of the information that we post on the Investor
Relations section of our website is of a material nature, some information could
be deemed to be material. Accordingly, we encourage investors, the media, and
others interested in us to review the information that it shares on the Investor
Relations section of our website, www.neximmune.com.

Overview

We are a clinical-stage biotechnology company developing a novel approach to
immunotherapy designed to employ the body's own T cells to generate a specific,
potent and durable immune response that mimics natural biology. Our mission is
to create therapies with curative potential for patients with cancer and other
life-threatening immune-mediated diseases. Currently, we have two product
candidates in human trials: NEXI-001 in acute myeloid leukemia, or AML,
and NEXI-002 in multiple myeloma, or MM.

We were incorporated under the laws of State of Delaware to June 7, 2011. In
June 2011we have exclusively licensed the core AIM technology from The Johns Hopkins UniversityWhere John Hopkins. See “Business-Johns Hopkins License Agreement” for more information on this license.

To date, we have devoted substantially all of our resources to organizing and
staffing our company, business planning, raising capital, identifying and
developing product candidates, enhancing our intellectual property portfolio,
undertaking research, conducting preclinical studies and clinical trials, and
securing manufacturing for our development programs. We do not have any products
approved for sale and have not generated any revenue from product sales.

To date, we have funded our operations primarily with proceeds from private
placement of convertible preferred stock, our convertible promissory notes and
the IPO. In February 2021, we completed the IPO and issued and sold an aggregate
7,441,650 shares of common stock, which included 970,650 shares of our common
stock issued pursuant to the underwriters' option to purchase additional shares,
at a public offering price of $17.00 per share, for net proceeds of $114.6
million after deducting underwriting discounts and commissions and other
offering costs.

We have incurred significant operating losses since our inception, which are
mainly attributed to research and development costs and employee payroll
expense. Our net loss was $50.9 million and $29.9 million for the years ended
December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an
accumulated deficit of $127.7 million. Our operating losses may fluctuate
significantly from quarter-to-quarter and year-to-year as a result of several
factors, including the timing of our preclinical studies and clinical trials and
our expenditures related to other research and development activities. We expect
to continue to incur operating losses for the foreseeable future. We anticipate
these losses will increase substantially as we advance our product candidates
through preclinical and clinical development, develop additional product
candidates and seek regulatory approvals for our product candidates. We do not
expect to generate any revenues from product sales unless and until we
successfully complete development and obtain regulatory approval for one or more
product candidates. In addition, if we obtain marketing approval for any product
candidate, we expect to incur pre-commercialization expenses and significant
commercialization expenses related to marketing, sales, manufacturing and
distribution. We may also incur expenses in connection with the in-licensing of
additional product candidates. Furthermore, we expect to incur additional costs
associated with operating as a public company, including significant legal,
accounting, investor relations, compliance and other expenses that we did not
incur as a private company.

As a result, we will need substantial additional funding to support our
continuing operations and pursue our growth strategy. Until such time as we can
generate significant revenue from sales of our product candidates, if ever, we
expect to finance our cash needs through public or private equity offerings,
debt financings, collaborations and licensing arrangements or other capital
sources. However, we may be unable to raise additional funds or enter into such
other arrangements when needed on favorable terms or at all. Our failure to
raise capital or enter into such other arrangements as and when needed would
have a negative impact on our financial condition and could force us to delay,
limit, reduce or terminate our product development or future commercialization
efforts or grant rights to develop and market our product candidates that we
would otherwise prefer to develop and market ourselves.

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

From December 31, 2021we had cash, cash equivalents and marketable securities available for sale from $81.8 million.

Components of our operating results

Income

We have not generated any income since our inception and do not expect to generate income from product sales in the near future, if at all.

Research and development costs

To date, our research and development expenses have related primarily to
development of NEXI-001 and NEXI-002 and related clinical trials, preclinical
studies and other preclinical activities related to our portfolio. Research and
development expenses are recognized as incurred and payments made prior to the
receipt of goods or services to be used in research and development are
capitalized until the goods or services are received. Research and development
expenses also include the accrual of minimum royalties under our Johns Hopkins
license.

Research and development costs include:

•salaries, payroll taxes, benefits and stock-based compensation expenses for those involved in research and development efforts;

•external research and development costs incurred under agreements with contract research organizations, or CROs, and consultants to conduct our preclinical, toxicology and other preclinical studies;

•laboratory supplies;

•costs related to the manufacture of product candidates, including fees paid to third-party manufacturers and raw material suppliers;

• license fees and research funding; and

•facilities, depreciation and other allocated expenses, which include direct and
allocated expenses for rent, maintenance of facilities, insurance, equipment and
other supplies.

Clinical trial costs are a significant component of research and development
expenses and include costs associated with third-party contractors. We outsource
a substantial portion of our clinical trial activities, utilizing external
entities such as CROs, independent clinical investigators and other third-party
service providers to assist us with the execution of our clinical trials. We
also expect to incur additional expenses related to milestone and royalty
payments payable to Johns Hopkins.

We plan to substantially increase our research and development expenses for the
foreseeable future as we continue the development of our product candidates and
seek to discover and develop new product candidates. Due to the inherently
unpredictable nature of preclinical and clinical development, we cannot
determine with certainty the timing of the initiation, duration or costs of
future clinical trials and preclinical studies of product candidates. Clinical
and preclinical development timelines, the probability of success and the amount
of development costs can differ materially from expectations. We anticipate that
we will make determinations as to which product candidates and development
programs to pursue and how much funding to direct to each product candidate or
program on an ongoing basis in response to the results of ongoing and future
preclinical studies and clinical trials, regulatory developments and our ongoing
assessments as to each product candidate's commercial potential. In addition, we
cannot forecast which product candidates may be subject to future
collaborations, when such arrangements will be secured, if at all, and to what
degree such arrangements would affect our development plans and capital
requirements.

Our future clinical development costs may vary significantly depending on factors such as:

•per-patient trial costs;

•the number of tests required for regulatory approval;

•the number of sites included in the trials;

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•the countries in which the trials are taking place;

•the time needed to enroll eligible patients;

•the number of patients taking part in the trials;

•the number of doses patients receive;

•patient drop-out or default rates;

•Potential additional safety oversight required by regulatory agencies;

•the duration of patient participation in trials and follow-up;

•the development phase of the candidate product; and

•the efficacy and safety profile of the candidate product.

General and administrative expenses

General and administrative expenses consist primarily of salaries and
employee-related costs, including stock-based compensation, for personnel in our
executive, finance and other administrative functions. Other significant costs
include facility-related costs, legal fees relating to intellectual property and
corporate matters, professional fees for accounting and consulting services and
insurance costs. We anticipate that our general and administrative expenses will
increase in the future to support our continued research and development
activities, pre-commercialization activities and, if any product candidates
receive marketing approval, commercialization activities. We also anticipate
increased expenses related to audit, legal, regulatory and tax-related services
associated with maintaining compliance with exchange listing and SEC
requirements, director and officer insurance premiums and investor relations
costs associated with operating as a public company.

interest income

Interest income includes interest earned on our cash equivalents and marketable securities during the period.

Interest charges

Interest expense consists of interest accrued on convertible notes and interest accrued upon amortization of the conversion advantage feature, debt issuance costs and bifurcated derivative liability.

Change in fair value of derivative liability

The change in fair value of the derivative liability consists entirely of the mark-to-market adjustment of the bifurcated derivative liability related to the convertible notes. Following our IPO, the derivative liability was settled.

Gain on extinguishment of debt

The gain on extinguishment of debt is the result of the cancellation of our PPP loan by our lending institution pursuant to the CARES Act.

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Operating results

Completed exercises December 31, 2021 and 2020

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

                                                     For the years ended
                                                        December 31,
                                                     2021           2020          Change
                                                       (in thousands)
Operating expenses:
Research and development                             37,456      $  17,839      $  19,617
General and administrative                           15,799         10,012          5,787
Total operating expenses                             53,255         27,851         25,404
Loss from operations                                (53,255)       (27,851)       (25,404)
Other income (expense):
Interest income                                          53             21             32
Change in fair value of derivative liability          2,425           (442) 

2,867

Gain on extinguishment of debt                          844              -            844
Interest expense                                       (905)        (1,683)           778
Other (expense) income                                  (61)            89           (150)
Other income (expense)                                2,354         (2,015)         4,369
Net loss                                         $  (50,901)     $ (29,866)     $ (21,035)


Research and Development Expenses. Research and development expenses were $37.5
million and $17.8 million for the years ended December 31, 2021 and 2020,
respectively. The increase of $19.6 million was due primarily to increases of
$10.5 million on research and preclinical manufacturing, an increase of $1.9
million on clinical trial expenses, increases to salary and benefits of
$3.7 million resulting from increased headcount, $2.6 million in stock
compensation expense, and $0.9 million in consulting fees. We have not
historically tracked internal research and development expenses by product
candidate.

General and Administrative Expenses. General and administrative expenses were
$15.8 million and $10.0 million for the years ended December 31, 2021 and 2020,
respectively. The increase of $5.8 million was due primarily to increases of
$1.7 million in salary and benefits resulting from increased headcount, $2.2
million in stock compensation expense, an increase of $2.5 million in
professional fees and Directors and Officers insurance as a result of operating
as public company, partially offset by a $0.6 million decrease in legal and
consulting fees.

Change in Fair Value of Derivative Liability. The change in fair value of
derivative liability was an increase of $2.4 million and a decrease of $0.4
million for the years ending December 31, 2021 and 2020, respectively. The
increase reflected the remeasurement of the derivative liability immediately
before the conversion of the convertible notes into shares of common stock upon
the completion of the IPO in February 2021. Upon completion of the IPO, the
derivative liability was settled and there is no future remeasurement.

Gain on Extinguishment of Debt. The gain on extinguishment of debt was $0.8
million for the year ended December 31, 2021. The increase was due to the PPP
Loan forgiveness of $0.8 million. The was no debt extinguishment for the years
ended December 31, 2020.

Interest Expense. Interest expense was $0.9 million and $1.7 million for the
years ended December 31, 2021 and 2020, respectively. The decrease is due to the
conversion of the convertible notes into shares of common stock upon the
completion of the IPO in February 2021.
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Results of Operations

Completed exercises December 31, 2020 and 2019

The following table summarizes our results of operations for the years ended
December 31, 2020 and 2019:

                                                     For the years ended
                                                        December 31,
                                                     2020           2019          Change
                                                       (in thousands)
Operating expenses:
Research and development                         $   17,839      $  15,172      $  2,667
General and administrative                           10,012          5,714         4,298
Total operating expenses                             27,851         20,886         6,965
Loss from operations                                (27,851)       (20,886)       (6,965)
Other (expense) income:
Interest income                                          21            254          (233)
Interest expense                                     (1,683)            (7)       (1,676)
Change in fair value of derivative liability           (442)             -          (442)
Other income (expense)                                   90             92            (2)
Other income / (expense)                             (2,014)           339        (2,353)
Net loss                                         $  (29,865)     $ (20,547)     $ (9,318)



Research and Development Expenses. Research and development expenses were $17.8
million and $15.2 million for the years ended December 31, 2020 and 2019,
respectively. The increase of $2.7 million was due primarily to increases of
$1.4 million for salary and benefits resulting from increased headcount,
increases of $4.0 million on clinical trial expenses, increases of $0.3 million
for supplies and increases of $0.2 million in other expenses. These increases
are partially offset by decreases in consulting expenses of $0.8 million for
regulatory related activities and decreases of $2.4 million for preclinical and
manufacturing development work. We have not historically tracked internal
research and development expenses by product candidate.

General and Administrative Expenses. General and administrative expenses were
$10.0 million and $5.7 million for the years ended December 31, 2020 and 2019,
respectively. The increase of $4.3 million was due primarily to increases of
$1.2 million in salary and benefits resulting from increased headcount, $2.0
million in professional services related to corporate and patent related legal
fees of $0.8 million and $1.2 million in accounting fees, $1.0 million in
consulting fees and other expenses of $0.1 million.

Interest Income. Interest income was $0.0 million and $0.3 million for the years
ended December 31, 2020 and 2019, respectively and consisted of interest earned
on our available-for-sale marketable securities during 2019.

Interest Expense. Interest expense was $1.7 million and $0.0 million for the
years ended December 31, 2020 and 2019, respectively. The increase is due to the
issuance of convertible debt in 2020.

Change in Fair Value of Derivative Liability. The change in fair value of
derivative liability was $0.4 and $0.0 million for years ended December 31, 2020
and 2019, respectively. The increase reflected the issuance of convertible debt
during 2020 and the related, separately valued derivative.

Cash and capital resources

We have incurred net losses and negative cash flows from operations since our
inception and anticipate we will continue to incur net losses for the
foreseeable future. As of December 31, 2021, we had cash, cash equivalents, and
available-for-sale marketable securities of $81.8 million.
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Sources of liquidity

We have funded our operations primarily through private placements of our convertible preferred shares, convertible promissory notes and the IPO.

Financing by convertible notes

From April 2020 by December 31, 2020we issued $21,618,286 aggregate principal amount of the convertible notes, which bore interest at 6% per annum until converted into common shares upon completion of our IPO.

In January 2021we have issued a supplement $9,031,480 aggregate principal amount of the convertible notes, which bore interest at 6% per annum until converted into common shares upon completion of our IPO.

Paycheck Protection Program Loan

On April 23, 2020, we entered into an unsecured loan agreement with JPMorgan
Chase Bank, or Chase, under the terms of which Chase loaned us $843,619, or the
PPP Loan, pursuant to the Paycheck Protection Program, or PPP, under the
Coronavirus Aid, Relief, and Economic Security Act, or CARES Act. In accordance
with the requirements of the CARES Act, we used the proceeds primarily for
payroll costs and other eligible expenses. The PPP Loan had a maturity date of
April 23, 2022 and accrued interest at an annual rate of 0.98%. Interest and
principal payments were deferred for the first six months of the loan.
Thereafter, monthly interest and principal payments were due until the loan is
fully satisfied. The promissory note evidencing the PPP Loan contains customary
events of default resulting from, among other things, default in the payments.
The use of loan proceeds must be for payroll costs, payment of interest on
covered mortgage obligations, rent and utility costs over either an eight-week
or 24-week period, at our option, following our receipt of the loan proceeds. We
elected to use the proceeds over a 24-week period. We treated the PPP loan as
debt under ASC 470, Debt. The CARES Act and the PPP provide a mechanism for
forgiveness of up to the full amount borrowed. We submitted the PPP Loan
forgiveness application in March 2021 and received full forgiveness of the
$843,619 PPP Loan in July 2021. The Company recognized the $843,619 forgiveness
as a gain on extinguishment of debt for the year ended December 31, 2021.

Initial public offering

In February 2021, we completed an IPO and issued and sold an aggregate 7,441,650
shares of common stock, which included 970,650 shares of our common stock issued
pursuant to the underwriters' option to purchase additional shares, at a public
offering price of $17.00 per share, for net proceeds of $114.6 million after
deducting underwriting discounts and commissions and other offering costs.

Cash flow

The following table presents a summary of net cash activity for the years ended December 31, 2021 and 2020:

                                                                         Year ended December 31
                                                                         2021                  2020
                                                                             (in thousands)
Net cash provided by (used in):
Operating activities                                              $    (45,785)            $ (26,405)
Investing activities                                                   (53,807)                  222
Financing activities                                                   124,888                22,085
Net increase (decrease) in cash, cash equivalents and restricted
cash                                                              $     25,296             $  (4,098)


Operating Activities

Net cash used in operating activities was $45.8 million and $26.4 million for
the years ended December 31, 2021 and 2020, respectively. The net cash used in
operating activities for the year ended December 31, 2021 was primarily due to
our net loss of $50.9 million, resulting from R&D expenditures of $37.5 million
as we continue to ramp up our clinical program and $15.8 million of
administrative expenses for salary and related expenses and professional fees.
Our net loss is partially offset by $5.1 million in non-cash expenses and
working capital changes.
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The net cash used in operating activities for the year ended December 31, 2020
was primarily due to our net loss of $29.9 million, consisting of $17.8 million
for R&D expenses primarily in pre-clinical research expenses as we prepared for
our clinical program and began ramping up our clinical programs, and $10.0
million in administrative expenses for salary and related expenses and
profession fees. These are partially offset by $3.5 million in non-cash expenses
and working capital changes.

Investing Activities

Net cash used in investing activities was $53.8 million and $0.2 million for the
years ended December 31, 2021 and 2020, respectively. The net cash used by
investing activities for the year ended December 31, 2021 was primarily due to
the purchase of $90.5 million in available-for-sale marketable securities
partially offset by the maturities of $39.0 million
in available-for-sale marketable securities and by the purchase of property and
equipment of $2.4 million.

The net cash provided by investing activities for the year ended December 31,
2020 was primarily due to maturities of available-for-sale marketable securities
of $1.0 million, and collection of employee advance of $0.1 million partially
offset by the purchase of property and equipment for $0.9 million.

Fundraising activities

Net cash provided by financing activities was $124.9 million for the year ended
December 31, 2021 primarily due to the net proceeds of $114.7 million from the
IPO excluding financing costs paid in 2020, $9.0 million from the issuance of
convertible debt and $1.2 million from the exercise of stock options.

Net cash provided by financing activities was $22.1 million for the year ended
December 31, 2020 primarily due to the net proceeds of $20.7 million from the
issuance of convertible debt and the receipt of $0.8 million under a PPP loan.

Financing needs

We believe that our existing cash, cash equivalents, and marketable securities
will be sufficient to meet our anticipated cash requirements for at least 12
months from the issuance of these financial statements. However, our forecast of
the period of time through which our financial resources will be adequate to
support our operations is a forward-looking statement that involves risks and
uncertainties, and actual results could vary materially. We have based this
estimate on assumptions that may prove to be wrong, and we could deplete our
capital resources sooner than we expect.

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

•the initiation, progress, timing, costs and results of drug discovery, preclinical studies and clinical trials of NEXI-001 and NEXI-002 and any other future product candidates;

•the number and characteristics of the product candidates we are looking for;

•the outcome, timing and costs of obtaining regulatory approvals;

•the cost of manufacturing NEXI-001 and NEXI-002 and future product candidates
for clinical trials in preparation for marketing approval and in preparation for
commercialization;

•costs associated with hiring additional staff and consultants as our preclinical and clinical activities increase;

•the emergence of competing therapies and other adverse market developments;

• the ability to establish and maintain strategic licenses or other agreements and the financial terms of such agreements;

•costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

•the extent to which we license or acquire other products and technologies; and

•operating costs as a public company.

Until such time, if ever, as we can generate substantial product revenues to
support our capital requirements, we expect to finance our cash needs through a
combination of public or private equity offerings, debt financings,
collaborations and
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licensing arrangements or other capital sources. To the extent that we raise
additional capital through the sale of equity or convertible debt securities,
the ownership interest of our stockholders will be or could be diluted, and the
terms of these securities may include liquidation or other preferences that
adversely affect the rights of our common stockholders. Debt financing and
equity financing, if available, may involve agreements that include covenants
limiting or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. If we raise
funds through collaborations, or other similar arrangements with third parties,
we may need to relinquish valuable rights to our product candidates, future
revenue streams or research programs or may have to grant licenses on terms that
may not be favorable to us and/or may reduce the value of our common stock. If
we are unable to raise additional funds through equity or debt financings as and
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 our product candidates even if we would otherwise prefer to develop and
market such product candidates ourselves.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with U.S. generally accepted accounting principles. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
the disclosure of contingent assets and liabilities in our financial statements.
On an ongoing basis, we evaluate our estimates and judgments, including those
related to accrued expenses and stock-based compensation. We base our estimates
on historical experience, known trends and events, and various other factors
that we believe 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. Our actual results
may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note
3, "Summary of significant accounting policies," we believe the following
accounting policies and estimates to be most critical to the preparation of our
financial statements.

Accumulated research and development costs

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, communicating with our
personnel to identify services that have been performed on our behalf and
estimating the level of service performed and the associated cost incurred for
the service when we have not yet been invoiced or otherwise notified of 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.

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.

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.

Derivative financial instruments

In connection with our issuance of the convertible notes, we assessed all terms
and features of the convertible notes to identify any potential embedded
features that would require bifurcation. As part of this analysis, we assessed
the economic
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characteristics and risks of the convertible notes including the conversion, put
and call features. We bifurcated the share-settled redemption features and
recorded them as a derivative liability in our balance sheet. We completed our
IPO on February 11, 2021, which triggered the mandatory conversion of all the
outstanding Convertible Notes plus accrued interest. Upon conversion of the
Convertible Notes, the outstanding Convertible notes principal plus accrued
interest thereon, net of unamortized debt discounts was reclassified to
stockholders' equity (deficit).

The derivative instruments were re-measured at the end of each reporting period
with changes in fair value recorded in the statements of operations in other
income (expense) as a change in fair value of the derivative liability. We
utilized a valuation specialist in determining the fair value of the derivative
liability. The fair value assessment incorporated management's assumptions for
probabilities of conversion occurrence through maturity, stock price, stock
volatility, credit spread, risk-free interest rates and the stock dividend
yield.

Stock-based compensation expense

Stock-based compensation expense represents the cost of the grant date fair
value of equity awards recognized over the requisite service period of the
awards (usually the vesting period) on a straight-line basis. We estimate the
fair value of equity awards using the Black-Scholes option pricing model and
recognize forfeitures as they occur. Estimating the fair value of equity awards
as of the grant date using valuation models, such as the Black-Scholes option
pricing model, is affected by assumptions regarding a number of variables,
including the risk-free interest rate, the expected stock price volatility, the
expected term of stock options, the expected dividend yield and the fair value
of the underlying common stock on the date of grant. Changes in the assumptions
can materially affect the fair value and ultimately how much stock-based
compensation expense is recognized. These inputs are subjective and generally
require significant analysis and judgment to develop. See Note 3, "Summary of
significant accounting policies" for information concerning certain of the
specific assumptions we used in applying the Black-Scholes option pricing model
to determine the estimated fair value of our stock options granted for the years
ended December 31, 2021 and 2020.

Common Stock Valuations

We are required to estimate the fair value of the common stock underlying our
equity awards when performing fair value calculations. The fair value of the
common stock underlying our equity awards was determined on each grant date by
our board of directors, taking into account input from management and
independent third-party valuation analyses. All options to purchase shares of
our common stock are intended to be granted with an exercise price per share no
less than the fair value per share of our common stock underlying those options
on the date of grant, based on the information known to us on the date of grant.
In the absence of a public trading market for our common stock, on each grant
date we develop an estimate of the fair value of our common stock in order to
determine an exercise price for the option grants. Our determinations of the
fair value of our common stock were made using methodologies, approaches and
assumptions consistent with the American Institute of Certified Public
Accountants Accounting and Valuation Guide: Valuation of Privately Held Company
Equity Securities Issued as Compensation, or the Practice Aid.

Our Board of Directors considered a variety of objective and subjective factors, as well as management’s input, in determining the fair value of our common stock, including:

• valuations of our common stock performed with the assistance of independent third-party valuation specialists;

•current and potential strategic relationships and licenses;

• our stage of development and business strategy, including the status of research and development efforts for our product candidates, and material risks relating to our business and industry;

•our results of operations and financial condition, including our levels of available capital resources;

• the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of comparable companies;

•the lack of marketability of our common stock as a private company;

•the prices of preferred stock sold to investors in arm's length transactions
and the rights, preferences and privileges of our preferred stock relative to
those of our common stock;

•the likelihood of a liquidity event occurring for holders of our common stock, such as an initial public offering or sale of our company, given prevailing market conditions;

•trends and developments in our industry; and

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•external market conditions affecting the life sciences and biotechnology industry sectors.

The Practice Aid prescribes several valuation approaches for setting the value
of an enterprise, such as the cost, income and market approaches, and various
methodologies for allocating the value of an enterprise to its common stock. The
cost approach establishes the value of an enterprise based on the cost of
reproducing or replacing the property less depreciation and functional or
economic obsolescence, if present. The income approach establishes the value of
an enterprise based on the present value of future cash flows that are
reasonably reflective of our future operations, discounting to the present value
with an appropriate risk-adjusted discount rate or capitalization rate. The
market approach is based on the assumption that the value of an asset is equal
to the value of a substitute asset with the same characteristics. Each valuation
methodology was considered in our valuations.

The various methods of allocating enterprise value among our classes and series of equity to determine the fair value of our common shares pursuant to the practice aid include the following:

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 values of the preferred and
common stock are inferred by analyzing these options.

Probability Weighted Expected Return Method, or PWERM. PWERM is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future returns from investments, taking into account each of the possible outcomes available to us, as well as economic and control of each class of shares. .

In determining the fair value of our common stock underlying stock option grants
prior to our IPO for the years ended December 31, 2021 and 2020, we estimated
the enterprise value of our business using the back-solve method and the OPM to
allocate enterprise value. The back-solve method is a market approach that
assigns an implied enterprise value based on the most recent round of funding or
investment and allows for the incorporation of the implied future benefits and
risks of the investment decision assigned by an outside investor. We believed
the OPM was the most appropriate method given the expectation of various
potential liquidity outcomes and the difficulty of selecting and supporting
appropriate enterprise values given our early stage of development.

Options granted after the Company’s IPO are issued at the fair market value of the Company’s common stock on the date the grant is approved by the Board.

Other company information

Net operating loss and research and development carryforwards and other tax information

At December 31, 2021, we had federal and state net operating loss carryforwards
of $115.4 million and federal research credit carryforwards of $0.3 million.
Approximately $10.5 million of the federal NOL was generated prior to 2018 and
will expire in increments through 2037 beginning in 2035, while the remaining
$104.8 million will be carried forward indefinitely. The state NOL will expire
in increments through 2037, beginning expiring in 2035. The federal research and
development tax credit carryforwards, if not utilized, will expire beginning in
2037.

We believe that it is more likely than not that we will not realize the benefits
of the deferred tax assets. Accordingly, a full valuation allowance has been
established against the net deferred tax assets as of December 31, 2021.
Management reevaluates the positive and negative evidence at each reporting
period.

We have not completed a Section 382 study to assess whether an ownership change
has occurred or whether there have been multiple ownership changes since our
formation due to the complexity and cost associated with such a study and the
fact that there may be additional such ownership changes in the future. Pursuant
to Sections 382 and 383 of the Internal Revenue Code, annual use of our net
operating loss and research and development tax credit carryforwards may be
limited in the event a cumulative change in ownership of more than 50% occurs
within a three-year period.

Emerging Growth Company and Small Company Reporting Status

We are an emerging growth company as defined in the Jumpstart Our Business
Startups Act of 2012, as amended, or the JOBS Act. We will remain an emerging
growth company until the earlier of (1) December 31, 2026, (2) the last day of
the fiscal year in which we have total annual gross revenues of at least
$1.07 billion, (3) the date on which we are deemed to be a "large accelerated
filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended, or the Exchange Act,
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or (4) the date on which we issued more than $1.0 billion
into non-convertible debt securities during the preceding three-year period. An emerging growth company can take advantage of reduced reporting requirements and is exempt from certain other important requirements that otherwise generally apply to public companies. As an emerging growing company,

•we may present only two years of audited financial statements, plus unaudited
condensed financial statements for any interim period, and related Management's
Discussion and Analysis of Financial Condition and Results of Operations in this
filing.

•we may avail ourselves of the exemption from the requirement to obtain an
attestation and report from our auditors on the assessment of our internal
control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, or
the Sarbanes-Oxley Act;

•we may disclose less information about our executive compensation arrangements; and

•we cannot require non-binding shareholder advisory votes on executive compensation or golden parachute agreements.

We have elected to take advantage of certain of the reduced disclosure
obligations in the registration statement of which this filing is a part and may
elect to take advantage of other reduced reporting requirements in future
filings. As a result, the information that we provide to our stockholders may be
different than you might receive from other public reporting companies in which
you hold equity interests.

Under the JOBS Act, emerging growth companies can also delay adopting new or
revised accounting standards until such time as those standards apply to private
companies, which may make our financial statements less comparable to companies
that comply with new or revised accounting pronouncements as of public company
effective dates. Until the date that we are no longer an emerging growth company
or affirmatively and irrevocably opt out of the exemption provided by
Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities
Act, upon issuance of a new or revised accounting standard that applies to our
financial statements and that has a different effective date for public and
private companies, we will disclose the date on which we will adopt the recently
issued accounting standard.

We are also a "smaller reporting company," meaning that the market value of our
stock held by non-affiliates plus the proposed aggregate amount of gross
proceeds to us as a result of the IPO was less than $700.0 million and our
annual revenue is less than $100.0 million during the most recently completed
fiscal year. After the IPO we may continue to be a smaller reporting company if
either (1) the market value of our stock held by non-affiliates is less than
$250.0 million or (2) our annual revenue is less than $100.0 million during the
most recently completed fiscal year and the market value of our stock held
by non-affiliates is less than $700.0 million. If we are a smaller reporting
company at the time we cease to be an emerging growth company, we may continue
to rely on exemptions from certain disclosure requirements that are available to
smaller reporting companies. Specifically, as a smaller reporting company we may
choose to present only the two most recent fiscal years of audited financial
statements in our Annual Report on Form 10-K and, similar to emerging growth
companies, smaller reporting companies have reduced disclosure obligations
regarding executive compensation.

Recently issued and adopted accounting pronouncements

A description of recently issued and adopted accounting pronouncements that may
potentially impact our financial position and results of operations is disclosed
in Note 3, "Summary of significant accounting policies".

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