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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number: 001-39343

AKOUOS, INC.

(Exact name of registrant as specified in its charter)

Delaware

    

81-1716654

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

645 Summer Street, Suite 200

Boston, MA

02210

(Address of principal executive offices)

(Zip code)

Registrant’s telephone number, including area code: (857) 410-1818

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange

Title of each class

     

Trading Symbol(s)

    

on which registered

Common Stock, $0.0001 Par Value per Share

AKUS

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of October 29, 2021, there were 34,493,896 shares of the registrant’s common stock, $0.0001 par value per share, outstanding.

Table of Contents

TABLE OF CONTENTS

Page

Part I.

Financial Information

6

Item 1.

Financial Statements (Unaudited)

6

Condensed Consolidated Balance Sheets

6

Condensed Consolidated Statements of Operations and Comprehensive Loss

7

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

8

Condensed Consolidated Statements of Cash Flows

10

Notes to Condensed Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

37

Item 4.

Controls and Procedures

37

Part II.

Other Information

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

90

Item 6.

Exhibits

91

Signatures

92

2

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or this Quarterly Report, contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act and Section 21E of the Securities Exchange Act of 1934, as amended, that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or the negative of these words or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

The forward-looking statements in this Quarterly Report include, among other things, statements about:

the initiation, timing, progress, and results of our current and future nonclinical studies and clinical trials and our research and development programs, including our timing of when we will submit an investigational new drug application for our product candidates AK-OTOF, for otoferlin gene (OTOF)-mediated hearing loss, and AK-antiVEGF, for vestibular schwannoma, to the U.S. Food and Drug Administration;
our estimates regarding expenses, future revenue, capital requirements, need for additional financing, and the period over which we believe that our existing cash, cash equivalents and investments will be sufficient to fund our operating expenses and capital expenditure requirements;
our plans to develop and, if approved, subsequently commercialize our product candidates;
the timing of and our ability to submit applications for, and obtain and maintain regulatory approvals for, our product candidates;
our expectations regarding our regulatory strategy;
our expectations regarding our ability to fund our operating expenses and capital expenditure requirements with our cash, cash equivalents and marketable securities;
the potential advantages of our product candidates;
the rate and degree of market acceptance and clinical utility of our product candidates;
our estimates regarding the potential addressable patient population for our product candidates;
our commercialization, marketing and manufacturing capabilities and strategy;
our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates;
our intellectual property position;
our ability to identify additional products, product candidates, or technologies with significant commercial potential that are consistent with our commercial objectives;
the impact of government laws and regulations;

3

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our competitive position and expectations regarding developments and projections relating to our competitors and any competing therapies that are or become available;
developments and expectations regarding developments and projections relating to our competitors and our industry;
the impact of the COVID-19 pandemic on our business, results of operations, and financial condition;
our ability to maintain and establish collaborations or obtain additional funding; and
our expectations regarding the time during which we will be an emerging growth company under the Jumpstart Our Business Startups Act of 2012.

We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report, particularly in the “Risk Factors” section, that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Moreover, we operate in a competitive and rapidly changing environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, collaborations, joint ventures, or investments we may make or enter into.

You should read this Quarterly Report and the documents that we file with the Securities and Exchange Commission with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report are made as of the date of this Quarterly Report, and we do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information.

SUMMARY OF RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those highlighted in the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report. These risks include, but are not limited to, the following:

we have incurred significant losses during all fiscal periods since our inception, have no products approved for commercial sale, and we expect to incur substantial losses for the foreseeable future. Our net loss was $22.9 million for the quarter ended September 30, 2021 and $13.1 million for the quarter ended September 30, 2020;
we have a limited operating history and are very early in our development efforts, all of our product candidates, including AK-OTOF and AK-antiVEGF, are still in preclinical development, and we may be unable to advance our product candidates to clinical development, obtain regulatory approval and ultimately commercialize our product candidates;
we expect that we will need to raise additional funding before we can expect to complete clinical development of any product candidates or become profitable from any future sales of approved products;

4

Table of Contents

the manufacture of genetic medicine products is complex and difficult, and we could experience manufacturing problems that result in delays in our development or commercialization programs;
we currently rely, and expect to continue to rely, on third-party manufacturers to produce nonclinical and clinical supply of our product candidates and we have experienced manufacturing delays, including delays related to the COVID-19 pandemic, at our third-party manufacturers, and we could experience further delays in the development or commercialization of our product candidates, including delays related to COVID-19, other natural disasters, or supply chain shortages or delays;
the COVID-19 pandemic could continue to adversely impact our business, including our manufacturing activities, nonclinical studies, and planned clinical trials;
we have not tested any of our product candidates in clinical trials, and the outcome of nonclinical studies and earlier-stage clinical trials may not be predictive of future results or the success of later-stage clinical trials or commercial success;
nonclinical and clinical development involve a lengthy and expensive process with an uncertain outcome, and we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our current product candidates or any future product candidates;
if we do not achieve our projected development goals in the timeframes we announce and expect, we could experience significant delays or an inability to successfully commercialize our product candidates, which would materially harm our business;
our product candidates are based on a relatively novel technology with which there is little clinical experience, which makes it difficult to predict the time and cost development and of subsequently obtaining regulatory approval, if at all;
AK-OTOF and our other product candidates will be a biologic-device combination involving a novel delivery approach, which may result in additional regulatory and other risks;
even if we complete the necessary nonclinical studies and clinical trials, we cannot predict when or if we will obtain regulatory approval to commercialize a product candidate or the approval may be for a narrower indication than we expect;
the conditions we seek to treat have low prevalence and it may be difficult to identify patients with these diseases, which may lead to delays in enrollment for our trials or slower commercial revenue if approved;
we may not be successful in our efforts to build a pipeline of additional product candidates;
if we are unable to obtain and maintain patent protection for our products and technology, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technology similar or identical to ours, and our ability to successfully commercialize our products and technology may be adversely affected;
our product candidates may cause undesirable and unforeseen side effects, which could delay or prevent their advancement into clinical trials or regulatory approval, limit the commercial potential or result in significant negative consequences;
if we fail to comply with our obligations under our existing or any future license agreements, we could lose intellectual property rights that are important to our business; and
we may not be successful in our efforts to develop our product candidates or to build a pipeline of additional product candidates if we fail to retain and attract key personnel.

5

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

AKOUOS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except share and per share amounts)

September 30, 2021

December 31, 2020

Assets

Current assets:

    

  

  

    

Cash and cash equivalents

$

114,626

$

68,932

Marketable securities

135,032

239,078

Prepaid expenses and other current assets

 

4,845

 

2,626

Total current assets

 

254,503

 

310,636

Property and equipment, net

 

19,516

 

15,388

Operating lease right‑of‑use assets

 

20,624

 

5,964

Restricted cash

 

2,448

 

1,317

Other assets

363

45

Total assets

$

297,454

$

333,350

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

1,067

$

895

Accrued expenses and other current liabilities

 

11,412

 

8,699

Operating lease liabilities

 

637

 

1,115

Total current liabilities

 

13,116

 

10,709

Operating lease liabilities, net of current portion

 

28,114

 

12,027

Total liabilities

 

41,230

 

22,736

Commitments and contingencies (See Note 12)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Preferred stock, $0.0001 par value; 5,000,000 shares authorized at September 30, 2021 and December 31, 2020; no shares issued and outstanding at September 30, 2021 and December 31, 2020

Common stock, $0.0001 par value; 200,000,000 shares authorized at September 30, 2021 and December 31, 2020; 34,492,507 shares issued and outstanding at September 30, 2021 and 34,383,719 shares issued and outstanding at December 31, 2020

 

3

 

3

Additional paid‑in capital

 

399,690

 

392,322

Accumulated other comprehensive income

(13)

13

Accumulated deficit

 

(143,456)

 

(81,724)

Total stockholders’ equity

 

256,224

 

310,614

Total liabilities and stockholders’ equity

$

297,454

$

333,350

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents

AKOUOS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

(In thousands, except share and per share amounts)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2021

2020

2021

2020

Operating expenses:

    

  

    

  

    

  

    

  

Research and development

$

17,399

$

8,641

$

45,776

$

26,612

General and administrative

 

5,513

 

4,478

 

16,068

 

9,646

Total operating expenses

 

22,912

 

13,119

 

61,844

 

36,258

Loss from operations

 

(22,912)

 

(13,119)

 

(61,844)

 

(36,258)

Other income (expense):

 

  

 

  

 

  

 

  

Interest income

 

483

 

21

 

1,546

 

201

Other income (expense), net

 

(477)

 

9

 

(1,434)

 

5

Total other income, net

 

6

 

30

 

112

 

206

Net loss

$

(22,906)

$

(13,089)

$

(61,732)

$

(36,052)

Net loss per share attributable to common stockholders, basic and diluted

$

(0.67)

$

(0.85)

$

(1.80)

$

(3.01)

Weighted‑average common shares outstanding, basic and diluted

 

34,436,793

 

15,334,241

 

34,360,274

 

11,991,870

Other comprehensive income (loss):

Unrealized gain (loss) on marketable securities

(31)

8

(26)

8

Total other comprehensive income (loss)

(31)

8

(26)

8

Total comprehensive loss

$

(22,937)

$

(13,081)

$

(61,758)

$

(36,044)

 

  

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Table of Contents

AKOUOS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE

PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

(In thousands, except share amounts)

Accumulated 

Additional

Other

Total 

Common Stock

 Paidin

Comprehensive

Accumulated 

Stockholders’ 

Shares

Amount

 

 Capital

Income

Deficit

 

Equity (Deficit)

Balances at December 31, 2020

 

34,383,719

$

3

$

392,322

$

13

$

(81,724)

$

310,614

Issuance of common stock upon exercise of stock options

 

62,197

 

225

 

 

 

225

Vesting of restricted common stock from early‑exercised stock options

 

 

 

21

 

 

 

21

Stock‑based compensation expense

 

 

 

2,000

 

 

 

2,000

Net loss

 

 

 

 

 

(16,086)

 

(16,086)

Unrealized gain (loss) on marketable securities

28

28

Balances at March 31, 2021

 

34,445,916

3

394,568

41

(97,810)

296,802

Issuance of common stock upon exercise of stock options

7,323

28

28

Vesting of restricted common stock from early‑exercised stock options

5

5

Stock‑based compensation expense

2,456

2,456

Net loss

(22,740)

(22,740)

Unrealized gain (loss) on marketable securities

(23)

(23)

Balances at June 30, 2021

34,453,239

3

397,057

18

(120,550)

276,528

Issuance of common stock upon exercise of stock options

39,268

 

 

140

 

 

140

Vesting of restricted common stock from early‑exercised stock options

 

 

5

 

 

5

Stock‑based compensation expense

 

 

2,488

 

 

2,488

Net loss

 

 

 

 

(22,906)

(22,906)

Unrealized gain (loss) on marketable securities

(31)

(31)

Balances at September 30, 2021

34,492,507

$

3

$

399,690

$

(13)

$

(143,456)

$

256,224

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AKOUOS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE

PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

(In thousands, except share amounts)

Accumulated 

Convertible 

Additional

Other

Total 

Preferred Stock

Common Stock

 Paidin

Comprehensive

Accumulated 

Stockholders’ 

Shares

Amount

Shares

Amount

 

 Capital

Income

Deficit

 

Equity (Deficit)

Balances at December 31, 2019

    

178,349,005

$

58,690

997,165

$

$

323

$

$

(33,124)

$

(32,801)

Issuance of common stock upon exercise of stock options

 

 

 

13,630

 

 

7

 

 

 

7

Vesting of restricted common stock from earlyexercised stock options

 

 

 

 

 

12

 

 

 

12

Stockbased compensation expense

 

 

 

 

 

111

 

 

 

111

Issuance of Series B convertible preferred stock, net of issuance costs of $228

 

221,399,223

 

104,837

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

(10,440)

 

(10,440)

Balances at March 31, 2020

 

399,748,228

163,527

1,010,795

453

(43,564)

(43,111)

Issuance of common stock upon exercise of stock options

 

 

 

15,181

 

 

31

 

 

 

31

Vesting of restricted common stock from earlyexercised stock options

7

7

Stockbased compensation expense

490

490

Conversion of convertible preferred stock to common stock

 

(399,748,228)

 

(163,527)

 

18,969,672

 

2

 

163,510

 

 

 

163,512

Issuance of common stock upon completion of initial public offering, net of commissions, underwriting discounts and offering costs

 

 

 

14,375,000

 

1

 

223,849

 

 

 

223,850

Net loss

 

 

 

 

 

(12,523)

(12,523)

Balances at June 30, 2020

 

 

34,370,648

3

388,340

(56,087)

332,256

Issuance of common stock upon exercise of stock options

3,700

3

3

Vesting of restricted common stock from earlyexercised stock options and sales of restricted common stock

 

 

 

 

 

54

 

 

 

54

Stockbased compensation expense

 

 

 

 

 

2,076

 

 

 

2,076

Net loss

 

 

 

 

 

 

 

(13,089)

 

(13,089)

Unrealized gain on marketable securities

8

8

Balances at September 30, 2020

 

$

 

34,374,348

$

3

$

390,473

$

8

$

(69,176)

$

321,308

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AKOUOS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

Nine Months Ended

September 30, 

2021

2020

Cash flows from operating activities:

    

  

    

  

Net loss

$

(61,732)

$

(36,052)

Adjustments to reconcile net loss to net cash used in operating activities:

 

  

 

  

Depreciation and amortization expense

 

1,842

 

1,433

Net amortization of premiums and accretion of discounts on marketable securities

1,389

(10)

Amortization of operating lease right-of-use assets

 

879

 

179

Stock‑based compensation expense

 

6,944

 

2,677

Loss on disposal of property and equipment

73

Changes in operating assets and liabilities:

 

  

 

  

Prepaid expenses and other current assets

 

(2,219)

 

(1,093)

Accounts payable

 

172

 

348

Other assets

35

Operating lease liabilities

 

70

 

(392)

Accrued expenses and other current liabilities

 

4,751

 

2,582

Net cash used in operating activities

 

(47,796)

 

(30,328)

Cash flows from investing activities:

 

  

 

  

Purchases of property and equipment

 

(8,114)

 

(3,234)

Purchases of marketable securities

(151,370)

(141,434)

Proceeds from sales or maturities of marketable securities

254,001

Net cash provided by (used in) investing activities

 

94,517

 

(144,668)

Cash flows from financing activities:

 

  

 

  

Proceeds from issuance of convertible preferred stock, net of issuance costs paid

 

 

104,837

Proceeds from initial public offering of common stock, net of commissions and underwriting discounts

227,269

Payments of finance lease obligations

 

(189)

 

(189)

Proceeds from exercise of stock options

 

393

 

42

Payments of initial public offering costs

 

 

(3,419)

Payments of offering costs

(100)

Net cash provided by financing activities

 

104

 

328,540

Net increase in cash, cash equivalents and restricted cash

 

46,825

 

153,544

Cash, cash equivalents and restricted cash at beginning of period

 

70,249

 

26,395

Cash, cash equivalents and restricted cash at end of period

$

117,074

$

179,939

Supplemental cash flow information:

 

  

 

  

Cash paid for interest

$

1

$

5

Supplemental disclosure of noncash investing and financing information:

 

  

 

  

Purchases of property and equipment included in accounts payable and accrued expenses

$

$

157

Deferred offering costs included in accounts payable and accrued expenses

$

253

$

Operating lease liabilities arising from obtaining right‑of‑use assets

$

9,946

$

Vesting of common stock subject to repurchase

$

31

$

73

Remeasurement of operating lease right-of-use asset for lease modification

$

5,592

$

Reconciliation of cash, cash equivalents and restricted cash:

 

  

 

  

Cash and cash equivalents

$

114,626

$

178,622

Restricted cash

 

2,448

 

1,317

Total cash, cash equivalents and restricted cash shown in the statement of cash flows

$

117,074

$

179,939

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AKOUOS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Nature of the Business and Basis of Presentation

Akouos, Inc., together with its consolidated subsidiary (the “Company” or “Akouos”), is a precision genetic medicine company dedicated to its mission of developing gene therapies with the potential to restore, improve, and preserve high-acuity physiologic hearing for individuals who live with disabling hearing loss worldwide. The Company was formed as a limited liability corporation under the laws of the Commonwealth of Massachusetts in March 2016 under the name Akouos, LLC and converted into a corporation under the laws of the State of Delaware in November 2016 under the name Akouos, Inc.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, the impact of the COVID-19 pandemic, and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities. Even if the Company’s development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

On June 18, 2020, the Company effected a one-for-21.073 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for each series of the Company’s convertible preferred stock. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.

On June 30, 2020, the Company completed its initial public offering of its common stock and issued and sold 14,375,000 shares of its common stock, at a public offering price of $17.00 per share, for gross proceeds of $244.4 million, or net proceeds of $223.8 million after deducting underwriting discounts, commissions, and offering expenses.

Upon the closing of the Company’s initial public offering on June 30, 2020, all shares of convertible preferred stock automatically converted into 18,969,672 shares of common stock.

In August 2021, the Company entered into a sales agreement, or the ATM Sales Agreement, with Cowen and Company, LLC, or Cowen, to issue and sell, from time to time at prevailing market prices, shares of the Company’s common stock having aggregate gross proceeds of up to $100.0 million. Sales of common stock under the ATM Sales Agreement may be made by any method that is deemed an “at the market” offering as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. The Company agreed to pay Cowen a commission of 3.0% of the aggregate gross proceeds of any shares sold by Cowen under the ATM Sales Agreement. As of September 30, 2021, no sales have been made pursuant to the ATM Sales Agreement.

The accompanying condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has primarily funded its operations with proceeds from sales of convertible preferred stock and proceeds from the Company’s initial public offering of common stock. The Company has incurred losses and negative cash flows from operations since its inception. As of September 30, 2021, the Company had an accumulated deficit of $143.5 million.

The Company expects that its operating losses and negative cash flows will continue for the foreseeable future. The Company expects that its existing cash, cash equivalents and marketable securities will be sufficient to fund its

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operating expenses and capital expenditure requirements for at least 12 months from the issuance date of the interim condensed consolidated financial statements.

The Company expects to seek additional funding through public and private equity financings, debt financings, collaborations, licensing arrangements, and/or strategic alliances. The Company may not be able to obtain financing on acceptable terms, or at all, and the Company may not be able to enter into collaborations or other such arrangements. The terms of any financing may adversely affect the holdings or the rights of the Company’s stockholders. If the Company is unable to obtain funding, the Company could be forced to delay, reduce, or eliminate some or all of its research and development programs, product portfolio expansion, or commercialization efforts, which could adversely affect its business prospects. Although management continues to pursue these plans, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

Impact of the COVID-19 Pandemic

The COVID-19 pandemic, which began in December 2019 and has spread worldwide, has caused many governments to implement measures to slow the spread of the pandemic. The pandemic and government measures taken in response have had and will continue to have a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred, supply chains have been disrupted, and facilities and production have been suspended. The Company has experienced manufacturing delays at its third-party manufacturers, including delays related to the COVID-19 pandemic, and may experience additional delays in the future, including supply chain delays or shortages, which could further delay product development timelines. The future progression of the pandemic and its continued effects on the Company’s business and operations are uncertain. The COVID-19 pandemic may affect the Company’s ability to initiate and complete nonclinical studies, delay the initiation of its planned clinical trial or future clinical trials, disrupt regulatory activities, or have other adverse effects on its business and operations. In particular, the Company and its third-party manufacturers and contract research organizations, or CROs, may face additional disruptions that may affect the Company’s ability to initiate and complete nonclinical studies, obtain nonclinical and clinical supplies, and initiate clinical trial sites. The pandemic may cause significant disruptions in the financial markets, which could impact the Company’s ability to raise additional funds to support its operations. Moreover, the pandemic has significantly impacted economies worldwide, which could result in adverse effects on the Company’s business and operations.

As described above, to date, the Company has experienced a business disruption at its third-party manufacturers, including delays related to the COVID-19 pandemic. The Company is continuing to monitor the impact of the COVID-19 pandemic on its business and financial statements. To date, the Company has not incurred impairment losses in the carrying values of its assets as a result of the pandemic and it is not aware of any specific related event or circumstance that would require it to revise its estimates reflected in these condensed consolidated financial statements. The extent to which the COVID-19 pandemic will continue to directly or indirectly impact the Company’s business, results of operations and financial condition, including planned and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related effects.

Basis of Presentation

The accompanying condensed consolidated financial statements reflect the operations of the Company and its wholly owned, domestic subsidiary. Intercompany balances and transactions have been eliminated in consolidation. The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

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Use of Estimates

The preparation of the Company’s consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses. The Company bases its estimates on historical experience, known trends, and other market specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, as there are changes in circumstances, facts, and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2021 and 2020, the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 and the condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three and nine months ended September 30, 2021 and 2020 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2021 and the results of its operations for the three and nine months ended September 30, 2021 and 2020 and its cash flows for the nine months ended September 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2021 and 2020 are also unaudited. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period. The accompanying balance sheet as of December 31, 2020 has been derived from the Company’s audited financial statements for the year ended December 31, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2021 (the “Annual Report on Form 10-K”).

2. Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

The significant accounting policies and estimates used in the preparation of the accompanying consolidated financial statements are described in the Company’s audited consolidated financial statements included in the Annual Report on Form 10-K. There have been no material changes in the Company’s significant accounting policies during the nine months ended September 30, 2021.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies the existing disclosure requirements for fair value measurements in Topic 820. The new disclosure requirements include disclosure related to changes in unrealized gains or losses included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of each reporting period and the explicit requirement to disclose the range and weighted-average of significant unobservable inputs used for Level 3 fair value measurements. The other provisions of ASU 2018-13 include

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eliminated and modified disclosure requirements. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 and delay adoption of the additional disclosures until their effective date. For all entities, this guidance is required to be adopted for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2018-13 as of the required effective date of January 1, 2020, and the adoption did not have a material impact on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 is effective for annual periods beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted ASU 2019-12 as of the required effective date of January 1, 2021, and the adoption did not have a material impact on the Company’s consolidated financial statements.

Recently Issued Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard-setting bodies that the Company adopts as of the specified effective date. The Company qualifies as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected not to “opt out” of the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and non-public companies, the Company can adopt the new or revised standard at the time non-public companies adopt the new or revised standard and can do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for non-public companies.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes may result in earlier recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which narrowed the scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For public entities that are SEC filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 was effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements.

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3. Fair Value Measurements

The following tables present the Company’s fair value hierarchy for its assets and liabilities that are measured at fair value on a recurring basis and indicate the level within the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value (in thousands):

Fair Value Measurements at 

September 30, 2021 Using:

Level 1

Level 2

Level 3

Total

Assets:

    

  

    

  

    

  

    

  

Cash equivalents:

 

  

 

  

 

  

 

  

Money market funds

$

113,826

$

$

$

113,826

Restricted cash:

 

  

 

  

 

  

 

  

Money market funds

 

2,448

 

 

 

2,448

Marketable securities:

U.S. Treasury notes

135,032

135,032

$

116,274

$

135,032

$

$

251,306

Fair Value Measurements at 

December 31, 2020 Using:

Level 1

Level 2

Level 3

Total

Assets:

    

  

    

  

    

  

    

  

Cash equivalents:

 

  

 

  

 

  

 

  

Money market funds

$

68,016

$

$

$

68,016

Restricted cash:

 

  

 

  

 

  

 

  

Money market funds

 

1,292

 

 

 

1,292

Marketable securities:

U.S. Treasury notes

239,078

239,078

$

69,308

$

239,078

$

$

308,386

U.S. government money market funds were valued by the Company based on quoted market prices, which represent a Level 1 measurement within the fair value hierarchy.

As of September 30, 2021, the Company’s marketable securities consisted of U.S. Treasury notes, which were valued based on Level 2 inputs. In determining the fair value of its U.S. Treasury notes, the Company relied on quoted prices for similar securities in active markets or other inputs that are observable or can be corroborated by observable market data.

During the three and nine months ended September 30, 2021 and 2020, there were no transfers between Level 1, Level 2, and Level 3.

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4. Marketable Securities

As of September 30, 2021 and December 31, 2020, the fair value of available-for-sale marketable debt securities by type of security was as follows (in thousands):

September 30, 2021

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

Cost

Gain

Loss

Value

Assets

Marketable securities:

U.S. Treasury notes

$

135,045

$

6

$

(19)

$

135,032

$

135,045

$

6

$

(19)

$

135,032

December 31, 2020

Gross

Gross

Amortized

Unrealized

Unrealized

Fair

Cost

Gain

Loss

Value

Assets

Marketable securities:

U.S. Treasury notes

$

239,065

$

16

$

(3)

$

239,078

$

239,065

$

16

$

(3)

$

239,078

At September 30, 2021, all available-for-sale marketable securities had contractual maturities of less than two years. At December 31, 2020, all available-for-sale marketable securities had contractual maturities of less than one year.

5. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

September 30, 2021

December 31, 2020

Laboratory equipment

$

6,907

$

4,576

Furniture and fixtures

 

600

 

461

Leasehold improvements

 

15,871

 

8,915

Construction in progress

 

299

 

3,755

 

23,677

 

17,707

Less: Accumulated depreciation and amortization

 

(4,161)

 

(2,319)

$

19,516

$

15,388

Depreciation and amortization expense for the three and nine months ended September 30, 2021 was approximately $0.7 million and $1.8 million, respectively. Depreciation and amortization expense for the three and nine months ended September 30, 2020 was approximately $0.5 million and $1.4 million, respectively.

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6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

September 30, 2021

December 31, 2020

Accrued external research, development, and manufacturing expenses

 

$

7,556

 

$

2,442

 

 

Accrued employee compensation and benefits

2,306

2,438

Accrued professional fees

 

1,389

 

1,175

 

 

Payments due for leasehold improvements

 

 

2,071

 

 

Other

 

161

 

573

 

 

$

11,412

$

8,699

7. Convertible Preferred Stock

The Company issued Series Seed convertible preferred stock (the “Series Seed preferred stock”), Series Seed 1 convertible preferred stock (the “Series Seed 1 preferred stock”), Series A convertible preferred stock (the “Series A preferred stock”), and Series B convertible preferred stock (the “Series B preferred stock,” and collectively with the Series Seed preferred stock, the Series Seed 1 preferred stock, and the Series A preferred stock, the “Preferred Stock”).