Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes for the year ended December 31, 2021, as filed in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”). Some of the information contained in this discussion and analysis, particularly with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read “Risk Factors” in Item 1A of our 2021 Annual Report, as may be supplemented by our Quarterly Reports on Form 10-Q, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
References to “we,” “us,” “our” and “Chemomab” in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below refer to the Company after the Merger, and, with respect to historical periods preceding the Merger, refer to Chemomab Ltd., whose business became the business of the Company upon consummation of the Merger.
Overview
We are a clinical-stage biotechnology company focused on the discovery and development of innovative therapeutics for fibrotic and inflammatory diseases with high unmet needs. Based on the unique and pivotal role of the soluble protein CCL24 in promoting fibrosis and inflammation, we developed CM-101, a monoclonal antibody designed to bind and block CCL24 activity. We believe CM-101 has demonstrated the potential to treat multiple severe and life-threatening fibrotic and inflammatory diseases.
Chemomab has pioneered the therapeutic targeting of CCL24, a chemokine that promotes various types of cellular processes that regulate inflammatory and fibrotic activities through the CCR3 receptor. The chemokine is expressed in various types of cells, including immune cells, endothelial cells and epithelial cells. We have developed a novel CCL24 inhibiting product candidate with dual anti-fibrotic and anti-inflammatory activity that modulates the complex interplay of both of these inflammatory and fibrotic mechanisms that drive abnormal states of fibrosis and clinical fibrotic diseases. This innovative approach is being developed for difficult to treat rare diseases, also known as orphan indications or diseases, such as primary sclerosing cholangitis, or PSC and systemic sclerosis, or SSc, for which patients have no established disease modifying standard of care treatment options.
Fibrosis is the abnormal and excessive accumulation of collagen and extracellular matrix, the non-cellular component in all tissues and organs, which provides structural and biochemical support to surrounding cells. When present in excessive amounts, collagen and extracellular matrix lead to scarring and thickening of connective tissues, affecting tissue properties and potentially leading to organ failure. Excessive fibrosis can occur in many different tissues, including lung, liver, kidney, muscle, skin, and the gastrointestinal tract, resulting in a wide array of progressive fibrotic conditions. Fibrosis and inflammation are intrinsically linked. While a healthy inflammatory response is necessary for efficient tissue repair; after disease or injury, an excessive, uncontrolled inflammatory response can lead to tissue fibrosis that in turn can further stimulate inflammatory processes in a fibro-inflammatory vicious cycle.
CM-101, our lead clinical product candidate, is a first-in-class humanized monoclonal antibody that attenuates the basic function of the soluble chemokine CCL24, also known as eotaxin-2, as a regulator of major inflammatory and fibrotic pathways. We have demonstrated that CM-101 interferes with the underlying biology of inflammation and fibrosis through a novel and differentiated mechanism of action. Based on these findings, we are actively advancing CM-101 in Phase 2 clinical studies directed toward two distinct clinical indications that include patients with liver, skin, and/or lung fibrosis. We are currently conducting a Phase 2 clinical study in primary sclerosing cholangitis, a rare obstructive and cholestatic liver disease. The study is actively recruiting patients in the U.S., Europe and Israel and is being expanded by adding additional dosing arms as well as an open label extension. In addition, we are planning to open a Phase 2 clinical trial in SSc around year-end and begin dosing patients in the first quarter of 2023. The trial in SSc, a rare autoimmune rheumatic disease characterized by fibrosis in the skin and lung and other organs, will focus on establishing biological and clinical proof of concept in this patient population . Although our primary focus is on these two rare indications, an additional Phase 2 clinical study in patients with liver fibrosis due to non-alcoholic steatohepatitis, or NASH has completed the treatment phase This trial will provide safety and pharmacokinetic (PK) data that will be informative in determining whether the company advances the development of its current subcutaneous formulation of CM-101. Additionally, the trial is measuring a number of biomarkers that may be relevant to the potential activity of CM-101 in other fibro-inflammatory conditions. Results of this trial are expected by the end of the year.
Recent Developments
New Executive Appointments
On August 29, 2022, Christina Crater, MD, joined the Company as Vice President of Clinical Development. Dr. Crater has an extensive background in medical affairs and clinical trial design and execution across a broad range of therapeutic indications, Dr. Crater has served as a medical monitor, safety physician, therapeutic expert and study director in all phases of clinical development, Her career spans working in-house at pharmaceutical and biotechnology firms, and at major clinical research organizations (CROs). Previously Dr. Crater was a Senior Clinical Trial Physician at Bristol-Myers Squibb, and she served in senior clinical development roles with PRA Health Sciences and PAREXEL International. Earlier in her career, Dr. Crater worked as an internal medicine physician. She received an MD degree from the University of Tennessee and holds a BS from Rhodes College.
Chemomab’s Clinical Programs
Chemomab’s clinical programs are designed to optimize the clinical development of lead product candidate CM-101 by maximizing the clinical information obtained, generating important data to support future advancement to registration trials, and decreasing the overall risk in the CM-101 clinical development program in the lead indications of PSC and SSc, as well as potentially in additional indications where the scientific rationale is strong. The key top-line key activities that are being conducted in the clinical development programs include the following:
Continue the expansion of the PSC clinical trial through the addition of new clinical sites, the addition of an important dose finding component and an open label extension phase. We are significantly expanding the Phase 2 clinical trial in PSC by implementing a dose finding component to the CM-101 development program. We have increased the size of the study to an expected 93 patients by adding two additional dose cohorts to the current 10 mg/kg cohort; a lower dose cohort to evaluate a 5 mg/kg dose, and a higher dose cohort to evaluate a 20 mg/kg dose. Each cohort will enroll 25 patients with PSC and the placebo cohort will enroll 18 patients. In addition, we are adding an open-label extension to the trial to evaluate the safety, tolerability and durability of effect over a total of 48 weeks of treatment duration. The trial’s primary outcome is an evaluation of CM-101’s safety and tolerability. Secondary endpoint include a wide range of relevant biomarkers. Regulatory submissions to support trial expansion and other relevant changes are underway.
Lastly, we will be performing an interim safety analysis of the currently enrolling dose cohort and expect the analysis to be completed before the end of this year. The primary purpose of this safety analysis is to enable review by the CM-101 Data Monitoring Committee, to support the evaluation of the higher 20mg/kg dose in the CM-101 clinical development program.
Based on our ongoing efforts to expand the number of clinical trial sites and enhance recruitment activities, the current clinical development landscape and the increased size of the study, we anticipate that the top-line data from this Phase 2 trial in PSC will be available in the second half of 2024.
Finalize the design of a Phase 2 trial in systemic sclerosis focusing on establishing biological proof-of-concept in clinically relevant aspects of this complex disease. We are focusing our SSc trial towards establishing biological proof of concept in this patient population. We believe that the design of our planned SSc trial should enable an expedited path to data supporting proof of the relevance of CCL-24 biology, provide further elucidation of the different mechanisms of action of CM-101, and potentially detect a CM-101 clinical efficacy signal for treating the skin, lung and vascular damage seen in SSc patients. We expect to launch the trial around the end of 2022 and begin enrolling patients early in 2023.
Concluding our safety, pharmacokinetic and biomarker liver fibrosis study, yielding a data readout targeted near the end of 2022. We completed the treatment period in our safety, tolerability and biomarker trial that is evaluating our current subcutaneous formulation of CM-101 in NASH patients with liver fibrosis. We believe that the data from this trial could provide useful insights in support of the CM-101 development program, including characterizing the safety and tolerability of CM-101 in patients with serious liver disease, assessing possible early signs of biomarker activity that are relevant for a number of fibro-inflammatory disorders, and providing the tolerability and pharmacokinetic data needed to assess next steps in the development of our current subcutaneous formulation.
Shelf Registration Statement and ATM Offering
On April 30, 2021, we filed a shelf registration statement on Form S-3 with the SEC (File No. 333-255658) for the issuance and sale by us of up to $200,000,000 of our ordinary shares, ADSs, debt securities, warrants and units comprising any combination of the foregoing securities (the “Shelf Registration Statement”). On the same date, we entered into a sales agreement (the “Sales Agreement”) with Cantor Fitzgerald, pursuant to which we may offer and sell, from time to time, at our option, through or to Cantor Fitzgerald, up to an aggregate of $75,000,000 of our ADSs (the “ATM Facility”). During the period from April 30, 2021 through June 30, 2021, we had sold an aggregate of 699,806 ADSs pursuant to the Sales Agreement for a total gross consideration of approximately $15.9 million.
On April 25, 2022, we filed a prospectus supplement with the SEC for the issuance and sale of up to $18,125,000 of our ADSs in connection with the reactivation of the ATM Facility and pursuant to General Instruction I.B.6 of Form S-3, which, subject to certain exceptions, limits the amount of securities we are able to offer and sell under such registration statement to one-third of our unaffiliated public float. Any ADSs offered, or to be offered, and sold under the Sales Agreement were issued and sold, or will be issued and sold, pursuant to the Shelf Registration Statement and the applicable prospectus or prospectus supplement by methods deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act, or if specified by us, by any other method permitted by law.
During the period from July 1, 2021 through September 30, 2022, we did not sell ADSs pursuant to the Sales Agreement.
Corporate Information
We were incorporated on September 22, 2011 under the laws of the State of Israel. In March 2021, in connection with the Merger, we changed our name from Anchiano Therapeutics Ltd. to Chemomab Therapeutics Ltd. Our principal executive offices are located at Kiryat Atidim, Building 7, Tel Aviv, Israel 6158002, and our phone number is +972-77-331-0156. Our website is: www.chemomab.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this Quarterly Report on Form 10-Q. We have included our website address as an inactive textual reference only.
Components of Operating Results
Revenue
To date, we have not generated any revenue. We do not expect to generate any revenue unless and until we obtain regulatory approval and commercialize a product candidate, or until we receive revenue from a collaboration such as a co-development or out-licensing agreement. There can be no assurance that we will receive such regulatory approvals, and if any product candidate is approved, that we will be successful in commercializing it.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the development of our product candidates. These expenses include:
| | • | expenses incurred under agreements with contract research organizations or contract manufacturing organizations, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services; |
| | • | manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials; |
| | • | employee-related expenses, including salaries, related benefits, travel and share-based compensation expenses for employees engaged in research and development functions, as well as external costs, such as fees paid to outside consultants engaged in such activities; |
| | • | license maintenance fees and milestone fees incurred in connection with various license agreements; |
| | • | costs related to compliance with regulatory requirements; and |
| | • | depreciation and other expenses. |
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers.
We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use our internal resources primarily to oversee research, as well as for managing our preclinical development, process development, manufacturing and clinical development activities. Our employees work across multiple programs and, therefore, we do not track costs by program.
Research and development activities are fundamental to our business. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several quarters and years as we continue to advance the development of our product candidates. We also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license agreements to acquire the rights to its product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, related benefits and share-based compensation expenses for personnel in executive and administrative functions. General and administrative expenses also include professional fees for legal, consulting, accounting and audit services.
We anticipate that our general and administrative expenses will increase in the future as we increase headcount and general activities to support our continued research activities and development of our product candidates as well as expanding our presence in the United States. We also anticipate that we will incur increased headcount, accounting, audit, legal, regulatory, compliance, director and officer insurance costs, as well as investor and public relations expenses associated with being a public company. We expect that the additional costs for these services will substantially increase our general and administrative expenses. Additionally, if and when we believe that regulatory approval of a product candidate appears likely, we expect to incur an increase in payroll and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of any product candidate.
Results of Operations
Three and Nine Months Ended September 30, 2022 Compared to the Three and Nine Months Ended September 30, 2021
Below is a summary of our results of operations for the periods indicated:
Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021
| | Three months ended | | | | | | | |
| | September 30, | | | Increase/(decrease) | |
| | 2022 | | | 2021 | | | $ | | | % | |
| | (in thousands) | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | |
Research and development | | $ | 5,423 | | | $ | 1,487 | | | $ | 3,936 | | | | 265 | % |
General and administrative | | | 2,894 | | | | 1,404 | | | | 1,490 | | | | 106 | % |
Operating loss | | | 8,317 | | | | 2,891 | | | | 5,426 | | | | 188 | % |
Financing expense (income), net | | | (237 | ) | | | 77 | | | | (314 | ) | | | (408 | )% |
Net loss | | $ | 8,080 | | | $ | 2,968 | | | $ | 5,112 | | | | 172 | % |
Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021
| | Nine months ended | | | | | | |
| | September 30, | | | Increase/(decrease) |
| | 2022 | | | 2021 | | | $ | | | | % |
| | (in thousands) | | | | | | | |
Operating expenses: | | | | | | | | | | | | |
Research and development | | $ | 11,082 | | | $ | 3,951 | | | $ | 7,131 | | | | 180 |
General and administrative | | | 8,809 | | | | 3,392 | | | | 5,417 | | | | 160 |
Operating loss | | | 19,891 | | | | 7,343 | | | | 12,548 | | | | 171 |
Financing expense, net | | | 27 | | | | 99 | | | | (72) | | | | (73) |
Income Tax (benefit) | | | (544) | | | | - | | | | (544) | | | | (100) |
Net loss | | $ | 19,374 | | | $ | 7,442 | | | $ | 11,932 | | | | 160 |
Our results of operations have varied in the past and can be expected to vary in the future due to numerous factors. We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance.
Research and development expenses
Research and development expenses increased by approximately $3.9 million, or 265%, for the three months ended September 30, 2022, as compared to the same period in 2021. The increase was primarily due to increased clinical and preclinical activities.
Research and development expenses increased by approximately $7.1 million, or 180%, for the nine months ended September 30, 2022, as compared to the same period in 2021 also due primarily to increased clinical and preclinical activities.
General and administrative expenses
General and administrative expenses increased by approximately $1.5 million, or 106%, for the three months ended September 30, 2022, as compared to the same period in 2021. The increase was primarily due to increase in salaries and related benefits expenses of $1.0 million mainly related to key additions to the senior management team, as well as increase in non-cash share-based expenses in the amount of $0.3 million.
General and administrative expenses increased by approximately $5.4 million, or 160%, for the nine months ended September 30, 2022, as compared to the same period in 2021. The increase was primarily due to the increase in non-cash share-based expenses in the amount of $1.3 million as well as increase in salaries and related benefits expenses of $2.3 million mainly related to key additions to the senior management team, and a provision of $0.6 million for expenses recorded in relation to an audit by the Israeli Tax Authority.
Financing income (expense), net
Financing income, net was $237 thousand for the three months ended September 30, 2022 as compared to an expense of $77 thousand during the same period in 2021. The increase in financing income was primarily due to interest income from bank deposits, partially offset by foreign currency exchange rate loss.
Financing expense, net decreased by approximately $72 thousand for the nine months ended September 30, 2022 as compared to the same period in 2021. The increase was primarily due to foreign currency exchange rate loss partially offset by interest income from bank deposits,
Liquidity and Capital Resources
Since inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations, resulting in an accumulated deficit at September 30, 2022 of $55.5 million. We have funded our operations to date primarily with proceeds from the sale of our ADSs, and, prior to the Merger, other equity securities. As of September 30, 2022, we had an aggregate of approximately $46.5 million of cash, cash equivalents and short-term deposits. Cash in excess of immediate requirements is invested primarily with a view to liquidity and capital preservation. June 30, 2021
Developing product candidates, conducting clinical trials and commercializing products are expensive, and we will need to raise substantial additional funds to achieve our strategic objectives. We believe that our existing cash resources, including from the ADSs sold pursuant to the Sales Agreement, will be sufficient to fund our projected cash requirements through the end of 2023. Nevertheless, we will require significant additional financing in the future to fund our operations, including if and when we progress into additional clinical trials, obtain regulatory approval for any of our product candidates and commercialize the same. We believe that we will need to raise significant additional funds before we have any cash flow from operations, if at all. Our future capital requirements will depend on many factors, including:
| | • | the progress and costs of our preclinical studies, clinical trials and other research and development activities; |
| | • | the scope, prioritization and number of our clinical trials and other research and development programs; |
| | • | the amount of revenues and contributions we receive under future licensing, development and commercialization arrangements with respect to our product candidates; |
| | • | the costs of the development and expansion of our operational infrastructure; |
| | • | the costs and timing of obtaining regulatory approval for our product candidates; |
| | • | the costs of filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; |
| | • | the costs and timing of securing manufacturing arrangements for clinical or commercial production; |
| | • | the costs of contracting with third parties to provide sales and marketing capabilities for us; |
| | • | the costs of acquiring or undertaking development and commercialization efforts for any future products, product candidates or platforms; |
| | • | the magnitude of our general and administrative expenses; and |
| | • | any cost that we may incur under future in- and out-licensing arrangements relating to our product candidates. |
We currently do not have any commitments for future external funding. In the future, we will need to raise additional funds, and we may decide to raise additional funds even before we need such funds if the conditions for raising capital are favorable. Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financings, credit facilities or by out-licensing applications of our product candidates. The sale of equity or convertible debt securities may result in dilution to our existing shareholders. The incurrence of indebtedness would result in increased fixed obligations and could also subject us to covenants that restrict our operations. We cannot be certain that additional funding, whether through grants from the Israel Innovation Authority, financings, credit facilities or out-licensing arrangements, will be available to us on acceptable terms, if at all. If sufficient funds are not available, we may be required to delay, reduce the scope of or eliminate research or development plans for, or commercialization efforts with respect to, one or more applications of our product candidates, or obtain funds through arrangements with collaborators or others that may require us to relinquish rights to certain potential products that we might otherwise seek to develop or commercialize independently.
Cash Flows
The table below shows a summary of our cash flow activities for the periods indicated:
| | Nine months ended | | | | | | | |
| | September 30, | | | Increase/(decrease) | |
| | 2022 | | | 2021 | | | $ | | | % | |
| | (in thousands) | | | | | | | | |
Net cash used in operating activities | | $ | (14,667 | ) | | $ | (9,480 | ) | | $ | (5,187 | ) | | | 55 | % |
Net cash provided by (used in) investing activities | | | 10,183 | | | | (25,605 | ) | | | 35,788 | | | | (140 | )% |
Net cash provided by financing activities | | | 61 | | | | 61,155 | | | | (61,094 | ) | | | (99 | )% |
Net increase (decrease) in cash, cash equivalents and restricted cash | | $ | (4,423 | ) | | $ | 26,070 | | | $ | (30,493 | ) | | | (117 | )% |
Operating activities
Net cash used in operating activities increased by $5.2 million, or 55%, for the nine months ended September 30 2022, as compared to the same period in 2021. The increase was primarily related to the increase in net loss of $11.9 million, offset by an increase in accrued expenses of $3.3 million, decrease in other receivables of $1.5 million and changes in non-cash activities adjustment of $1.5 million
Investing activities
Net cash provided by investing activities for the nine months ended September 30, 2022 was approximately $10.2 million compared to net cash used by investing activities of $25.6 million for same period in 2021. Net cash provided by investing activities for the nine months ended September 30, 2022 is primarily related to an increase in short term bank deposits. Net cash used in investing activities for the nine months ended September 30, 2021 was primarily related to the deposit of proceeds received from a private placement in bank deposits.
Financing activities
Net cash provided by financing activities for the nine months ended September 30, 2022 decreased by approximately $61.1 million, as compared to the same period in 2021. The decrease is primarily related to proceeds from the issuance of ADSs of approximately $58.7 million (net of expenses) recorded during the nine months ended on September 30, 2021.
Financing activities for the nine months ended September 30, 2021 reflect proceeds received from a private placement transaction that closed on March 22, 2021, pursuant to which the Company sold ADSs in an amount equal to $45.5 million, as well as sales of the Company's ADSs sold under the Sales Agreement.
Contractual Commitments
The Company’s contractual commitments at September 30, 2022 were as follows (in thousands):
Remainder of 2022 | | | $ | 1,860 | |
2023 | | | | 6,878 | |
2024 | | | | 634 | |
2025-2027 | | | | 159 | |
Total | | | $ | 9,531 | |
Critical Accounting Policies
Our financial statements are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of our financial statements and related disclosures in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that it believes are 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. We evaluate our estimates and assumptions on an ongoing basis. 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 2 to in consolidated financial statements included the 2021 Annual Report, we believe that the following accounting estimates are those that include a higher degree of judgment or complexity and are reasonably likely to have a material impact on our financial condition or results of operations and are therefore considered critical accounting policies.
Share-Based Compensation
We apply Accounting Standard Codification (ASC) 718-10, “Share-Based Payment,” which requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors, including employee options under our option plans based on estimated fair values.
ASC 718-10 requires that we estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The fair value of the award is recognized as an expense over the requisite service periods in our statements of comprehensive loss. We recognize share-based award forfeitures as they occur, rather than estimate by applying a forfeiture rate.
In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-07, “Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”, which simplifies the accounting for nonemployee share-based payment transactions by aligning the measurement and classification guidance, with certain exceptions, to that for share-based payment awards to employees. The amendments expand the scope of the accounting standard for share-based payment awards to include share-based payment awards granted to non-employees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance related to equity-based payments to non-employees. We adopted these amendments on January 1, 2019.
We recognize compensation expenses for the fair value of non-employee awards over the requisite service period of each award.
We estimate the fair value of options granted as equity awards using a Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the most significant are share price, expected volatility and the expected option term (the time from the grant date until the options are exercised or expire). We determine the fair value per share of the underlying stock by taking into consideration its most recent sales of stock, as well as additional factors that we deem relevant. Our Board of Directors determined the fair value of ordinary shares based on valuations performed using the Option Pricing Method subject to relevant facts and circumstances. We have historically been a private company and lack company-specific historical and implied volatility information of its stock. Expected volatility is estimated based on volatility of similar companies in the biotechnology sector. We have historically not paid dividends and have no plans to issue dividends. The risk-free interest rate is based on the yield from governmental zero-coupon bonds with an equivalent term. The expected option term is calculated for options granted to employees and directors using the “simplified” method. Grants to non-employees are based on the contractual term. Changes in the determination of each of the inputs can affect the fair value of the options granted and the results of operations.
Recently-Issued Accounting Pronouncements
Certain recently-issued accounting pronouncements are discussed in Note 2, Summary of Significant Accounting Policies, to the audited consolidated financial statements in our 2021 Annual Report.