0000950170-23-009981 | 10-K | XBRL Viewer | Impel Pharmaceuticals INC

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Document and Entity Information - USD ($) $ in Millions	12 Months Ended
Document and Entity Information - USD ($) $ in Millions	Dec. 31, 2022	Mar. 15, 2023	Jun. 30, 2022
Cover [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2022
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	FY
Trading Symbol	IMPL
Entity Registrant Name	IMPEL PHARMACEUTICALS INC.
Entity Central Index Key	0001445499
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity File Number	001-40353
Entity Tax Identification Number	26-3058238
Entity Address, Address Line One	201 Elliott Avenue West
Entity Address, Address Line Two	Suite 260
Entity Address, City or Town	Seattle
Entity Address, State or Province	WA
Entity Address, Postal Zip Code	98119
City Area Code	206
Entity Public Float			$ 119.7
Local Phone Number	568-1466
Entity Common Stock, Shares Outstanding		23,746,257
Entity Interactive Data Current	Yes
Title of 12(b) Security	Common Stock, par value $0.001 per share
Security Exchange Name	NASDAQ
Entity Incorporation, State or Country Code	DE
Document Annual Report	true
Document Transition Report	false
ICFR Auditor Attestation Flag	false
Documents Incorporated by Reference [Text Block]	DOCUMENTS INCORPORATED BY REFERENCE
Auditor Firm ID	42
Auditor Name	Ernst & Young LLP
Auditor Location	Seattle, Washington

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 60,654	$ 88,212
Trade receivable, net	7,444	1,352
Inventory	8,427	2,824
Prepaid expenses and other current assets	3,284	2,188
Total current assets	79,809	94,576
Property and equipment, net	3,863	3,149
Operating lease right-of-use assets	3,132	0
Other assets	1,746	187
Total assets	88,550	97,912
Current liabilities:
Accounts payable	6,092	6,367
Accrued liabilities	12,242	8,950
Current portion of deferred royalty obligation	2,027	0
Current portion of operating lease liability	1,541	0
Common stock warrant liabilities	261	637
Total current liabilities	22,163	15,954
Operating lease liability, net of current portion	1,573	0
Deferred royalty obligation, net of current portion	60,899	0
Long-term debt	48,072	29,450
Total liabilities	132,707	45,404
Commitments and contingencies (Note 5)
Stockholders' (deficit) equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued	0	0
Common stock, $0.001 par value; 300,000,000 shares authorized; 23,739,313 and 23,123,062 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively	24	23
Additional paid-in capital	276,929	267,283
Accumulated deficit	(321,110)	(214,798)
Total stockholders' (deficit) equity	(44,157)	52,508
Total liabilities, and stockholders' (deficit) equity	$ 88,550	$ 97,912

Consolidated Balance Sheets (Parenthetical) - $ / shares	Dec. 31, 2022	Dec. 31, 2021
Statement of Financial Position [Abstract]
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares Issued	0	0
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	23,739,313	23,123,062
Common stock, shares outstanding	23,739,313	23,123,062

Consolidated Statements of Operations and Comprehensive Loss - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Income Statement [Abstract]
Product revenue, net	$ 12,652	$ 668
Cost of goods sold	6,495	691
Gross profit (loss)	(6,157)	(23)
Operating expenses:
Research and development	11,456	20,563
Selling, general and administrative	77,885	50,900
Total operating expenses	89,341	71,463
Loss from operations	(83,184)	(71,486)
Interest income (expense), net	(13,835)	(4,243)
Other income (expense), net	(9,293)	(805)
Loss before income taxes	(106,312)	(76,534)
Provision for income taxes	0	2
Net loss and comprehensive loss	(106,312)	(76,536)
Accretion on redeemable convertible preferred stock	0	(129)
Net loss attributable to common stockholders	$ (106,312)	$ (76,665)
Net loss per share attributable to common stockholders, basic	$ (4.53)	$ (5.25)
Net loss per share attributable to common stockholders, diluted	$ (4.53)	$ (5.25)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic	23,445,096	14,600,346
Weighted-average shares used in computing net loss per share attributable to common stockholders, diluted	23,445,096	14,600,346

Consolidated Statement of Changes in Redeemable Convertible Preferred Stock and Stockholders Deficit - USD ($)	Total	Initial public offering	follow-on public offering	Redeemable Convertible Preferred Stock [Member]	Redeemable Convertible Preferred Stock [Member] Initial public offering	Common Stock	Common Stock Initial public offering	Common Stock follow-on public offering	Additional Paid-In Capital	Additional Paid-In Capital Initial public offering	Additional Paid-In Capital follow-on public offering	Accumulated Deficit
Beginning Balance at Dec. 31, 2020				$ 127,039,000
Beginning Balance, Shares at Dec. 31, 2020				202,009,981
Accretion to redemption value on redeemable convertible preferred stock to common stock upon initial public offering	$ (129,000)			$ 129,000					$ (129,000)
Conversion of Stock, Shares Converted					(202,009,981)	12,605,800
Conversion of Stock, Amount Converted	127,168,000			(127,168,000)		$ 13,000			127,155,000
Beginning Balance at Dec. 31, 2020	(133,500,000)								4,762,000			$ (138,262,000)
Beginning Balance, Shares at Dec. 31, 2020						755,478
Conversion of redeemable convertible preferred stock to common stock upon initial public offering	127,168,000			$ (127,168,000)		$ 13,000			127,155,000
Conversion of redeemable convertible preferred stock to common stock upon initial public offering, Shares					(202,009,981)	12,605,800
Proceeds from initial public offering, net of underwriters' discounts and commissions		$ 71,997,000	$ 48,316,000				$ 5,000	$ 4,000		$ 71,992,000	$ 48,312,000
Proceeds from initial public offering, net of underwriters' discounts and commissions of $2.8 million and issuance costs of $0.6 million shares							5,333,334	3,450,000
Issuance of common stock upon exercise of warrants for cash	377,000								377,000
Issuance of common stock upon exercise of warrants for cash (in shares)						23,887
Issuance of common stock upon net exercise of warrants upon initial public offering	734,000								734,000
Issuance of common stock upon net exercise of warrants upon initial public offering (in shares)						37,628
Issuance of common stock upon exchange of Avenue warrant	1,763,000								1,763,000
Issuance of common stock upon exchange of Avenue warrant (in shares)						107,663
Conversion of convertible notes into common stock upon initial public offering	8,393,000					$ 559,585,000
Conversion Of Convertible Notes Amount Converted At Initial Public Offering	8,393,000					$ 1,000			8,392,000
Stock Issued During Period, Shares, New Issues							5,333,334	3,450,000
Stock Issued During Period, Value, New Issues		$ 71,997,000	$ 48,316,000				$ 5,000	$ 4,000		$ 71,992,000	$ 48,312,000
Stock-based compensation expense	3,130,000								3,130,000
Issuance of common stock upon the exercise of stock options	795,000								795,000
Issuance of common stock upon the exercise of stock options, Shares						249,687
Net loss and comprehensive loss	(76,536,000)											(76,536,000)
Ending Balance at Dec. 31, 2021	52,508,000					$ 23,000			267,283,000			(214,798,000)
Ending Balance, Shares at Dec. 31, 2021						23,123,062
Proceeds from initial public offering, net of underwriters' discounts and commissions	4,253,000					$ 1,000			4,252,000
Proceeds from initial public offering, net of underwriters' discounts and commissions of $2.8 million and issuance costs of $0.6 million shares						542,500
Conversion of convertible notes into common stock upon initial public offering
Stock Issued During Period, Shares, New Issues						542,500
Stock Issued During Period, Value, New Issues	4,253,000					$ 1,000			4,252,000
Stock-based compensation expense	5,191,000								5,191,000
Issuance of common stock upon the exercise of stock options	$ 203,000								203,000
Issuance of common stock upon the exercise of stock options, Shares	73,751					73,751
Net loss and comprehensive loss	$ (106,312,000)											(106,312,000)
Ending Balance at Dec. 31, 2022	$ (44,157,000)					$ 24,000			$ 276,929,000			$ (321,110,000)
Ending Balance, Shares at Dec. 31, 2022						23,739,313

Consolidated Statement of Changes in Redeemable Convertible Preferred Stock and Stockholders Deficit (Parenthetical) $ in Millions	12 Months Ended
	Dec. 31, 2021 USD ($)
Initial public offering
Stock Issuance Cost	$ 2.4
Net Underwiters Discount And Commission	5.6
follow-on public offering
Stock Issuance Cost	0.6
Net Underwiters Discount And Commission	$ 2.8

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Cash flows from operating activities:
Net loss	$ (106,312)	$ (76,536)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,201	1,088
Non-cash lease expense	980	0
Stock-based compensation	5,191	3,130
Change in fair value of derivatives	9,655	0
Non-cash Interest on royalty obligation and other non cash interest	4,827	54
Loss on early extinguishment of debt	3,251	1,993
Change in fair value of convertible notes	0	839
Amortization of debt discount	810	714
Write-down of inventory to net realizable value	138	199
Change in fair value of warrant liabilities	(376)	(59)
Changes in operating assets and liabilities:
Accounts receivable	(6,092)	(1,352)
Inventory	(5,753)	(3,023)
Prepaid expenses and other current assets	(1,095)	(1,111)
Accounts payable	(275)	1,999
Accrued liabilities	1,207	5,701
Operating Lease	(999)	0
Net cash used in operating activities	(93,642)	(66,364)
Cash flows from investing activities:
Purchases of property and equipment	(1,377)	(408)
Net cash used in investing activities	(1,377)	(408)
Cash flows from financing activities:
Proceeds from deferred royalty obligation, net of issuance costs	48,418	0
Proceeds from issuance of long-term debt, net of issuance costs	47,440	19,083
Payments on long-term debt, including final payment	(32,853)	0
Proceeds from issuance of common stock, net of issuance costs	4,253	120,313
Proceeds from issuance of convertible notes	0	7,500
Proceeds from exercise of redeemable convertible preferred stock warrants	0	197
Proceeds from issuance of common stock upon exercise of stock options	203	796
Net cash provided by financing activities	67,461	147,889
Net increase (decrease) in cash	(27,558)	81,117
Cash — Beginning of period	88,212	7,095
Cash — End of period	60,654	88,212
Supplemental disclosures of cash flow information:
Right-of-use assets obtained in exchange for new operating lease liabilities	4,112
Recognition of embedded derivative	1,905
Accretion to redemption value on redeemable convertible preferred stock		129
Conversion of redeemable convertible preferred stock upon initial public offering		127,168
Issuance of common stock upon exchange / exercise of redeemable convertible preferred stock warrants upon initial public offering		2,677
Conversion of convertible notes into common stock upon initial public offering		8,393
Recognition of fair value of warrant liabilities issued in connection with issuance of debt	0	751
Purchase of property and equipment included in accounts payable and accrued liabilities	538	130
Accrued inventory purchases	1,547
Cash paid for interest	$ 4,589	$ 1,357

Organization and Description of Business

12 Months Ended

Dec. 31, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Description of Business

1. Organization and Description of Business

Impel Pharmaceuticals Inc. (“the Company”, "we", and "our"), is a commercial-stage biopharmaceutical company focused on the development and commercialization of transformative therapies for patients suffering from diseases with high unmet medical needs, with an initial focus on diseases of the central nervous system, or CNS. The Company's lead product, Trudhesa™ (dihydroergotamine mesylate) Nasal Spray was approved by the U.S. Food and Drug Administration ("FDA") on September 2, 2021. Using the Company’s proprietary Precision Olfactory Delivery (POD®) technology, Trudhesa™ gently delivers dihydroergotamine mesylate (DHE), a proven, well-established therapeutic, quickly to the bloodstream through the vascular-rich upper nasal space.

The Company’s strategy is to pair its POD®, upper nasal delivery technology with well-understood therapeutics or other therapeutics where rapid vascular absorption is preferred to drive therapeutic benefit, improve patient outcomes, reduce drug development risk and expand the commercial opportunity within its target diseases. The Company was incorporated under the laws of the State of Delaware on July 24, 2008, maintains its headquarters and principal operations in Seattle, Washington. In April 2022, the Company changed its name from Impel NeuroPharma, Inc. to Impel Pharmaceuticals Inc.

Initial Public Offering

On April 22, 2021, the Company’s Registration Statement on Form S-1 relating to its initial public offering, or IPO, was declared effective by the Securities and Exchange Commission, or the SEC, and the shares of its common stock began trading on the Nasdaq Global Select Market on April 23, 2021. The IPO closed on April 27, 2021, pursuant to which the Company issued and sold 5,333,334 shares of its common stock at a public offering price of $15.00 per share. The Company received net proceeds of approximately $72.0 million from the IPO, after deducting underwriting discounts and commissions of $5.6 million and offering costs of $2.4 million. Prior to the completion of the IPO, all shares of redeemable convertible preferred stock then outstanding were converted into 12,605,800 shares of common stock. In addition, the warrant held by Avenue Venture Opportunities Fund, L.P., or Avenue, was exchanged for 107,663 shares of common stock and warrants to purchase 1,987,348 shares of redeemable convertible preferred stock were cash exercised or automatically net exercised into an aggregate of 61,515 shares of common stock. The convertible notes issued in March 2021 for an aggregate principal amount of $7.5 million (see Note 6 - Debt) were also converted into 559,585 shares of common stock at a 10% discount of the IPO price.

Follow-on Public Offering

In September 2021, the Company completed a follow-on public offering of its common stock, pursuant to which the Company issued and sold 3,450,000 shares of its common stock (which included 450,000 shares that were offered and sold pursuant to the full exercise of the underwriters’ option to purchase additional shares) at a public offering price of $15.00 per share. Including the option exercise, the Company received net proceeds of approximately $48.3 million after deducting underwriting discounts and commissions of $2.8 million and offering costs of $0.6 million.

Reverse Stock Split

In April 2021, the Company’s board of directors and stockholders approved an amendment to the Company’s certificate of incorporation to effect a reverse split of shares of the Company’s common stock on an one-for-16.37332 basis, which was effected on April 16, 2021 (the “Reverse Stock Split”). The number of authorized shares and the par values of the common stock and redeemable convertible preferred stock were not adjusted as a result of the Reverse Stock Split. In connection with the Reverse Stock Split, the conversion ratio for the Company’s outstanding redeemable convertible preferred stock was proportionately adjusted such that the common stock issuable upon conversion of such preferred stock was decreased in proportion to the Reverse Stock Split. All references to common stock and options to purchase common stock share data, per share data and related information contained in the consolidated financial statements have been retroactively adjusted to reflect the effect of the Reverse Stock Split for all periods presented.

Open Market Sales Agreement

In May 2022, the Company entered into a sales agreement with Cowen and Company, LLC, as a sales agent, pursuant to which the Company may offer and sell shares of its common stock, from time to time, up to an aggregate amount of gross sales proceeds of $50.0 million through an at-the-market ("ATM") Program ("2022 ATM Program"), under an effective shelf registration statement on Form S-3 ("2022 Shelf Registration Statement"). As of December 31, 2022, the Company sold

542,500 shares of common stock at a weighted-average price per share of $9.25 pursuant to the 2022 ATM Program and received proceeds of approximately $4.3 million, net of commissions and fees.

Liquidity and Capital Resources

From the Company’s inception through December 31, 2022, it raised an aggregate of $397.7 million in proceeds from the issuance of its common stock, proceeds pursuant to the Revenue Interest Financing Agreement (deferred royalty obligation) (“RIF”), sale and issuance of redeemable convertible preferred stock, convertible notes, debt and warrants. The Company had a cash and cash equivalents balance of $60.7 million as of December 31, 2022. The Company currently has an effective 2022 Shelf Registration Statement on file with the Securities and Exchange Commission ("SEC"). The 2022 Shelf Registration Statement permits the offering, issuance and sale by the Company of up to an aggregate offering price of $200.0 million of common stock, preferred stock, debt securities, warrants, subscription rights and/or units in one or more offerings and in any combination.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company had a cash and cash equivalents balance of $60.7 million as of December 31, 2022. Based upon the Company’s current operating plan, it estimates that its cash and cash equivalents as of December 31, 2022 are insufficient for the Company to fund operating, investing, and financing cash flow needs for the twelve months subsequent to the issuance date of these financial statements. Accordingly, based on its recurring losses from operations, expected operating expenses going forward, and the need to raise additional capital to finance its future operations, the Company determined that there is substantial doubt about the Company’s ability to continue as a going concern.

Further, the Senior Credit Agreement with Oaktree Fund Administration, LLC as administrative agent, and the lenders party thereto, or collectively Oaktree, as further described in Note 6, requires maintaining a minimum of $12.5 million in unrestricted cash and cash equivalents on hand to avoid an event of default under the Senior Credit Agreement. Based on our cash and cash equivalents on hand of approximately $60.7 million at December 31, 2022, the Company estimates that it will need to raise additional capital to avoid defaulting under its $12.5 million minimum cash liquidity covenant. Among other loan covenant requirements, the Senior Credit Agreement also requires the Company to provide an audit opinion of its annual financial statements not subject to any "going concern" or like qualification or exception or explanatory paragraph of going concern footnote, however, any such audit report shall not be considered qualified due to the inclusion of an explanatory paragraph paragraph in the audit opinion based on the impending maturity date of any indebtedness within twelve months from the date of issuance of these financial statements, the prospective breach of any financial covenant hereunder or liquidity issues due to ordinary course liabilities. If the Company defaults under its Senior Credit Agreement, the lenders may accelerate all of the Company's repayment obligations and take control of its pledged assets. The lenders could declare the Company in default under its debt obligation upon the occurrence of any event that the lenders interpret as having a material adverse effect as defined under the Senior Credit Agreement and the Revenue Interest Financing Agreement, thereby requiring the Company to repay the loans immediately or to attempt to reverse the lenders’ declaration through negotiation or litigation. On March 22, 2023, the Company entered into the Oaktree Letter Agreement in connection with its Senior Credit Agreement, to obtain a waiver from Oaktree of any default or event of default arising from the going concern explanatory paragraph included in the report of its Independent Registered Public Accounting Firm on its audited consolidated financial statements for the year ended December 31, 2022.

The Company plans to address this condition through additional equity financings, or through other capital sources, including collaborations with other companies or other strategic transactions. To the extent that we may need to raise additional funds by issuing equity securities, our stockholders may experience significant dilution. If sufficient funds on acceptable terms are not available when needed, the Company could be required to reduce operating expenses and reduce the scope of its commercialization plans for Trudhesa. Failure to manage discretionary spending or raise additional financing, as needed, may adversely impact the Company’s ability to achieve its intended business objectives. The accompanying financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2022

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying audited consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. The consolidated financial statements include the operations of Impel Pharmaceuticals Inc., and its wholly owned Australian subsidiary. All intercompany balances and transactions have been eliminated upon consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, management evaluates such estimates and assumptions for continued reasonableness. In particular, management makes estimates with respect to revenue recognition, inventory valuation, the fair values of derivative liabilities, stock-based compensation expense, deferred royalty obligation, lease accounting, and income taxes. Appropriate adjustments, if any, to the estimates used are made prospectively based upon such periodic evaluation. Actual results could differ from those estimates.

Segments

The Company’s chief operating decision maker is its Chief Executive Officer. The Chief Executive Officer reviews financial information on an aggregate basis for the purposes of evaluating financial performance and allocating the Company’s resources. Accordingly, the Company has determined that it operates in one segment. Substantially all of the Company’s assets are located in the U.S.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents consist primarily of demand deposit accounts and deposits in short-term money market funds. At December 31, 2022 and December 31, 2021, cash consisted of cash in bank deposits held at financial institutions.

Accounts Receivable, net

The Company’s trade accounts receivable consists of amounts due from specialty pharmacies and specialty distributors in the U.S. net of distribution service fees, prompt pay discounts and other adjustments. The Company's contracts with customers have standard payment terms that generally require payment within 45 days. The Company analyzes accounts that are past due for collectability, and periodically evaluates the creditworthiness of its customers. As of December 31, 2022 and 2021, we determined an allowance for doubtful accounts was not required based upon our review of contractual payment terms and individual customer circumstances.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services.

Product Revenue, Net

Subsequent to its regulatory approval in the U.S. in September 2021, the Company began to sell Trudhesa in the U.S. The product is distributed through an exclusive third-party logistics, or 3PL, distribution agent that does not take title to the product. The 3PL distributes Trudhesa to the Company's customers, specialty pharmacies and specialty distributor (collectively referred to as "customers"), who then distribute the product to health care providers and patients. In our exclusive distribution agreement with the 3PL company, the Company acts as principal because we retain control of the product.

Revenue from product sales is recognized when the customer obtains control of our product, which occurs upon transfer of title to the customer. We classify payments to customers or other parties in the distribution channel for services that are distinct and priced at fair value as selling, general and administrative expenses in our consolidated statements of operations. Payments to customers or other parties in the distribution channel that do not meet those criteria are classified as a reduction of revenue, as discussed further below. Taxes collected from the customer relating to product sales and remitted to governmental authorities are excluded from revenue. Because our payment terms are generally forty-five days, we conclude there is not a significant financing component because the period between the transfer of a promised good or service to the customer and when the customer pays for that good or service will be one year or less. The Company expenses incremental costs of obtaining a contract as and when incurred since the expected amortization period of the asset that we would have recognized is one year or less.

Reserves for Variable Consideration

Revenues from product sales are recorded at the net sales price, or the transaction price, which includes estimates of variable consideration for which reserves are established and which result from discounts, returns, co-pay assistance, chargebacks, rebates and other allowances that are offered within contracts between us and our customer, health care providers and other indirect customers relating to the sale of Trudhesa. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable or a current liability. Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as our historical experience, current contractual and statutory requirements, specific known market events and trends, industry data and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known.

The following are the components of variable consideration related to product revenue:

Product Returns: Customers have limited return rights related to the product’s damage or defect. The Company estimates the amount of product sales that may be returned and records the estimate as a reduction of revenue and a refund liability in the period the related product revenue is recognized. Based on the distribution model for Trudhesa and the price of Trudhesa, the Company believes there will be minimal returns.

Other incentives: Other incentives include co-payment assistance the Company provides to patients with commercial insurance that have coverage and reside in states that allow co-payment assistance, as well as assistance in the form of a “bridge" program to help start a patient on a new therapy, especially in cases where payers may have barriers (e.g. prior authorizations and appeals) in place before agreeing to pay for a new drug. Under the bridge program the customer distributes the product free of cost to eligible individuals for a period of time. The volume of program utilization under the bridge and co-pay assistance programs is estimated by the Company at the time of sale to the Customer. The calculation of the accrual for these programs is based on an estimate of claims and the cost per claim that we expect to receive associated with product that has been recognized as revenue. The estimate is recorded as a reduction of revenue in the same period the related revenue is recognized.

Managed care rebates: The Company is subject to rebates with certain commercial payers in the future. We record these rebates as an accrual on our consolidated balance sheet in the same period we recognize the related revenue. We estimate our managed care rebates based on our estimated payer mix and the applicable contractual rebate rate.

Chargebacks: The Company estimates obligations resulting from contractual commitments with the government and other entities to sell products to qualified healthcare providers and patients at prices lower than the list prices charged to our customers. The government and other entities charge us for the difference between what they pay for the product and the selling price to our customers. The Company records reserves for these chargebacks related to product sold to our customers during the reporting period, as well as our estimate of product that remains in the distribution channel at the end of the reporting period that we expect will be sold to qualified healthcare providers and patients in future periods. As of December 31, 2022, Impel did not enter into any contracts with government entities and other entities that are eligible for chargebacks.

Government rebates: The Company is subject to discount obligations under government programs, including Medicaid programs, Medicare and Tricare in the U.S. We estimate Medicaid, Medicare and Tricare rebates based upon a range of possible outcomes that are probability-weighted for the estimated payer mix. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a liability that is included in accrued expenses on our consolidated balance sheet. For Medicare, we also estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under the Medicare Part D program. On a quarterly basis, we update our estimates and record any adjustments in the period that we identify the adjustments.

Inventory

Prior to receiving approval from the FDA in September 2021 to sell Trudhesa in the U.S., the Company expensed all costs incurred related to the manufacture of Trudhesa as research and development expense because of the inherent risks

associated with the development of a drug candidate, the uncertainty about the regulatory approval process and the lack of history for the Company of regulatory approval of drug candidates. Subsequent to receiving FDA approval in September 2021, the Company began to capitalize inventory related costs that were incurred subsequent to FDA approval. The Company values its inventories at the lower-of-cost or net realizable value and determines the cost of its inventories, which includes costs related to products held for sale in the ordinary course of business, products in process of production for such sale and items to be currently consumed in the production of goods to be available for sale, on a first-in, first-out (FIFO) basis. Due to the nature of the Company’s supply chain process, inventory that is owned by the Company, is physically stored at third-party warehouses, logistics providers and contract manufacturers. The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and writes down any excess and obsolete inventories to their net realizable value in the period in which the impairment is first identified. If they occur, such impairment charges are recorded as a component of cost of goods sold in the consolidated statements of operations and comprehensive loss.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash. The Company’s cash is deposited with high credit quality financial institutions. At times such deposits may be in excess of the Federal Depository Insurance Corporation insured limits.

The Company has exposure to credit risk in accounts receivable from sales of product. As of December 31, 2022, three customers accounted for 100% of the accounts receivable balance and revenues, with each of these individual customers ranging from 12% to 49% of the accounts receivable balance. As of December 31, 2021, two customers accounted for 100% of the accounts receivable balance and revenues, with each of these individual customers ranging from 46% to 54% of the accounts receivable balance.

Property and Equipment, Net

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the depreciable assets, ranging from three to four years. Property and equipment are primarily comprised of laboratory and platform equipment used to support manufacturing and research and development activities. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in the statement of operations in the year of disposition. Additions and improvements that increase the value or extend the life of an asset are capitalized. Repairs and maintenance costs are expensed as incurred. Leasehold improvements are amortized over the remaining term of the lease or the asset’s useful life, whichever is shorter.

Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset or asset group to the estimated undiscounted future cash flows expected to be generated by the asset or asset group.

If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge is recognized as the amount by which the carrying amount of the asset exceeds the estimated discounted future cash flows of the asset or asset group. There have been no such impairments of long-lived assets for any of the periods presented.

Fair Value Measurement

Assets and liabilities recorded at fair value on a recurring basis in the balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active;

Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amounts reflected in the accompanying consolidated balance sheets for cash, other current assets, accounts payable, and accrued liabilities approximate their fair values, due to their short-term nature.

Leases

The Company adopted ASC Topic 842 - Leases, ("ASC 842") on January 1, 2022, effective January 1, 2022 using a modified retrospective method. The Company recognized $2.8 million of lease assets and liabilities and there was no impact to accumulated deficit upon adoption of ASC 842. The underlying assets of the Company’s leases primarily relate to office space leases and a commercial vehicle fleet. The Company determines if an arrangement contains a lease at inception. The Company performed an evaluation of contracts in accordance with ASC 842 and has determined it has an operating lease agreement for the office facilities that the Company occupies and its commercial vehicle fleet. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized at the date the underlying asset becomes available for the Company’s use. Operating lease liabilities are based on the present value of the future minimum lease payments over the lease term. ROU assets are measured at the amount of the lease liability, adjusted for any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. The Company uses the implicit rate when readily determinable and uses its incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the commencement date in determining the present value of the future minimum lease payments. The incremental borrowing rate is an estimate of the collateralized borrowing rate the Company would incur on its future lease payments over a similar term and is based on the information available to the Company at the lease commencement date, discussed in more detail below.

The Company’s leases contain options to extend the leases; lease terms are adjusted for these options only when it is reasonably certain the Company will exercise these options. The Company’s lease agreements do not contain residual value guarantees or covenants.

The Company has made a policy election regarding its real estate leases not to separate non-lease components from lease components, to the extent they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease expense. The Company’s lease includes variable non-lease components, such as common-area maintenance costs. The Company has elected not to record on the balance sheet a lease that has a lease term of 12 months or less and does not contain a purchase option that the Company is reasonably certain to exercise. The Company accounts for leases with initial terms of 12 months or less as operating expenses on a straight-line basis over the lease term.

Lease expense is recognized within operating expenses on a straight-line basis over the terms of the lease. Incentives granted under the Company’s facilities lease, including rent holidays, are recognized as adjustments to lease expense on a straight-line basis over the term of the lease.

Convertible Notes

In March 2021, the Company issued convertible promissory notes to various investors for an aggregate amount of $7.5 million. As permitted under Accounting Standards Codification ("ASC") 825, Financial Instruments ("ASC 825"), the Company elected the fair value option for recognition of the convertible notes. The Company elected the fair value option to allow the Company to eliminate the burden of complying with the requirements for derivative accounting. Under the fair value option, the convertible notes were remeasured at fair value in each reporting period until their conversion in April 2021, with changes in the fair value recognized in the Company’s consolidated statement of operations as other (expense) income, net. Accrued interest on the convertible notes is recorded in other (expense), net. The notes were automatically converted into shares of the Company’s common stock upon the closing of the IPO in April 2021.

Cost of Goods Sold

Cost of goods sold consists primarily of third-party manufacturing, distribution, and overhead costs associated with Trudhesa. A portion of the costs of producing Trudhesa sold to date was expensed as research and development prior to the FDA approval of Trudhesa and, therefore, it is not reflected in the cost of goods sold.

Cost of goods sold for the year ended December 31, 2022 and 2021, included a charge of $0.1 and $0.2 million, respectively, to write down inventory to net realizable value in the consolidated statements of operations and comprehensive loss.

Research and Development Expense

Research and development costs are expensed as incurred and consist primarily of salaries, benefits and other staff-related costs, including associated stock-based compensation, laboratory supplies, nonclinical and clinical studies and trials and related clinical manufacturing costs, costs related to manufacturing preparation, fees paid to other entities that conduct certain research and development activities on the Company’s behalf. Non-refundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses until the related goods are delivered or services are performed. Such payments are evaluated for current or long-term classification based on when such services are expected to be received.

The Company considers regulatory approval of product candidates to be uncertain, and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. The Company expenses manufacturing costs as incurred to research and development expense for product candidates prior to regulatory approval. If, and when, regulatory approval of a product is obtained, the Company begins capitalizing manufacturing costs related to the approved product into inventory.

Selling, General and Administrative Expense

Selling, general and administrative expenses are primarily comprised of compensation and benefits associated with sales and marketing, finance, human resources, legal, information technology and other administrative personnel, outside marketing, advertising and legal expenses and other general and administrative costs. The Company expenses the cost of advertising, including promotional expenses, as incurred. Advertising expenses were $7.6 million and $12.6 million for the years ended December 31, 2022 and 2021, respectively.

Advance Payments and Accruals for Research and Development Services

As part of the process of preparing its consolidated financial statements, the Company is required to estimate its expenses resulting from its obligation under contracts with vendors and consultants and clinical site agreements in connection with its research and development efforts. The financial terms of these contracts are subject to negotiations which vary contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to the Company under such contracts.

The Company’s objective is to reflect the appropriate research and development expenses in its consolidated financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of its research and development efforts. The Company determines advance payments for research and development services and accrual estimates through discussion with applicable personnel and outside service providers as to the progress of clinical trials, or other services completed. The Company adjusts its rate of research and development expense recognition if actual results differ from its estimates. The Company makes estimates of its advance payments and accrued expenses as of each balance sheet date in its consolidated financial statements based on facts and circumstances known at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low for any particular period. Through December 31, 2022, there had been no material adjustments to the Company’s prior period estimates of advance payments and accruals for research and development expenses. The Company’s research and development advance payments and accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.

Deferred Royalty Obligation

The Company accounts for the liability related to net revenues, as discussed further in Note 6, as a deferred royalty obligation, amortized under the effective interest rate method over the estimated life of the revenue streams. We recognize interest expense thereon using the effective rate, which is based on our current estimates of future revenues over the life

of the arrangement. In connection therewith, we periodically assess our expected revenues using internal projections, impute interest on the carrying value of the deferred royalty obligation, and record interest expense using the imputed effective interest rate. To the extent our estimates of future revenues are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, we will account for any such changes by adjusting the effective interest rate on a prospective basis, with a corresponding impact to the reclassification of our deferred royalty obligation. The assumptions used in determining the expected repayment term of the deferred royalty obligation and amortization period of the issuance costs requires that we make estimates that could impact the short-term and long-term classification of such costs, as well as the period over which such costs will be amortized.

Derivative Liabilities

In connection with certain transactions, the Company has identified certain embedded derivatives, which are recorded as liabilities on the Company’s consolidated Balance Sheet and are remeasured to fair value at each reporting date until the derivative is settled or expires. Changes in the fair value of the derivative liabilities are recognized as other income (expense) in the consolidated statement of operations and comprehensive loss. See Note 3 and 6 for additional details.

Warrant Liabilities

The Company determines the accounting classification of warrants that are issued, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, ("ASC 480-10"), and then in accordance with ASC 815-40, Derivatives and Hedging -- Contracts in Entity's Own Equity ("ASC 815-40"). Under ASC 480-10, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate the issuer to settle the warrants or the underlying shares by paying cash or other assets, or must or may require settlement by issuing variable number of shares.

If the warrants do not meet liability classification under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, in order to conclude equity classification, the Company assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable GAAP. After all relevant assessments are made, the Company concludes whether the warrants are classified as liability or equity. Liability classified warrants are required to be accounted for at fair value both on the date of issuance and on subsequent accounting period ending dates, with all changes in fair value after the issuance date recorded as a component of other income (expense), net in the accompanying consolidated statements of operations and comprehensive loss. Equity classified warrants are accounted for at fair value on the issuance date with no changes in fair value recognized after the issuance date. See Note 6 for additional details.

Stock-Based Compensation

The Company recognizes stock-based compensation expense for stock options and restricted stock unit awards on a straight-line basis over the requisite service period. The Company’s stock-based compensation costs for stock options are based upon the grant date fair value of options estimated using the Black-Scholes-Merton option pricing model. This model utilizes as inputs the fair value of the underlying common stock at the measurement date, the estimated term of the stock options (weighted-average period of time that the options granted are expected to be outstanding), risk-free interest rates, expected dividends, and the expected volatility of the Company’s common stock. The Company has elected to recognize forfeitures of share-based payment awards as they occur.

In determining the fair value of the stock options granted, the Company uses the Black-Scholes option-pricing model and assumptions discussed below.

Fair Value of Common Stock—Prior to the IPO, given the absence of a public trading market, the Company’s board of directors with input from management considered numerous objective and subjective factors to determine the fair value of common stock. The factors included, but were not limited to: (1) third-party valuations of the Company’s common stock; (2) the Company’s stage of development; (3) the status of research and development efforts; (4) the rights, preferences and privileges of the Company’s preferred stock relative to those of the Company’s common stock; (5) the Company’s operating results and financial condition, including the Company’s levels of available capital resources; and (6) equity market conditions affecting comparable public companies; (7) general U.S. market conditions; and (8) the lack of marketability of the Company’s common stock. Following the IPO, as a public trading market for the Company’s common stock has been established, the fair value of the common stock is determined based on the quoted market price of the common stock on the date of grant.

Expected Term—The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The Company used the simplified method (based on the mid-point between the vesting date and the end of the contractual term) to determine the expected term.

Expected Volatility—Since the Company recently completed its IPO and does not have substantial trading history for its common stock, the expected volatility was estimated based on the average historical volatilities for comparable publicly traded pharmaceutical companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle and area of specialty. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of option.

Expected Dividend—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

The Company recognizes stock-based compensation expense for stock options granted to non-employees based on the estimated fair value of the award as it is more readily measurable than the fair value of the services received.

Restricted stock units and performance stock units have a grant-date fair value equal to the fair market value of the underlying stock on the grant date. Compensation expense for performance stocks units with performance metrics is calculated based upon expected achievement of the metrics specified in the grant, or when a grant contains a market condition, the grant date fair value using a Monte Carlo simulation.

Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts or existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment. The Company records a valuation allowance to reduce deferred tax assets to an amount for which realization is more likely than not.

The Company recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained upon examination by the tax authorities, based on the merits of the position. The Company does not believe any uncertain tax positions currently pending will have a material adverse effect on its consolidated financial statements nor does the Company expect any material change in its position in the next 12 months. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits.

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company.

Comprehensive Loss

Comprehensive loss represents the change in the Company’s stockholders’ equity (deficit) from all sources other than investments by or distributions to stockholders. The Company has no items of other comprehensive loss; as such, net loss equals comprehensive loss.

Recent Accounting Pronouncements Not Yet Adopted

Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This update is effective for the Company for annual periods beginning after December 15, 2022, including interim periods within those annual periods. The adoption of this new guidance is not expected to have a material impact on our consolidated financial statements.

Fair Value Measurements

12 Months Ended

Dec. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

3. Fair Value Measurements

The following table summarizes the fair value of the Company’s financial liabilities measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Liabilities:
Common stock warrant liabilities	$	—	$	—	$	261	$	261
Derivative liability - Deferred royalty obligation		—		—		11,000		11,000
Derivative liability - Oaktree term loan		—		—		560		560
Total financial liabilities	$	—	$	—	$	11,821	$	11,821


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Liabilities:
Common stock warrant liabilities	$	—	$	—	$	637	$	637
Total financial liabilities	$	—	$	—	$	637	$	637

The following table summarizes the change in the fair value of the common stock warrant liabilities (in thousands):


Balance as of December 31, 2020	$	—
Issuance of common stock warrants		751
Change in fair value		(114	)
Balance as of December 31, 2021	$	637
Change in fair value		(376	)
Balance as of December 31, 2022	$	261

The following table summarizes the change in the estimated fair value of the Company’s derivative liabilities for the year ended December 31, 2022 (in thousands):


Beginning balance as of December 31, 2021	$	—
Initial fair value of derivative liability - Deferred royalty obligation		1,500
Initial fair value of derivative liability - Oaktree term loan		405
Changes in fair value of derivative liability - Deferred royalty obligation		9,500
Changes in fair value of derivative liability - Oaktree term loan		155
Ending balance as of December 31, 2022	$	11,560

Fair values of the Company’s common stock warrants and the derivative liabilities are based on significant inputs not observed in the market, and thus represent a Level 3 measurement.

The senior secured loan agreement and related security agreement with Oaktree Fund Administration, LLC, or the Oaktree Loan and Security Agreement, contains embedded derivatives requiring bifurcation as a derivative instrument. The derivative liability related to the Oaktree term loan is netted with the term loan in the consolidated financial statements see Note 6 for additional details. The fair value of the embedded derivative liabilities associated with the term loan was estimated using a probability weighted discounted cash flow model to measure the fair value. This involves significant Level 3 inputs and assumptions including an (i) estimated probability and timing of a change in control and event of default, and (ii) our risk-adjusted discount rate.

The embedded derivative liability associated with our deferred royalty obligation (see Note 6) is measured at fair value using an option pricing Monte Carlo simulation model and is netted with the deferred royalty obligation in the consolidated

financial statements. The embedded derivative liability is subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of other expense, net. The assumptions used in the option pricing Monte Carlo simulation model include:(i) the probability-weighted net sales of Trudhesa; (ii) our risk-adjusted discount rate; (iii) our cost of debt; and (iv) the probability of a change in control and event of default occurring during the term of the instrument. The effect of an increase or decrease of 5% of the probability of (i) a change in control, (ii) event of default and (iii) forecast net sales of Trudhesa, would result in a gain of $1.8 million or a loss of $1.7 million, respectively. The increase in the fair value of the embedded derivative liability at December 31, 2022 was based on changes in (a) the amount and timing of revenues and future royalty payments and (b) expectations of timing and probability of occurrence of a change in control and event of default.

Pursuant to the loan and security agreement with Oxford Finance LLC and Silicon Valley Bank, the Company issued common stock warrants (see Note 6). The Company's warrants are not indexed to the Company’s common stock in the manner contemplated by ASC 815-40 because the warrant provides for an adjustment to the exercise price upon an acquisition. The Warrants were measured at fair value at inception and are subsequently remeasured at each reporting date with changes in fair value recognized as a component of other income (expense), net in the consolidated statement of operations and other comprehensive loss. The Company determined the fair value of the common stock warrants using the Black-Scholes-Merton option pricing model based on significant unobservable inputs. The significant unobservable inputs used in the fair value measurement of the warrant liabilities is the volatility rate which is based on the historical volatility of a set of peer companies, that are publicly traded.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Balance Sheet Components

12 Months Ended

Dec. 31, 2022

Balance Sheet Related Disclosures [Abstract]

Balance Sheet Components

4. Balance Sheet Components

Inventories

Inventories consisted of the following (in thousands):


	December 31, 2022			December 31, 2021
Raw materials	$	2,461		$	1,024
Work-in-process		4,191			876
Finished goods		3,334			924
Total inventories		9,986			—
Less: long-term inventories		(1,559	)		—
Total current inventories	$	8,427		$	2,824

Inventory amounts written down to net realizable value in the consolidated statements of operations and comprehensive loss as a result of obsolescence, scrap or other reasons and charged to cost of goods sold totaled $0.1 million and $0.2 million during the year ended December 31, 2022 and 2021, respectively.

The Company classifies its inventories based on its anticipated levels of sales, any inventory in excess of its normal operating cycle is classified as long-term within Other Assets on its consolidated balance sheets.

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):


	December 31, 2022		December 31, 2021
Other prepaids	$	1,587	$	793
Prepaid insurance		1,036		1,268
Other assets		649		105
Tax refund receivable		12		22
Total prepaid expenses and other current assets	$	3,284	$	2,188

Property and Equipment, Net

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


	December 31,
	2022			2021
Laboratory and platform equipment	$	6,990		$	6,590
Furniture and office equipment		254			189
Leasehold improvements		199			198
Construction in progress		1,528			79
Total property and equipment, gross		8,971			7,056
Less: accumulated depreciation and amortization		(5,108	)		(3,907	)
Total property and equipment, net	$	3,863		$	3,149

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):


	December 31, 2022		December 31, 2021
Accrued compensation	$	5,287	$	5,392
Accrued sales discounts and allowances		3,376		449
Accrued professional services		1,808		2,004
Accrued other liabilities		1,401		1,029
Accrued construction in progress		370		76
Total accrued liabilities	$	12,242	$	8,950

Commitments and Contingencies

12 Months Ended

Dec. 31, 2022

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

5. Commitments and Contingencies

Legal Proceedings

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of its business activities. The Company accrues a liability for such matters when it is probable that future expenditures will be made and that such expenditures can be reasonably estimated. The Company has not recorded any such liabilities at either December 31, 2022 or 2021.

Debt

12 Months Ended

Dec. 31, 2022

Debt Disclosure [Abstract]

Debt

6. Debt

Oaktree Loan and Security Agreement

On March 17, 2022 (“Closing Date”), the Company entered into a senior secured loan agreement and related security agreements (“Senior Credit Agreement”) with Oaktree Fund Administration, LLC as administrative agent, and the lenders party thereto (collectively “Oaktree”) under which it borrowed $50.0 million.

The term loan has a maturity date of March 17, 2027, initially bearing interest at the Secured Overnight Financing Rate (“SOFR”) + 8.75 % (with a SOFR floor of 1.00%). Once Trudhesa achieves at least $125.0 million in net sales, interest will step down to SOFR + 8.00 % (with a SOFR floor of 1.00%). The Company is required to make quarterly interest-only payments until the fourth anniversary of the Closing Date, after which the Company is required to make quarterly amortizing payments, with the remaining balance of the principal plus accrued and unpaid interest due at maturity. Prepayments of the loan, in whole or in part, will be subject to early prepayment fee which declines each year until the fourth anniversary date of the Closing Date, after which no prepayment fee is required. The Company is also required to pay an exit fee upon any prepayment equal to 2.0 % of the aggregate principal amount of the loans funded under the Senior Credit Agreement. The Senior Credit Agreement contains customary representations, warranties and events of default. If the Company defaults under its Senior Credit Agreement, the lenders may accelerate all of the Company's repayment obligations and take control of its pledged assets. The lenders could declare the Company in default under its debt obligation upon the occurrence of any event that the lenders interpret as having a material adverse effect as defined under the Senior Credit Agreement and the Revenue Interest Financing Agreement, thereby requiring the Company to repay the loans immediately or to attempt to reverse the lenders’ declaration through negotiation or litigation. Among other loan covenant requirements, the Senior Credit Agreement also requires the Company to provide an audit opinion of its annual financial statements not subject to any "going concern" or like qualification or exception or explanatory paragraph of going concern footnote, however, any such audit report shall not be considered qualified due to the inclusion of an explanatory paragraph paragraph in the audit opinion based on the impending maturity date of any indebtedness within twelve months from the date of issuance of these financial statements, the prospective breach of any financial covenant hereunder or liquidity issues due to ordinary course liabilities.

On March 22, 2023, the Company entered into the Oaktree Letter Agreement in connection with its Senior Credit Agreement, to obtain a waiver from Oaktree of any default or event of default arising from the going concern explanatory paragraph included in the report of its Independent Registered Public Accounting Firm on its audited consolidated financial statements for the year ended December 31, 2022. The Company is subject to a minimum liquidity requirement of $12.5 million unrestricted cash balance at all times.

The Company identified a number of embedded derivatives that require bifurcation from the term loan and that were separately accounted for in the consolidated financial statements as one compound derivative liability. Certain of these embedded features include change in control provisions, events of default and contingent rate increases. These embedded features met the criteria requiring these to be bifurcated because it was not clearly and closely related to the host instrument in accordance with ASC 815-15 and the derivative liability is presented separately as a long-term liability in the consolidated Balance Sheet as of December 31, 2022. The fair value of the embedded derivative liabilities associated with the term loans was estimated using the discounted cash flow method under the income approach. This involves significant Level 3 inputs and assumptions including an estimated probability and timing of a change in control and events of default (see Note 3 for additional details). The Company re-evaluates this assessment each reporting period. The initial recognition of the embedded derivative liability upon issuance of the Oaktree term loan was $0.4 million and at December 31, 2022 and is included in the term loan obligation in the consolidated Balance Sheet. At December 31, 2021 the fair value of the embedded derivative liability was $0.6 million.

In connection with the issuance of the term loan, the Company recorded debt discount and debt issuance costs of $2.9 million. The discount and issuance costs are amortized to interest expense using the effective interest method over the life of the term loan. The Company has elected to use the interest rate at inception of the term loan for purposes of the effective interest method. Interest expense for the year ended December 31, 2022 was $4.9 million, and is inclusive of non-cash amortization of the debt discount and debt issuance costs and accretion of final payment. The fair value of the term loan at December 31, 2022 was $51.9 million.

A portion of the loan proceeds were used to repay in full the $32.9 million aggregate principal amount (including the prepayment fee and final payment fee) of loans outstanding owed to Oxford and SVB by the Company.

Deferred Royalty Obligation

On March 17, 2022, the Company entered into a Revenue Interest Financing Agreement (“RIF” or “Deferred Royalty Obligation”) with certain purchasers party thereto (collectively “Purchasers”) and Oaktree Fund Administration, LLC as administrative agent, pursuant to which the Company sold to the Purchasers the right to receive payments from us at a tiered percentage (the “Applicable Tiered Percentage”), of future net revenues of Trudhesa, including worldwide net product sales and upfront payments, and milestones, (collectively, “the Revenue Interests”). Under the terms of the agreement, the Company received $50.0 million (“Investment Amount”), less transaction expenses, in exchange for tiered royalty payments on worldwide net sales from Trudhesa, as follows: 7.75% on annual United States net sales up to $150.0 million; 4.75% on annual United States net sales between $150 million and $300 million; 0.75% on annual United States net sales greater than $300.0 million; and 10% of any upfront payments, milestone payments and royalties received by us from licensing or partnerships relating to Trudhesa outside the United States.

The Purchaser’s rights to receive the Revenue Interests shall terminate on the date on which the Purchasers have received payments equal to 175% of the funded portion of the Investment Amount including the aggregate of all payments made to the Purchasers as of such date, unless the Revenue Interest Financing Agreement is earlier terminated. If the Purchasers have not received payments equal to the 175% of the funded portion of the Investment Amount by the nine-year anniversary of the initial closing date, among other things, the Company shall pay the Purchasers an amount equal to the funded portion of the Investment Amount plus a specific annual rate of return less payments previously received.

Under the RIF, the Company has an option (the “Call Option”) to repurchase future Revenue Interests at any time until the third anniversary of the Closing Date upon advance written notice. Additionally, the Purchasers have an option (the “Put Option”) to terminate the RIF and to require the Company to repurchase future Revenue Interests upon enumerated events such as a bankruptcy event, a material adverse effect including an event of default under the Senior Credit Agreement (such as a breach of the minimum liquidity covenant) or a change of control. If the Put Option or the Call Option are exercised, the required repurchase price is (i) as of any date before the one-year anniversary of the Closing Date, an amount equal to (a) 1.25 multiplied by (b) the Investment Amount, (ii) as of any date on or after the one-year anniversary of the Closing Date and before the two-year anniversary of the Closing Date, an amount equal to (a) 1.40 multiplied by (b) the Investment Amount, (iii) as of any date on or after the two-year anniversary of the Closing Date and before the three-year anniversary of the Closing Date, an amount equal to (a) 1.55 multiplied by (b) the Investment Amount, and (iv) as of any date on or after the three-year anniversary of the Closing Date, an amount equal to (a) 1.75 multiplied by (b) the Investment Amount, in

each case net of the sum of any payments received by the Purchasers prior to such Put Option Closing Date or Call Option Closing Date, as applicable.

If the Purchasers have not received 100% of the Investment Amount by February 15, 2027, the first tier royalty rate will be subject to an increase from 7.75 % to 10.75%. The Company's obligations under the RIF are secured, subject to customary permitted liens and other agreed upon exceptions and subject to an intercreditor agreement with Oaktree Fund Administration, LLC, as administrative agent for the lenders under the Senior Credit Agreement, by a perfected security interest in (i) accounts receivable arising from net sales of Trudhesa and (ii) intellectual property that is claiming or covering Trudhesa, or any method of using, making or manufacturing Trudhesa, including regulatory approvals, clinical data and all other Trudhesa assets.

The Company evaluated the terms of the deferred royalty obligation and concluded that the features of the Investment Amount are similar to those of a debt instrument. Accordingly, the Company accounted for the transaction as long-term debt recorded at amortized cost using the effective interest method. The Company further evaluated the terms of the debt and determined that the Put Options under the RIF that are exercisable by Purchasers upon certain contingent events were determined to be embedded derivatives requiring bifurcation and separately accounted for as a single compound derivative instrument (see Note 3). The Put Option has been determined to qualify as an embedded derivative under ASC 815-40. The embedded derivative and the deferred royalty obligation have been netted to result in a net embedded derivative liability and is classified as a Level 3 financial liability in the fair value hierarchy as of December 31, 2022. The Company determined the fair value of the derivative using an option pricing Monte Carlo simulation model taking into account the probability of change of control or event of default occurring and potential repayment amounts and timing of such payments that would result under various scenarios, as further described in Note 3, “Fair Value of Financial Instruments”. The Company recorded the initial fair value of the derivative liability of $1.5 million which is included in the deferred royalty obligation in the consolidated Balance Sheet. The Company remeasures the derivative liability to fair value each reporting period until the termination of the RIF. At December 31, 2022 the fair value of the derivative liability is $11.0 million.

The effective interest rate as of December 31, 2022 was 10.4%. In connection with the deferred royalty obligation, we incurred debt issuance costs totaling $1.4 million. Debt issuance costs have been netted against the debt as of December 31, 2022 and are being amortized over the estimated term of the debt using the effective interest method, adjusted on a prospective basis for changes in the underlying assumptions and inputs. The assumptions used in determining the expected repayment term of the obligation and amortization period of the issuance costs requires that we make estimates that could impact the short and long-term classification of these costs, as well as the period over which these costs will be amortized.

The Company periodically assesses the amount and timing of expected royalty payments using a combination of internal projections and forecasts from external sources. The estimates of future net product sales (and resulting royalty payments) are based on key assumptions including population, penetration, probability of success, and sales price, among others. To the extent such payments are greater or less than the Company’s initial estimates or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the amortization of the deferred royalty obligations and the effective interest rate. Interest expense recognized for the year ended December 31, 2022 was $5.5 million. The fair value of the deferred royalty obligation at December 31, 2022 is $48.9 million inclusive of the fair value of the derivative liability.

Oxford and Silicon Valley Bank Term Loan

On July 2, 2021, the Company entered into a loan and security agreement (the "Loan Agreement") with Oxford Finance LLC ("Oxford"), as the collateral agent and a lender, and Silicon Valley Bank ("SVB" and, together with Oxford, the “Lenders”), as a lender, pursuant to which the Lenders have agreed to lend the Company up to an aggregate of $50.0 million in a series of term loans (the “Term Loan”). Upon entering into the Loan Agreement, the Company received net proceeds of $9.2 million from the Lenders after deducting approximately $10.8 million of such amount applied to the repayment of the outstanding principal, interest and final payment fees owed pursuant to the Company’s prior loan and security agreement with Avenue Venture Opportunities Fund, L.P. (“Avenue”) dated November 5, 2020. On September 30, 2021, upon the achievement by the Company of NDA approval from the FDA of Trudhesa, the Company borrowed an additional $10.0 million.

The term loans accrued interest at the greater of (i) 7.95% or (ii) the sum of (a) the greater of (1) the thirty (30) day U.S. LIBOR or (2) 0.11%, plus (b) 7.84% and were subject to a prepayment fee of 1.0% to 3.0% depending upon when the prepayment occurs. On repayment of the Term Loans, the Company was required to make a final payment fee to the Lenders equal to 6.5% of the original principal amount of the Term Loans. Interest expense for the year ended December 31, 2022 was $0.7 million and was inclusive of non-cash amortization in the amount of $0.2 million related to the amortization of the debt issuance costs and accretion of final payment.

On March 17, 2022, upon entering into the Senior Credit Agreement, the Company paid the $30.0 million of outstanding principal, interest, including prepayment and final payment fees owed under the Loan Agreement to the Lenders. The Company evaluated whether the Senior Credit Agreement with Oaktree Fund Administration, LLC entered into in March 2022 represented a debt modification or extinguishment in accordance with ASC 470-50, Debt—Modifications and Extinguishments ("ASC 470-50") and determined that the existing Loan Agreement was extinguished as a result of the full repayment of the Term Loans and concurrent issuance of a new credit facility with new creditors, Oaktree. The Company recorded a loss of $3.3 million on the early extinguishment of debt related to the unamortized debt discount associated with the fair value of the warrants, final payment fee, and unamortized debt issuance costs. The loss on early extinguishment was recognized as a component of interest expense, net in the consolidated statement of operations and other comprehensive loss.

In connection with entering into the Loan Agreement and borrowings under the agreement, the Company issued warrants to purchase 71,522 and 23,166, shares of its common stock, respectively, to the Lenders at a per share exercisable price of $8.39 and $12.95, respectively, all with ten year terms.

Avenue Term Loan

On November 5, 2020 the Company entered into a debt and equity financing agreement with Avenue with $10.0 million ("Avenue Term Loan") funded at closing. In connection with the agreement, the Company granted Avenue warrants for the purchase of shares of 1,762,810 shares of Series D redeemable convertible preferred stock.

On July 2, 2021, upon entering into the Loan Agreement with Oxford and SVB, the $10.8 million of outstanding principal, interest and final payment fees owed under the debt and equity financing agreement with Avenue was repaid by the Lenders. The Company evaluated whether the Oxford and SVB credit facility entered into in July 2021 represented a debt modification or extinguishment in accordance with ASC 470-50 and determined that the existing Avenue Term Loan was extinguished as a result of the full repayment of the Avenue Term Loan and concurrent issuance of a new credit facility with new creditors, Oxford and SVB. The Company recorded a loss of $2.0 million on the early extinguishment of debt related to the unamortized debt discount associated with the fair value of the warrants, final payment fee, and unamortized debt issuance costs during the year ended December 31, 2021. The loss on early extinguishment was recognized as a component of other (expense) income, net in the consolidated statement of operations and other comprehensive loss.

Convertible Promissory Notes

In March 2021, the Company issued unsecured convertible promissory notes to various investors for an aggregate amount of $7.5 million which were accounted for at fair value. The notes bore interest at a rate of 5.0% per annum and mature on the earlier of (a) December 31, 2021 and (b) a change of control. The notes were automatically converted into shares of the Company’s common stock upon the closing of the IPO in April 2021.

On March 31, 2021, the notes were remeasured to their settlement amount at the IPO date excluding accrued interest due to the proximity of the settlement date to the end of the reporting period. The loss on the increase in fair value on the convertible notes totaled $0.8 million from their issuance until settlement and is classified as other (expense) income, net in the accompanying consolidated statements of operations and comprehensive loss.

The carrying value of the convertible notes of $8.4 million immediately prior to the Company’s IPO subsequently converted into 559,585 shares of common stock upon completion of the IPO.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
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+ Details

Leases

12 Months Ended

Dec. 31, 2022

Leases [Abstract]

Leases

7. Leases

The Company adopted ASC 842 using the modified retrospective approach, electing the practical expedient that allows us not to restate our comparative periods prior to the adoption of the standard on January 1, 2022. As such, the disclosures required under ASC 842 are not presented for periods before the date of adoption.

Real Estate Leases

In September 2017, the Company entered into a non-cancelable operating lease for 11,256 square feet of office and laboratory space. Rent is payable monthly, increasing by approximately 3% each year. The initial term of the lease was 3 years and the Company renewed the lease for an additional four years with an expiration date of August 31, 2024.

In December 2021 the Company entered into a non-cancelable operating lease for 7,051 square feet of office space with an expiration date of October 31, 2022. The Company occupied the temporary space for less than 12 months and did not record a right-of-use asset and lease liability on its balance sheet for the temporary space. The lease expired on October 31, 2022.

In April 2022 the Company entered into a non-cancelable operating lease for 8,045 square feet of office space. Rent is payable monthly, increasing by approximately 2.5 % each year. The term of the lease is 127 months, expecting to commence in the second quarter of 2023. Upon commencement, the Company will record a right-of-use asset and a lease liability on the consolidated Balance Sheet.

Commercial Fleet Leases

During 2022, the Company took delivery of a portion of its commercial car fleet for its salesforce. Each commercial fleet lease has a term of 12 months including options to renew for a total of 54 months, we believe a total of 36 months is deemed reasonable to exercise. In addition, the Company can terminate the vehicle leases at any time without a significant penalty. For the discount rate used in the commercial fleet lease, the Company used the weighted-average rate implicit in the commercial fleet leases.

As of December 31, 2022, undiscounted minimum rental commitments under non-cancelable leases, for each of the next five years and total thereafter are as follows (in thousands):


	Operating Leases
2023		1,662
2024		1,268
2025		354
Total undiscounted cash flows		3,284
Less: imputed interest		(170	)
Total lease liabilities		3,114
Less: current portion		(1,541	)
Lease liabilities	$	1,573

The weighted average remaining lease term and the weighted average discount rate used to determine the operating lease liability were as follows:



	Operating Leases
Weighted average remaining lease term (years)		2.2
Weighted average discount rate		5.3	%

Operating lease expense is $1.4 million for the year ended December 31, 2022. Variable lease expense is $0.4 million for operating leases during the year ended December 31, 2022. Rent expense recognized for short term leases was $0.2 million for the year ended December 31, 2022. Rent expense prior to the adoption of ASC 842 was $0.7 million for the year ended December 31, 2021.

Common Stock

12 Months Ended

Dec. 31, 2022

Equity [Abstract]

Common Stock

8. Common Stock

Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of

holders of all classes of stock outstanding having priority rights as to dividends. No cash dividends have been declared by the board of directors from inception.

The Company has reserved the following shares of common stock for issuance, on an as-converted basis, as follows:


	December 31, 2022		December 31, 2021
Stock incentive plans		6,113,763		5,324,202
Exercise of common stock warrants		94,688		94,688
Total		6,208,451		5,418,890

- Definition

The entire disclosure for shareholders' equity comprised of portions attributable to the parent entity and noncontrolling interest, including other comprehensive income. Includes, but is not limited to, balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings, accumulated balance for each classification of other comprehensive income and amount of comprehensive income.

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+ Details

Stock Incentive Plan

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Stock Incentive Plan

. Stock Incentive Plans

2021 Equity Incentive Plan

The Company adopted its 2021 Stock Incentive Plan, or the 2021 Plan, and the Employee Stock Purchase Plan, or the ESPP, which became effective on the date immediately prior to the date of effectiveness of the IPO. The 2021 Plan serves as the successor to its 2018 Equity Incentive Plan (the “2018 Plan”). The 2021 Plan authorizes the award of stock options, RSUs, restricted stock awards, stock bonus awards, stock appreciation rights, performance awards, and cash awards. The number of Shares available for issuance under the 2021 Plan will increase automatically on January 1 of each of 2022 through 2031 by the lesser of (a) 5% of the total number of outstanding shares of all classes of its common stock on each December 31 and (b) a number as may be determined by its board of directors. The number of Shares available for issuance under the ESPP will increase automatically on January 1 of each of 2022 through 2031 by the lesser of (a) 1% of the total number of outstanding shares of all classes of its common stock on each December 31 and (b) a number as may be determined by its board of directors.

The Company initially reserved 2,205,000 shares of its common stock for the 2021 Plan, plus any reserved shares not issued or subject to outstanding grants under the 2018 Plan on the effective date of the 2021 Plan, for issuance pursuant to awards granted under its 2021 Plan. The total number of shares reserved for issuance under the 2021 Plan is 3,428,766 shares and approximately 1,330,624 shares were available for future grants as of December 31, 2022.

The Company initially reserved 276,000 shares of its common stock for the ESPP. The total number of shares reserved for issuance and available under the ESPP at December 31, 2022 is 507,230.

2008 Plan

In September 2008, the Company’s board of directors adopted the 2008 Stock Incentive Plan, or the 2008 Plan, which provides for the granting of incentive stock options, nonqualified stock options, and restricted stock awards to its employees, directors and consultants. Options granted or shares issued under the 2008 Plan that were outstanding on the date the 2018 Equity Incentive Plan, or the 2018 Plan, became effective will remain subject to the terms of the 2008 Plan. The 2008 Plan terminated in 2018 as it reached its ten-year term. At December 31, 2022 and 2021, options to purchase 423,407 and 473,492 shares, respectively, under the 2008 Plan remained outstanding.

2018 Plan

In November 2018, the Company’s board of directors adopted the 2018 Equity Incentive Plan. The 2018 Plan provides for the granting of incentive stock options, nonqualified stock options, restricted stock units, and other forms of stock awards to its employees, directors and consultants.

Under the 2018 Plan, the Company initially reserved 753,645 shares of common stock for issuance. In addition, any authorized shares not issued or subject to outstanding grants under the 2008 Plan and any shares subject to outstanding stock options that are cancelled without being exercised or expire under the 2008 Plan were added to the shares authorized and reserved for issuance under the 2018 Plan. In connection with the Board of Directors approval of the 2021 Plan, all remaining shares available for future award under the 2018 Plan were transferred to the 2021 Plan. At December 31, 2022 and 2021, options to purchase 1,849,875 and 1,892,106 shares, respectively, under 2018 Plan remained outstanding.

Effective January 1, 2022, the Company’s 2021 Plan and ESPP reserves increased by 1,156,153 shares and 231,230 shares, respectively. Changes in shares available for grant under the 2021 Plan during the year ended December 31, 2022 were as follows:


	Shares Available for Grant
Shares available for grant at December 31, 2021		1,216,719
2021 Plan reserve increase January 1, 2022		1,156,153
ESPP reserve increase January 1, 2022		231,230
Options and restricted units granted		(1,251,345	)
Options and restricted units forfeited, cancelled, or expired		485,097
Shares available for grant at December 31, 2022		1,837,854

Stock-Based Compensation Expense

Non-cash share-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award using the straight-line method. Non-cash share-based compensation expense, consisting of expense for stock options, RSUs, and PSUs was classified in the consolidated statements of operations and comprehensive loss as follows (in thousands):


	Twelve Months Ended December 31,
	2022		2021
Cost of goods sold	$	58	$	17
Research and development		768		657
General and administrative		4,365		2,456
Total stock-based compensation expense