# Syndax Pharmaceuticals Inc (SNDX) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Syndax Pharmaceuticals Inc's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1395937/000095017023005079/sndx-20221231.htm
Accession: 0000950170-23-005079
Filing date: 2023-02-28
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/SNDX/
All MD&A years: /company/SNDX/mda/
Previous year: /company/SNDX/mda/fy2021/ (FY 2021)
Next year: /company/SNDX/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with “Selected Financial Data” and our consolidated financial statements and related notes included elsewhere in this Annual Report. This discussion and analysis and other parts of this Annual Report contain forward-looking statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions, such as statements regarding our plans, objectives, expectations, intentions and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report. You should carefully read the “Risk Factors” section of this Annual Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”

For the discussion of the financial condition and results of operations for the year ended December 31, 2021 compared to the year ended December 31, 2020, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations" and "—Liquidity and Capital Resources" included in the Annual Report on Form 10-K filed with the SEC on March 1, 2022.

Overview

We are a clinical-stage biopharmaceutical company developing an innovative pipeline of cancer therapies. Our two lead product candidates are revumenib (SNDX-5613), and axatilimab (SNDX-6352). We are developing revumenib, a potent, selective, small molecule inhibitor of the menin-MLL binding interaction for the treatment of KMT2A rearranged, also known as mixed lineage leukemia rearranged or MLLr, acute leukemias including acute lymphoblastic leukemia, ALL, and acute myeloid leukemia, AML, and NPM1 mutant AML. We are also developing axatilimab, a monoclonal antibody that blocks the colony stimulating factor 1, or CSF-1 receptor, in chronic graft-versus-host disease, or cGVHD, as well as idiopathic pulmonary fibrosis, or IPF. We plan to continue to leverage the technical and business expertise of our management team and scientific collaborators to license, acquire and develop additional therapeutics to expand our pipeline.

We have no products approved for commercial sale and have not generated any product revenues from product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations. We have generated minimal license revenue, except for in 2021. Other than in 2021, we have never been profitable and have incurred losses in each period since our inception in 2005. For the years ended December 31, 2022 and 2020, we reported a net loss of $149.3 million and $73.2 million, respectively. For the year ended December 31, 2021, we reported a net profit of $24.9 million. As of December 31, 2022, we had an accumulated deficit of $693.0 million, which included non-cash charges for stock-based compensation, preferred stock accretion and extinguishment charges. As of December 31, 2022, we had cash, cash equivalents and short-term and long-term investments of $481.3 million.

Significant Risks and Uncertainties

The global economic slowdown, the overall disruption of global healthcare systems and other risks and uncertainties associated with the public health crises and the ongoing war between Russia and Ukraine may have a material adverse effect on our business, financial condition, results of operations and growth prospects. The resulting high inflation rates may materially affect our business and corresponding financial position and cash flows. Inflationary factors, such as increases in the cost of our clinical trial materials and supplies, interest rates and overhead costs may adversely affect our operating results. Rising interest rates also present a recent challenge impacting the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future. Additionally, the general consensus among economists suggests that we should expect a higher recession risk to continue, which, together with the foregoing, could result in further economic uncertainty and volatility in the capital markets in the near term, and could negatively affect our operations. Furthermore, such economic conditions have produced downward pressure on share prices. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates remain high or begin to rise again) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, the global geopolitical tension as a

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result of the ongoing war between Russia and Ukraine, worsening global macroeconomic conditions and employee availability and wage increases, which may result in additional stress on our working capital resources.

In addition, we are subject to other challenges and risks specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of our late-stage product candidate; identifying; acquiring or in-licensing additional products or product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing our intellectual property rights; complying with applicable regulatory requirements.

Financial Overview

Revenue

To date, we have not generated any product revenues. Our ability to generate revenue and become profitable depends upon our ability to obtain marketing approval of and successfully commercialize our product candidates. Our revenues for the years ended December 31, 2021 and 2020 have been solely derived from our license, development and commercialization agreements with Kyowa Kirin Co., Ltd., or KKC, and with Incyte Pharmaceuticals, Inc, or Incyte. We generated no revenue during the year ended December 31, 2022.

In September 2021, we entered into a collaboration and license agreement with Incyte or the Incyte Collaboration Agreement, with Incyte for the worldwide development and commercialization of axatilimab. Additionally, in September 2021, we entered into a share purchase agreement with Incyte, or the Incyte Share Purchase Agreement. Under the terms of the Incyte Collaboration Agreement, Incyte received exclusive commercialization rights outside of the United States, and we and Incyte will, subject to the exercise of our co-promotion option, have co-commercialization rights in the United States, with respect to axatilimab. Incyte is responsible for leading commercialization strategy and booking all revenue from worldwide sales of axatilimab, subject to its royalty payment obligations set forth below. The parties will share equally the profits and losses from the co-commercialization efforts. We and Incyte are co-developing axatilimab and sharing development costs associated with global and U.S.-specific clinical trials, with Incyte responsible for 55% of such costs and we are responsible for 45% of such costs. Each company is responsible for funding any independent development activities. All development costs related to the collaboration are subject to a joint development plan. A joint development committee between us and Incyte will govern future development of axatilimab. Incyte is responsible for 100% of future development costs for trials that are specific to ex-U.S. countries. All development costs related to the collaboration will be subject to a joint development plan. In December 2021, we received an upfront cash payment of $117 million and issued 1,421,523 shares of common stock for an aggregate purchase price of $35 million. We allocated $126.6 million of the total consideration received to the license, and such amount was recognized as license revenue upon transfer of license to Incyte.

We granted KKC an exclusive license to develop and commercialize entinostat in Japan and Korea, or the KKC license agreement. In 2015, we received a $25.0 million upfront payment from KKC, inclusive of an equity investment. We allocated $17.3 million of the upfront payment to the license fee, and such fee is being recognized as revenue ratably over our expected performance period (expected to be through 2029). The balance of the upfront payment of $7.7 million was allocated to KKC’s purchase of shares of our convertible preferred stock.

In September 2021, KKC informed us that they discontinued the entinostat program and cancelled the license to develop and commercialize entinostat. As a result, we recognized $12.4 million in revenue which was previously deferred in the third quarter of 2021.

Research and Development

Since our inception, we have primarily focused on our clinical development programs. Research and development expenses consist primarily of costs incurred for the development of our product candidates and include:

•
expenses incurred under agreements related to our clinical trials, including the costs for investigative sites and contract research organizations, or CROs, that conduct our clinical trials;

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•
employee-related expenses associated with our research and development activities, including salaries, benefits, travel and non-cash stock-based compensation expenses;

•
manufacturing process-development, clinical supplies and technology-transfer expenses;

•
license fees and milestone payments under our license agreements;

•
consulting fees paid to third parties;

•
allocated facilities and overhead expenses; and

•
costs associated with regulatory operations and regulatory compliance requirements.

Internal and external research and development costs are expensed as they are incurred. Cost-sharing amounts received by us are recorded as reductions to research and development expense. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors.

Research and development activities are central to our business model. Drug candidates in late stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of late-stage clinical trials. We plan to continue to spend a significant amount of our resources on research and development activities for the foreseeable future as we continue to advance the development of our product candidates. The amount of research and development expenses allocated to external spending will continue to grow, while we expect our internal spending to grow at a slower and more controlled pace.

It is difficult to determine, with certainty, the duration and completion costs of our current or future preclinical programs, clinical studies and clinical trials of our product candidates. The duration, costs and timing of clinical studies and clinical trials of our product candidates will depend on a variety of factors that include, but are not limited to, the following:

•
per patient costs;

•
the number of patients that participate;

•
the number of sites;

•
the countries in which the studies and trials are conducted;

•
the length of time required to enroll eligible patients;

•
the potential additional safety monitoring or other studies requested by regulatory agencies;

•
the duration of patient monitoring;

•
the efficacy and safety profile of the product candidates; and

•
timing and receipt of any regulatory approvals.

In addition, the probability of success for each drug product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability. The successful development of our product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of our product candidates for the period, if any, in which material net cash inflows from these potential product candidates may commence. Clinical development timelines, the probability of success and development costs can differ materially from expectations.

General and Administrative

General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits, non-cash stock-based compensation and travel expenses, for our employees in executive, finance, business development and support functions. Other general and administrative expenses include facility-related costs not otherwise allocated to research and development expenses and accounting, tax, legal and consulting services. We

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anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates. Additionally, if and when we believe a regulatory approval of the first product candidate appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

Interest expense

Interest expense consists primarily of interest expense on our term loan, operational and capital leases.

Interest Income

Interest income consists of income earned on our cash, cash equivalents and short and long-term investment balances.

Other Income (Expense)

Other income (expense) includes income recorded for the change in fair value of derivative liability established based on the terms under of the Letter Agreement with connection with the share purchase agreement.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed in Note 3 to our audited consolidated financial statements included in this Annual Report, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

Critical Accounting Estimates

Our management’s discussion and analysis of financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on historical experience, known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. In making estimates and judgments, management employs critical accounting policies. Our critical accounting policies are described in greater detail in Note 3 to our audited consolidated financial statements included in this Annual Report.

We have listed below our critical accounting estimates that we believe to have the greatest potential impact on our consolidated financial statements. Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results.

Revenue from Contracts with Customers

We enter into license agreements for the development and commercialization of our product candidates. License agreements may include non-refundable upfront payments, contingent payments based on the occurrence of specified events under our license arrangements, partial or complete reimbursement of research and development expenses, license fees and royalties on sales of entinostat if they are successfully approved and commercialized. Our performance obligations under the license agreements may include the transfer of intellectual property rights in the form of licenses, obligations to provide research and development services and related materials and participation on certain development and/or commercialization committees.

Revenue is recognized when, or as, performance obligations are satisfied, which occurs when control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or services to a customer, or the transaction price. To the extent that the transaction price includes variable consideration, we estimate the amount of variable consideration

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that should be included in the transaction price utilizing the most likely amount method. Variable consideration is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available.

We assessed the promises to determine if they are distinct performance obligations. Once the performance obligations are determined, the transaction price is allocated based on a relative standalone selling price basis. Milestone payments and royalties are typically considered variable consideration at the outset of the contract and are recognized in the transaction price either upon occurrence or when the constraint of a probable reversal is no longer applicable.

For license fee revenues as of December 31, 2021, we recorded revenues of $126.6 million relating to the Incyte Collaboration Agreement and $13.3 million relating to the KKC Agreement. For the year ended December 31, 2022, no revenue has been recognized.

We applied significant judgment to our Incyte Collaboration Agreement. We evaluated whether our contractual obligations represented distinct performance obligations. Such evaluation required judgment since it was made from the customer’s perspective. We determined that the transfer of the license to Incyte was a distinct performance obligation, separate from the ongoing collaboration activities. As such, we estimated the standalone selling price to be $126.6 million which we recognized as $126.6 million of license revenue for the year ended December 31, 2021.

We applied significant judgment to our KKC Agreement. We evaluated whether our contractual obligations represented distinct performance obligations. Such evaluation required judgment since it was made from the customer’s perspective. We determined that our performance obligations under the collaboration at contract inception were not distinct and represented a single performance obligation. In September 2021, KKC informed us, that they have discontinued the entinostat program and have cancelled the license to develop and commercialize entinostat. As a result, we recognized $12.4 million in revenue which was previously deferred in the third quarter of 2021.

Accrued Research and Development Expenses

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing contracts and vendor agreements, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. We make estimates of our accrued and prepaid clinical expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses include fees paid to contract research organizations, or CROs, and investigative sites in connection with clinical studies and to vendors related to product manufacturing and development of clinical supplies.

We base our expenses related to clinical study and trial costs on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows and expense recognition. Payments under some of these contracts depend on factors out of our control, such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period. To date, we have not experienced any significant adjustments to our estimates.

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Results of Operations

The following table summarizes our results of operations for the years ended December 31, 2022, 2021 and 2020:

Comparison of the years ended December 31, 2022 and 2021:

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[[/GREPCENT_TABLE]]

License Fees

For the year ended December 31, 2022 no license fees were recognized. For year ended December 31, 2021, we recognized license fees of $139.7 million, derived from the Incyte and KKC license agreements. The KKC license agreement was terminated in September 2021.

Research and Development

For the year ended December 31, 2022, our total research and development expenses increased by $30.3 million or 34 %, to $118.5 million from $88.2 million for the prior year due to increases in clinical trial activities expenses of $19.0 million, employee related expenses of $9.5 million, professional expenses of $1.5 million, and other expenses of $0.3 million. The increase in clinical activities expenses was due to increased study activities related to axatilimab of $27.1 million, revumenib of $9.7 million, and an increase in license fees of $5.5 million, which were offset by the collaboration cost reimbursement of $22.2 million and a reduction in the entinostat program of $1.1 million. The increase in employee-related expense is primarily due to salary and benefits of $7.9 million and increase in stock-based compensation of $1.6 million due to increase in headcount. The increase in other expenses of $0.3 million is primarily due to travel and entertainment.

We expect research and development expenses to fluctuate from quarter to quarter depending on the timing of clinical trial activities, clinical manufacturing, and other development activities.

Research and development expenses consisted of the following:

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[[/GREPCENT_TABLE]]

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General and Administrative

For the year ended December 31, 2022, our total general and administrative expenses increased by $8.0 million, or 32 %, to $33.3 million, from $25.2 million for the prior year. The increase in general and administrative expenses was primarily due to increased employee-related expenses of $5.3 million, professional fees of $1.4 million and other expenses of $1.3 million. The increase in employee-related expenses is due to an increase of $4.3 million for salary and benefits due to increased headcount and stock compensation expense of $1.0 million. The increase in other expense is due to an increase of $1.1 million for travel and entertainment and $0.2 million for rent and utilities.

Interest Income and Interest Expense

For the year ended December 31, 2022, interest income, increased by $5.5 million from the prior year. This increase was primarily due to higher interest rates on our investments.

Interest expense consists primarily of interest expense on our term loan, operational and capital leases. The increase is primarily due to our amended term loan and loan payoff during the third quarter of 2022. For additional information on the loan payoff, please refer to Note 14, Loan Payable, to our consolidated financial statements.

Other (Expense) Income

Other (expense) income decreased by $0.5 million from the prior year. This decrease was primarily due to the change in fair value of the derivative liability recorded as of the Incyte Collaboration Agreement.

Liquidity and Capital Resources

Overview

As of December 31, 2022, we had cash, cash equivalents and short-term and long-term investments totaling $481.3 million. Since our inception, our operations have been primarily financed by net proceeds from our IPO, and follow-on stock offerings, our term loan, sale of convertible preferred stock and convertible debt securities and proceeds from our license agreements. We believe that our cash, cash equivalents and short-term investments as of December 31, 2022, will fund our projected operating expenses and capital expenditure requirements for at least the next 12 months. In addition to our existing cash, cash equivalents, short-term and long-term investments, we are eligible to receive research and development funding and to earn milestone and other contingent payments for the achievement of defined collaboration objectives and certain development, regulatory and commercial milestones, and royalty payments under our collaboration agreements. Our ability to earn these milestone and contingent payments and the timing of achieving these milestones is primarily dependent upon the outcome of our collaborators’ research and development activities and is uncertain at this time.

Loan and Security Agreement

In February 2020, we entered into a loan and security agreement, with Hercules Capital, Inc., or Hercules, as amended in December 2021, which we refer to as the Amended Loan Agreement. We terminated the Amended Loan Agreement in September 2022. On September 23, 2022, we made a prepayment of $21.5 million to satisfy in full all of our principal and interest obligations and related fees under the Amended Loan Agreement. The payoff amount paid by us in connection with the termination of the Amended Loan Agreement was pursuant to a payoff letter with Hercules and included payment of (a) $1.0 million as an end-of term fee and (b) $0.4 million as a pre-payment fee. Hercules released all security interests held on our assets.

For additional details on our Amended Loan Agreement, see Note 14 to our consolidated financial statements in this Annual Report.

Future Funding Requirements

We believe that our available cash, cash equivalents, short-term and long-term investments are sufficient to fund existing and planned cash requirements. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, clinical costs, legal and

63

other regulatory expenses and general overhead costs. We have based our estimates on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect.

Additionally, the process of testing drug candidates in clinical trials is costly, and the timing of progress in these trials is uncertain. We cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Our future capital requirements will depend on many factors, including:

•
the initiation, progress, timing, costs and results of clinical trials of our product candidates;

•
the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more trials than we currently expect;

•
the cost to establish, maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecuting, defending and enforcing any patents or other intellectual property rights;

•
market acceptance of our product candidates;

•
the cost and timing of selecting, auditing and developing manufacturing capabilities, and potentially validating manufacturing sites for commercial-scale manufacturing;

•
the cost and timing for obtaining pricing and reimbursement, which may require additional trials to address pharmacoeconomic benefit;

•
the cost of establishing sales, marketing and distribution capabilities for our product candidates if any product candidate receives regulatory approval and we determine to commercialize it ourselves;

•
the costs of acquiring, licensing or investing in additional businesses, products, product candidates and technologies;

•
the interruption of key clinical trial activities, such as clinical trial site monitoring;

•
the cost of disruption to our supply chain and operations, and associated delays in the manufacturing and supply of our products, which would adversely impact our ability to continue our clinical trial operations;

•
the effect of competing technological and market developments; and

•
our need to implement additional internal systems and infrastructure, including financial and reporting systems, as we grow our company.

We have no products approved for commercial sale and have not generated any product revenues from product sales to date. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings and additional funding from license and collaboration arrangements. Except for any obligations of our collaborators to reimburse us for research and development expenses or to make milestone or royalty payments under our agreements with them, we will not have any committed external source of liquidity.

Our material cash requirements include the following contractual obligations as of December 31, 2022, and the effects that such obligations are expected to have on our liquidity and cash flows in future periods. For additional information, see our consolidated financial statements.

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[[/GREPCENT_TABLE]]

(1)
In August 2021, we signed a 36-month extension of the lease for the office space in Waltham, Massachusetts. In August 2022, we signed a 36-month extension of the lease for the office space in New York, New York. The minimum lease payments above do not include any related common area maintenance charges or real estate taxes.

(2)
In January 2022, we entered into two four-year non-cancelable leases for office equipment, which are accounted for as capital leases. The leased assets are included in property and equipment, net.

We have incurred losses and cumulative negative cash flows from operations since our inception, excluding year ending December 31, 2022. As of December 31, 2022, we had an accumulated deficit of $693.0 million. We anticipate that we will continue to incur significant losses for at least the next several years. We expect that our research and development and general and administrative expenses will continue to increase. As a result, we will need additional capital to fund our operations, which we may raise through a combination of the sale of equity, debt financings, or other sources, including potential collaborations. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or drug candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.

At-the-Market Offering Program

In March 2021, we entered into a sales agreement with Cowen and Company, LLC, or Cowen, under which we may issue and sell shares of our common stock having aggregate sales proceeds of up to $75.0 million from time to time through Cowen, acting as agent, in a series of one or more at-the-market equity offerings, or the 2021 ATM Program. Cowen is not required to sell any specific amount but acts as our sales agent using commercially reasonable efforts consistent with its normal trading and sales practices. Shares sold pursuant to the sales agreement will be sold pursuant to a shelf registration statement on Form S-3 ASR (Registration No. 333-254661), which became automatically effective upon filing on March 24, 2021. Our common stock will be sold at prevailing market prices at the time of the sale; and as a result, prices may vary. As of December 31, 2022, we sold 1,111,111 shares of common stock under the 2021 ATM Program for net proceeds of approximately $19.4 million.

Cash Flows

The following is a summary of cash flows:

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[[/GREPCENT_TABLE]]

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Net Cash (Used in) Provided by Operating Activities

Net cash used in operating activities for the year ended December 31, 2022, was $133.7 million and primarily consisted of our net loss of $149.3 million adjusted for non-cash items including stock-based compensation of $16.0 million, non-cash operating lease expense of $0.4 million, an investment increase of $3.4 million, a net increase in operating assets and liabitiies of $1.7 million, and an increase in non-cash interest expense associated with the term loan of $1.1 million. The significant items in the increase in operating assets and liabilities include an increase in accrued expenses and other liabilities of $9.4 million, an increase in collaboration receivable of $3.5 million, partially offset by a decrease in prepaid expenses and other assets of $3.0 million, and a decrease in accounts payable of $1.3 million.

Net cash provided by operating activities for the year ended December 31, 2021 was $29.1 million and primarily consisted of our net income of $24.9 million adjusted for non-cash items including stock-based compensation of $13.3 million, non-cash operating lease expense of $0.4 million, an investment amortization of $0.6 million, a decrease in non-cash interest expense associated with the term loan of $0.2 million, a decrease of the derivative liability associated with the Incyte Collaboration Agreement of $0.4 million, and a net decrease in operating assets and liabilities of $9.6 million. The significant items in the decrease in operating assets and liabilities include a decrease in prepaid expenses and other assets of $1.4 million, an increase in accounts payable of $2.1 million, and a decrease in deferred revenue of $13.1 million partially offset by an increase in accrued expenses and other liabilities of $2.8 million.

Net Cash (Used in) Investing Activities

Net cash used in investing activities for the year ended December 31, 2022, was $186.2 million and was primarily due to the purchase of $495.3 million of available-for-sale marketable securities partially offset by $308.9 million in proceeds from the maturities of available-for-sale marketable securities.

Net cash used in investing activities for the year ended December 31, 2021, was $40.9 million and was primarily due to the purchase of $294.7 million of available-for-sale marketable securities partially offset by $254.0 million in proceeds from the maturities of available-for-sale marketable securities.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022, was $172.3 million and was primarily due to proceeds of $162.0 million from issuance of common stock, $19.4 million of proceeds from an at-the-market offering, and $11.9 million of proceeds from stock option exercises and ESPP purchases, partially offset by payment of the term loan of $21.0 million.

Net cash provided by financing activities for the year ended December 31, 2021, was $118.5 million and was primarily due proceeds of $24.8 million from sales of common stock to Incyte Agreement, proceeds of $81.2 million from sale of common stock in a follow-on offering, $6.7 million of proceeds from stock option exercises and ESPP purchases, $5.1 million of proceeds from our ATM Program and, $0.6 million of proceeds from the Incyte Collaboration Agreement allocated to the derivate liability in connection with the side letter.

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Net Operating Loss and Research and Development Tax Credit Carryforwards

December 31, 2022, we had federal and state tax net operating loss carryforwards of approximately $99.6 million and $42.8 million, respectively. We have generated federal NOLs of $77.5 million that have an indefinite carryforward period. The remaining $22.1 million of federal NOLs and the state NOLs will begin to expire at various dates starting in 2026. At December 31, 2022, we had available income tax credits of approximately $8.9 million, with $5.7 million attributable to Federal R&D credits and $3.2 million attributable to state R&D credits, which are available to reduce future income taxes, if any. These income tax credits began to expire in 2022.

Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to ownership change limitations provided by the Internal Revenue Code of 1986, as amended. The annual limitation may result in the expiration of our net operating losses and credits before we can use them. We have recorded a valuation allowance on all of our deferred tax assets, including our deferred tax assets related to our net operating loss and research and development tax credit carryforwards.