Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”) and our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”) filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2022. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many important factors, including those factors set forth in the “Risk Factors” section in our Annual Report and in this Quarterly Report, our actual results could differ materially from the results described in or implied by, the forward-looking statements contained in the following discussion and analysis.
OVERVIEW
We are a pharmaceutical company focused on developing and commercializing products that have the potential to optimize the delivery of infused therapies, advance patient care and reduce healthcare costs. Our strategy is designed to enable the subcutaneous administration of therapies that have previously been limited to intravenous, or IV, delivery. By moving delivery away from the high-cost healthcare settings typically required for IV administration, we believe our technology has the potential to reduce overall healthcare costs and advance the quality and convenience of care. Our lead product candidate, FUROSCIX® (furosemide injection), consists of our novel formulation of furosemide delivered via West Pharmaceutical Services, Inc.'s on-body infusor. On October 10, 2022, we announced that the U.S. Food and Drug Administration, or FDA, approved FUROSCIX for the treatment of congestion due to fluid overload in adults with New York Heart Association Class II/III chronic heart failure. FUROSCIX is not indicated for emergency situations or in patients with acute pulmonary edema. The FUROSCIX infusor will deliver only an 80-mg dose. FUROSCIX is the first and only FDA-approved subcutaneous loop diuretic that delivers IV equivalent diuresis at home. IV equivalence was established in a clinical study in which FUROSCIX demonstrated 99.6% bioavailability (90% CI: 94.8%-104.8%) and 8-hour urine output of 2.7 L which was similar to subjects receiving intravenous furosemide. We estimate that there is a $6.9 billion total market opportunity for FUROSCIX in the United States. We expect the commercial launch of FUROSCIX in the first quarter of 2023.
Heart failure affects 7.2 million adults in the United States who collectively experience 4 million heart failure events annually. An estimated 59% of hospital admissions for heart failure are directly attributable to volume overload. Approximately 80% of heart failure patients discharged from hospital schedule a follow-up appointment and 25-30% of patients are readmitted to hospital post-discharge within 30 days. Repeat hospitalization for heart failure has been associated with increased mortality, with first-time discharges having a median survival (50% mortality) of 2.4 years, decreasing to 0.6 years following a fourth hospitalization. Our proprietary formulation of furosemide administered subcutaneously via an on-body infusor, which we refer to together as FUROSCIX, is intended to help alleviate the signs and symptoms associated with congestion due to fluid retention in heart failure patients, such as fatigue and shortness of breath. FUROSCIX is designed to offer alternative outpatient intervention for heart failure patients who display reduced responsiveness to oral diuretics in non-emergency situations and do not require hospitalization.
We believe FUROSCIX will allow heart failure patients to receive IV-strength diuresis outside the high-cost hospital setting. At a price of $822 per dose, we estimate the average cost of treatment with FUROSCIX for each heart failure exacerbation (comprising four doses of FUROSCIX) to be approximately $3,300. Prevention of hospital admission and reduced readmission rates would result in reducing the estimated 15 million days patients with heart failure spend in the hospital each year. By decreasing the number of admissions and readmissions to hospitals, we believe we can drive significant cost savings to payers and hospitals.
On September 30, 2022 we announced data from two poster presentations in connection with the Heart Failure Society of America’s 2022 Annual Scientific Meeting. The first poster described the results of the AT HOME-HF study, a Phase 2, multicenter, pilot study where 51 subjects presenting to a heart failure clinic with worsening congestion requiring augmented diuresis were randomized (2:1) to receive FUROSCIX or enhanced oral diuretics. The objective of this pilot study was to evaluate prospective endpoints that could inform the design and sample size of a clinical trial that could be used to seek expansion of the indication for FUROSCIX to include a reduction of hospitalizations for heart failure or inclusion in treatment guidelines. Subjects in the AT HOME-HF study who received FUROSCIX demonstrated augmented decongestion compared with patients receiving enhanced oral diuretics as demonstrated by:
•Improved diuresis as measured by a greater reduction in body weight from baseline at study day 3 (2.8 kg vs 0.8 kg, p=0.035);
•Improvement from baseline in mean 5-point dyspnea score at day 3 (-0.5 vs. 0.1, p=0.019);
•Greater number of patients with markedly or moderately better shortness of breath based on 7-point dyspnea at day 3 (44% vs 6%, p=0.006);
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•Clinically relevant improvement from baseline in quality of life as measured by Kansas City Cardiomyopathy questionnaire – 12 (KCCQ-12) summary score at study days 7 and 30 of 8.9 points and 9.3 points, respectively; and
•An increase of 55.8 meters in the average six-minute walk distance at day 30 (36.7 vs -19.1 meters, p=.012).
The win-ratio for the hierarchical endpoint of cardiovascular death, heart failure hospitalization, urgent ED/clinic visit for heart failure and the percentage change in NT-proBNP from baseline at day seven was 1.11 (95% Confidence Interval: 0.48-2.50) favoring the FUROSCIX group.
During the 30-day study period, subjects in the FUROSCIX group spent an average of 23.2 days heart failure event free compared to 14.3 in subjects receiving enhanced oral diuretics.
In the FUROSCIX group, 14.7% of subjects had a serum potassium level that was less than 3.5 mEq/L during the 30-day study and was managed effectively with oral potassium supplements.
The results of the AT HOME-HF study showed that subjects receiving subcutaneous FUROSCIX demonstrated augmented decongestion, as evidenced by a greater reduction in body weight, better dyspnea scores, greater exercise capacity and improvement of health-related quality of life compared with patients receiving enhanced oral diuretics, or standard treatment in a phase 2, pilot study. The favorable results in the AT HOME-HF study support conducting an adequately powered study.
The second poster presented described a study examining patients with brief hospitalizations related to acute decompensated heart failure (“ADHF”). This study investigated the volume, length of stay (“LOS”) and patient characteristics of patients hospitalized for ADHF in the US using the multicenter National Inpatient Sample (“NIS”) representing approximately 20% of US acute care hospitals. Of the approximately 5 million discharges with any heart failure diagnosis code, 1.2 million patients had heart failure as the principal diagnosis code and approximately 43% of such patients had a LOS of less than three days (“SLOS”) with the average LOS being 2.2 days. Compared to patients with LOS greater than three days, SLOS patients were less likely to require mechanical ventilation (2.8% vs 0.7%), dialysis (2.9% vs 0.4%) and undergo diagnostic procedures (70.4% vs 48.4%). SLOS patients were more likely to have a routine discharge to home (61.8% vs 39.7%). Based on these results, we concluded that an alternative outpatient heart failure management may allow many patients to avoid the need for short hospitalizations with its potential complications and healthcare costs.
Oaktree Financing
On October 13, 2022 (the "Closing Date"), we entered into a Credit Agreement and Guaranty (the “Oaktree Agreement”) with, among others, the lenders from time to time party thereto (the “Lenders”) and Oaktree Fund Administration, LLC, in its capacity as administrative agent for the Lenders (in such capacity, the “Agent”). The Oaktree Agreement establishes a $100.0 million term loan facility, consisting of (i) $50.0 million (the “Tranche A Loan”) funded immediately, (ii) $25.0 million (the “Tranche B Loan”) that we may borrow in up to two draws on or prior to September 30, 2024 and (iii) $25.0 million (the “Tranche C Loan” and, together with the Tranche A Loan and the Tranche B Loan, collectively, the “Term Loan”) that we may borrow on or prior to December 31, 2024; provided, in the case of the Tranche B Loan and the Tranche C Loan, that we have achieved certain net sales revenue milestone targets described in the Oaktree Agreement. The Term Loan has a maturity date of October 13, 2027 (the “Maturity Date”). We used a portion of the proceeds of the Term Loan to prepay all outstanding loans under our existing credit facility with SLR Investment Corp. and Silicon Valley Bank and intend to use the remainder of the proceeds to support our commercialization efforts for FUROSCIX and other working capital and general corporate purposes, including the payment of fees and expenses associated with the Oaktree Agreement.
Borrowings under the Term Loan will bear interest at a rate per annum equal to three-month term Secured Overnight Financing Rate ("SOFR") (subject to a 1.00% floor and a 3.00% cap), plus an applicable margin of 8.75%, payable monthly in arrears. From and after achieving $100.0 million in trailing 12-month net sales of FUROSCIX, the applicable margin shall be reduced from 8.75% to 8.25% through the Maturity Date. For the first two years, we may elect to pay up to 3.00% of interest in-kind. We are also permitted to make quarterly interest-only payments on the Term Loan through December 31, 2025. Beginning on March 31, 2026, we will be required to make quarterly payments of interest, plus repay 5.00% of the outstanding principal of the Term Loan in quarterly installments until maturity (subject to certain exceptions).
The Oaktree Agreement contains customary representations, warranties and affirmative and negative covenants, including financial covenants requiring us to (i) maintain certain levels of cash and cash equivalents in accounts subject to a control agreement in favor of the Agent of at least $15.0 million at all times commencing from 30 days after the Closing Date and increasing to $20.0 million of cash and cash equivalents in such controlled accounts after we borrow the Tranche B Loan and (ii) meet minimum quarterly net sales revenue targets described in the Oaktree Agreement.
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In connection with the Oaktree Agreement, we issued the Lenders warrants to purchase an aggregate of 516,345 shares of our common stock at an exercise price of $5.40 per share. The warrants are immediately exercisable, and the exercise period will expire 7 years from the date of issuance.
We have funded our operations from inception through September 30, 2022 primarily through the sale of shares of our common stock and, prior to that, through the private placement of our preferred stock and the incurrence of debt. Our first product, FUROSCIX, was approved for sale in October 2022 and therefore, we have not generated any revenue from product sales.
As of September 30, 2022, we had an accumulated deficit of $217.3 million. We expect to continue to incur net losses for the foreseeable future as we support the commercialization efforts of FUROSCIX in the United States, including building our sales and marketing organization, continuing research and development efforts, engaging in scale-up manufacturing and seeking regulatory approval for new product candidates and enhancements. We will need additional funding to pay expenses related to our operating activities, including selling, general and administrative expenses and research and development expenses. Adequate funding may not be available to us on acceptable terms, or at all. Our failure to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on our business, results of operations or financial condition.
IMPACT OF COVID-19
A new strain of novel coronavirus which causes a severe respiratory disease (“COVID-19”) was identified in 2019, and subsequently declared a pandemic by the World Health Organization, affecting the populations of the United States as well as the rest of the world. In response to the pandemic, we transitioned our workforce to work from home in March 2020. In July 2020, we opened our offices for limited access to employees integrating all recommendations for workplace safety, including appropriate protocols to ensure social-distancing. In May 2022, we expanded the opening of our offices to accommodate a hybrid work environment for our employees with access to our facilities five days a week. The health of our employees remains a top priority and we are continuing to monitor the impact of COVID-19, including the pace of vaccinations, the emergence of new and more contagious strains of the virus and government regulations.
To date, the third parties that perform our manufacturing, assembly, packaging and testing of our products have experienced delays relating to supply chain logistics but have generally remained operational. The extent of the impact of the evolving COVID-19 pandemic on the ability to timely enroll patients in our upcoming clinical trials and our operational and financial performance will depend on future developments, including the duration, severity and spread of the pandemic, related restrictions on travel and transportation, the impact of new strains of the virus, the effectiveness and availability of vaccines and other actions that may be taken by governmental authorities. Such developments may also impact our commercialization efforts of FUROSCIX, the business of our suppliers, service providers or customers, and other items identified under “Risk Factors” in this Quarterly Report and in our Annual Report, all of which are uncertain and cannot be predicted. An extended period of global supply chain and economic disruption may continue to impact us and could materially affect our business, results of operations, access to sources of liquidity and financial condition.
COMPONENTS OF OUR RESULTS OF OPERATIONS
Research and Development Expenses
Research and development ("R&D") expenses consist of the cost of engineering, clinical trials, regulatory and medical affairs and quality assurance associated with developing our proprietary technology and product candidates. R&D expenses consist primarily of:
•employee-related expenses, including salaries, benefits, travel expense and stock-based compensation expense;
•cost of outside consultants who assist with technology development, regulatory affairs, clinical trials and medical affairs, and quality assurance;
•cost of clinical trial activities performed by third parties;
•cost of pre-approval pharmaceutical batch manufacturing; and
•cost of facilities and supplies used for internal research and development and clinical activities.
We expense R&D costs as incurred. Given the emphasis to date on our lead product, FUROSCIX, our R&D expenses have not been allocated on a program-specific basis. In the future, we expect R&D expenses to increase in absolute dollars as we continue to develop new products and enhance existing products and technologies. We anticipate that our expenses will increase significantly as we:
•continue to advance our pipeline programs beyond FUROSCIX;
•continue our current research and development activity;
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•seek to identify additional research programs and additional product candidates;
•initiate preclinical testing and clinical trials for any product candidates we identify and develop, maintain, expand and protect our intellectual property portfolio; and
•hire additional research, clinical and scientific personnel.
General and Administrative Expenses
General and administrative ("G&A") expenses consist of employee-related expenses, including salaries, benefits, travel expense and stock-based compensation expense for personnel in executive, finance, commercial, human resources, facility operations and administrative functions. Other G&A expenses include pre-approval promotional activities, marketing, conferences and trade shows, professional services fees, including legal, audit and tax fees, insurance costs, general corporate expenses and allocated facilities-related expenses.
With the approval of FUROSCIX, we anticipate that our G&A expenses will increase as we continue to build our corporate and commercial infrastructure to support the commercialization activities of FUROSCIX in the United States.
Results of Operations
Comparison of Three Months Ended September 30, 2021 and 2022
The following table summarizes our results of operations for the three months ended September 30, 2021 and 2022 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
|
Increase |
|
|
|
2021 |
|
|
2022 |
|
|
(Decrease) |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
3,694 |
|
|
$ |
3,718 |
|
|
$ |
24 |
|
General and administrative |
|
|
2,211 |
|
|
|
6,277 |
|
|
|
4,066 |
|
Total operating expenses |
|
|
5,905 |
|
|
|
9,995 |
|
|
|
4,090 |
|
Loss from operations |
|
|
(5,905 |
) |
|
|
(9,995 |
) |
|
|
4,090 |
|
Other income (expense) |
|
|
10 |
|
|
|
(22 |
) |
|
|
(32 |
) |
Interest income |
|
|
10 |
|
|
|
232 |
|
|
|
222 |
|
Interest expense |
|
|
(667 |
) |
|
|
(377 |
) |
|
|
(290 |
) |
Net loss |
|
$ |
(6,552 |
) |
|
$ |
(10,162 |
) |
|
$ |
3,610 |
|
Research and development expenses. R&D expenses were $3.7 million for the three months ended September 30, 2022, compared to $3.7 million for the three months ended September 30, 2021.
General and administrative expenses. G&A expenses were $6.3 million for the three months ended September 30, 2022, compared to $2.2 million for the three months ended September 30, 2021. The increase of $4.1 million was primarily attributable to a $2.7 million increase in employee-related costs, a $1.3 million increase in commercial preparation costs, and a $0.1 million increase in legal and public company costs.
Other income (expense). Other expense was $22,000 for the three months ended September 30, 2022, compared to other income of $10,000 for the three months ended September 30, 2021. The decrease in income of $32,000 was primarily attributable to income from a rental arrangement in the three months ended September 30, 2021 and foreign exchange losses in the three months ended September 30, 2022.
Interest income. Interest income was $232,000 for the three months ended September 30, 2022, compared to $10,000 for the three months ended September 30, 2021. The increase of $222,000 was primarily attributable to higher interest rates on our financial instruments.
Interest expense. Interest expense was $377,000 for the three months ended September 30, 2022 compared to $667,000 for the three months ended September 30, 2021. The decrease of $290,000 was due to lower term loan balances as a result of principal payments payable pursuant to our $20.0 million term loan with SLR Investment Corp. (f/k/a Solar Capital Ltd.) and Silicon Valley Bank, entered into in September 2019 (the "2019 Loan Agreement"), which commenced October 1, 2021.
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Comparison of Nine Months Ended September 30, 2021 and September 30, 2022
The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2022 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
Increase |
|
|
|
2021 |
|
|
2022 |
|
|
(Decrease) |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
11,509 |
|
|
$ |
13,207 |
|
|
$ |
1,698 |
|
General and administrative |
|
|
7,593 |
|
|
|
13,448 |
|
|
|
5,855 |
|
Total operating expenses |
|
|
19,102 |
|
|
|
26,655 |
|
|
|
7,553 |
|
Loss from operations |
|
|
(19,102 |
) |
|
|
(26,655 |
) |
|
|
7,553 |
|
Other income |
|
|
298 |
|
|
|
55 |
|
|
|
(243 |
) |
Interest income |
|
|
42 |
|
|
|
353 |
|
|
|
311 |
|
Interest expense |
|
|
(1,954 |
) |
|
|
(1,343 |
) |
|
|
(611 |
) |
Net loss |
|
$ |
(20,716 |
) |
|
$ |
(27,590 |
) |
|
$ |
6,874 |
|
Research and development expenses. R&D expenses were $13.2 million for the nine months ended September 30, 2022, compared to $11.5 million for the nine months ended September 30, 2021. The increase of $1.7 million was primarily attributable to a $1.8 million increase in pharmaceutical development and supplies, a $0.9 million increase in employee-related costs, and a $0.2 million increase in patent related costs. The increase was offset by a $0.6 million decrease in clinical study costs, a $0.3 million decrease in regulatory consulting costs, a $0.2 million decrease in medical affairs consulting costs, and a $0.1 million decrease in device development costs.
General and administrative expenses. G&A expenses were $13.4 million for the nine months ended September 30, 2022, compared to $7.6 million for the nine months ended September 30, 2021. The increase of $5.9 million was primarily attributable to a $4.1 million increase in employee-related costs, a $1.9 million increase in commercial preparation costs, and a $0.1 million increase in public company costs. The increase was offset by a $0.2 million decrease in professional service costs.
Other income. Other income was $55,000 for the nine months ended September 30, 2022, compared to $298,000 for the nine months ended September 30, 2021. The decrease in income of $243,000 was primarily attributable to the recovery of fees associated with a post-employment matter in the nine months ended September 30, 2021 and foreign exchange losses in the nine months ended September 30, 2022.
Interest income. Interest income was $353,000 for the nine months ended September 30, 2022, compared to $42,000 for the nine months ended September 30, 2021. The increase of $311,000 was primarily attributable to higher interest rates on our financial instruments.
Interest expense. Interest expense was $1.3 million for the nine months ended September 30, 2022 compared to $2.0 million for the nine months ended September 30, 2021. The decrease of $0.6 million was due to lower term loan balances as a result of principal payments payable pursuant to our 2019 Loan Agreement, which commenced October 1, 2021.
LIQUIDITY AND CAPITAL RESOURCES
Overview
We have funded our operations from inception through September 30, 2022 primarily through the sale of shares of our common stock, through the private placement of our preferred stock and the incurrence of debt. As of September 30, 2022, we had received net cash proceeds of $92.7 million from our initial public offering, $56.7 million from sales of our preferred stock, $18.8 million from borrowings under our term loan, $13.5 million from sales of convertible notes, $50.2 million from our public offering in 2020 and $14.4 million from the sale of common stock in our 2019 at-the-market offering. As of September 30, 2022, we had cash, cash equivalents and restricted cash of $41.5 million and short-term investments of $3.9 million.
On March 23, 2021, we entered into the 2021 ATM Agreement with Cowen to sell shares of our common stock, from time to time, with aggregate gross sales proceeds of up to $50.0 million, through an at-the-market equity offering program under which Cowen will act as our sales agent. As of September 30, 2022, we had received no proceeds from the sale of shares of common stock pursuant to the 2021 ATM Agreement.
On October 13, 2022, we entered into the Oaktree Agreement which established a $100.0 million term loan facility, consisting of (i) $50.0 million funded immediately, (ii) $25.0 million that we may borrow in up to two draws on or prior to September 30, 2024 and (iii) $25.0 million that we may borrow on or prior to December 31, 2024.
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We expect to incur substantial additional expenditures in the near future to support our ongoing activities and our plans to execute on the launch of FUROSCIX. We believe our existing unrestricted cash is sufficient to fund our operations through at least the next 12 months from the date of this Quarterly Report. We expect our costs and expenses to increase in the future as we commence U.S. commercialization of FUROSCIX, including the development of a direct sales force, and as we continue to make substantial expenditures on research and development, including to increase our manufacturing capacity and for conducting clinical trials of our product candidates. In connection with such development plans and activities, if we determine that we need additional cash resources, we would seek to access such funds either pursuant to our 2021 ATM Agreement or through a combination of public or private equity offerings or debt financings. Additionally, we continue to incur additional costs as a result of operating as a public company. Our future capital requirements will depend on many factors, including:
•the costs and expenses of establishing our U.S. sales and marketing infrastructure;
•the degree of success we experience in commercializing FUROSCIX;
•the revenue generated by sales of FUROSCIX and of other product candidates that may be approved;
•the pricing and reimbursement of FUROSCIX and of other product candidates that may be approved;
•the costs, timing and outcomes of clinical trials and regulatory reviews associated with our product candidates;
•the emergence of competing or complementary technological developments;
•the extent to which FUROSCIX is adopted by the healthcare community;
•the number and types of future products we develop and commercialize;
•the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;
•the impact of COVID-19 on our operations; and
•the extent and scope of our general and administrative expenses.
Additional financing may not be available on a timely basis on terms acceptable to us, or at all. We may raise funds in equity, royalty-based or debt financings or enter into additional credit facilities in order to access funds for our capital needs. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution in their percentage ownership of our Company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we raise additional funds through royalty-based financing arrangements, we will likely agree to relinquish rights to potentially valuable future revenue streams and may agree to covenants that restrict our operations or strategic flexibility. Any debt financing obtained by us in the future would cause us to incur additional debt service expenses and could include restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and pursue business opportunities. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, we may terminate or delay the development of one or more of our products, delay clinical trials necessary to market our products, or delay establishment or expansion of sales and marketing capabilities or other activities necessary to commercialize our products.
CASH FLOWS
The following table summarizes our sources and uses of cash for each of the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
(in thousands) |
|
2021 |
|
|
2022 |
|
Net cash (used in) provided by: |
|
|
|
|
|
|
Operating activities |
|
$ |
(20,053 |
) |
|
$ |
(22,740 |
) |
Investing activities |
|
|
27,629 |
|
|
|
(2,867 |
) |
Financing activities |
|
|
(72 |
) |
|
|
(7,372 |
) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
$ |
7,504 |
|
|
$ |
(32,979 |
) |
Net Cash Used in Operating Activities
During the nine months ended September 30, 2022, net cash used in operating activities was $22.7 million, consisting primarily of a net loss of $27.6 million. This was offset by an increase in net operating liabilities of $2.1 million and non-cash charges of $2.7 million. The increase in net operating liabilities is related to accounts payable and accrued expenses for commercial activity, legal,
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employee-related costs, and pharmaceutical development and supplies, as well as amortization of prepaid assets. The non-cash charges primarily consisted of depreciation, amortization related to our right-of-use leased assets, stock-based compensation expense, non-cash interest expense related to amortization of debt discount associated with the 2019 Loan Agreement and accretion of premium on investments.
During the nine months ended September 30, 2021, net cash used in operating activities was $20.1 million, consisting primarily of a net loss of $20.7 million and an increase in net operating assets of $1.9 million. This was offset by non-cash charges of $2.6 million, which primarily consisted of depreciation, amortization related to our right of use leased assets, stock-based compensation expense, non-cash interest expense related to amortization of debt discount associated with the 2019 Loan Agreement and accretion of discount on investments. The increase in net operating assets is related to accrued expenses for employee-related and device development costs.
Net Cash Provided by (Used in) Investing Activities
During the nine months ended September 30, 2022, net cash used in investing activities was $2.9 million, consisting primarily of purchases of short-term investments, net of maturities.
During the nine months ended September 30, 2021, net cash provided by investing activities was $27.6 million, consisting primarily of maturities of short-term investments, net of purchases.
Net Cash Used in Financing Activities
During the nine months ended September 30, 2022, net cash used in financing activities was $7.4 million, consisting primarily of principal term loan payments, offset by purchases pursuant to our 2017 Employee Stock Purchase Plan and stock option exercises.
During the nine months ended September 30, 2021, net cash used in financing activities was $72,000, consisting primarily of tax obligations on the settlement of restricted stock units, offset by stock option exercises.
CONTRACTUAL OBLIGATIONS
There were no material changes in our commitments under contractual obligations, as disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. Our critical accounting policies are more fully described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report. During the nine months ended September 30, 2022, there were no material changes to our critical accounting policies and estimates from those discussed in our Annual Report.
JOBS ACT ACCOUNTING ELECTION
In April 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was enacted. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected not to avail ourselves of this extended transition period and, as a result, we adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. This election is irrevocable.