You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and the related notes included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes for the year ended
December 31, 2021, as filed in our Annual Report on Form 10-K for the year ended December 31, 2021(the "2021 Annual Report"). Some of the information contained in this discussion and analysis, particularly with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read "Risk Factors" in Item 1A of our 2021 Annual Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. References to "we," "us," "our" and "Chemomab" in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" below refer to the Company after the Merger, and, with respect to historical periods preceding the Merger, refer to Chemomab Ltd., whose business became the business of the Company upon consummation of the Merger.
The Company is a clinical-stage biotechnology company focused on the discovery and development of innovative therapeutics for fibrotic and inflammatory diseases with high unmet need. Based on the unique and pivotal role of the soluble protein CCL24 in promoting fibrosis and inflammation, the Company developed CM-101, a monoclonal antibody designed to bind and block CCL24 activity. CM-101 has demonstrated the potential to treat multiple severe and life-threatening fibrotic and inflammatory diseases. The Company has pioneered the therapeutic targeting of CCL24, a chemokine that promotes various types of cellular processes that regulate inflammatory and fibrotic activities through the CCR3 receptor. The chemokine is expressed in various types of cells, including immune cells, endothelial cells and epithelial cells. We have developed a novel CCL24 inhibiting product candidate with dual anti-fibrotic and anti-inflammatory activity that modulates the complex interplays of both of these inflammatory and fibrotic mechanisms that drive abnormal states of fibrosis and clinical fibrotic diseases. This innovative approach is being developed for difficult to treat rare diseases, also known as orphan indications or diseases, such as primary sclerosing cholangitis, or PSC, and systemic sclerosis, or SSc, for which patients have no established disease modifying standard of care treatment options. CM-101, the Company's lead clinical product candidate, is a first-in-class humanized monoclonal antibody that attenuates the basic function of the soluble chemokine CCL24, also known as eotaxin-2, as a regulator of major inflammatory and fibrotic pathways. We have demonstrated that CM-101 interferes with the underlying biology of inflammation and fibrosis through a novel and differentiated mechanism of action. Based on these findings, the Company is actively developing CM-101 in Phase 2 clinical studies directed toward two distinct clinical indications including patients with liver, skin, and/or lung fibrosis. We are currently conducting a Phase 2 clinical study in PSC, a rare obstructive and cholestatic liver disease. In addition, we are planning a Phase 2 clinical trial in SSc focused on establishing biological proof-of-concept on clinically relevant aspects of this complex disease in this patient population. Although our primary focus relates to these two rare indications, an additional Phase 2 clinical study is currently ongoing in non-alcoholic steatohepatitis, or NASH. This trial is expected to provide important safety and PK data to support the development of a CM-101 subcutaneous formulation. Fibrosis is the abnormal and excessive accumulation of collagen and extracellular matrix, the non-cellular component in all tissues and organs, that provides structural and biochemical support to surrounding cells. When present in excessive amounts, collagen and extracellular matrix lead to scarring and thickening of connective tissues, affecting tissue properties and potentially leading to organ failure. Fibrosis can occur in many different tissues, including lung, liver, kidney, muscle, skin, and the gastrointestinal tract, resulting in a wide array of progressive fibrotic conditions. Fibrosis and inflammation are intrinsically linked. While a healthy inflammatory response is necessary for efficient tissue repair; after injury, an excessive, uncontrolled inflammatory response can lead to tissue fibrosis.
New leadership appointments
June 16, 2022, our board of directors ("Board of Directors") appointed Ms. Jill M. Quigley, JD, as a Class I director and as a member of the audit committee of the Board of Directors (the "Audit Committee"). Additionally, our Board of Directors determined Ms. Quigleyto be an independent director and designated her as the Audit Committee financial expert. Ms. Quigleyis a highly accomplished biotechnology executive with broad experience in public company executive management, global operations, legal affairs, finances, and board membership. Ms. Quigley, as a Class I director, will serve in such capacity until the Company's annual general meeting to be convened in 2025. Ms. Quigley'sappointment followed Mr. Joel Maryles'decision on May 31, 2022not to stand for re-election as a Class I director at the Company's annual general meeting in 2022. Following the appointment of Ms. Quigleyand departure of Mr. Maryles, the current composition of the Audit Committee is Dr. Claude Nicaise(chair), Dr. Alan Mosesand Ms. Quigley. 13
June 14, 2022, Mr. Ilan Vaknin, PhD, joined Chemomab as Vice President of Research & Development. Dr. Vakninhas more than 20 years of highly relevant experience in immunology, antibody development, biomarkers and drug development, including more than a decade in senior science roles at the biotechnology company Compugen.
June 21, 2022, the United States Patent and Trademark Office issued a new patent the United States Patent and Trademark Office issued Chemomab a new patent that covers the use of CM-101 and other anti-CCL24 antibodies and binding fragments for the treatment of a range of fibro-inflammatory liver diseases, including PSC and other cholestatic-associated disorders. Liver diseases are an important target for CCL24-associated diseases--CM-101 is currently in a Phase 2 trial for the treatment of PSC, a potentially lethal disease affecting the bile ducts of the liver, and a Phase 2 liver fibrosis study of CM-101 is now concluding. In addition, there are a number of other liver diseases where CM-101 might have therapeutic value. This new method of use patent adds to the protections provided by CM-101's core composition of matter patents that have already issued in the U.S., Europeand other major global territories, U.S.Patent No.11365246, "Anti CCL24 (eotaxin 2) Antibodies for Use in the Treatment of Hepatic Disease" has a filing date of March 8, 2018, and a grant date of June 21, 2022, with corresponding first to expire claims in 2038 and a possible patent term extension of up to an additional five years, as provided under the Drug Price Competitionand Patent Restoration Act (35 U.S.C. §156).
Revisions to Chemomab Clinical Programs
March 9, 2022, we announced that, following a comprehensive strategic review, we were revising our current clinical programs. The changes are designed to optimize the clinical development of lead product candidate CM-101 by maximizing the clinical information obtained, generating additional important data to support future advancement to registration trials, and decreasing the overall risk in the CM-101 clinical development program in the lead indications of PSC and SSc, as well as potentially in additional indications where the scientific rationale is strong. The key top-line changes that are being implemented in the clinical development programs include the following: Expanding our commitment to PSC with an enlarged clinical trial that adds an important dose finding component. We are significantly expanding the Phase 2 clinical trial in PSC by implementing a dose finding component to the CM-101 development program. We will be increasing the size of the study to 93patients by adding two additional dose cohorts to the current 10 mg/kg cohort, a lower dose cohort to evaluate 5 mg/kg, and a higher dose cohort to evaluate 20 mg/kg. Additionally, we are changing the trial's primary outcome to an evaluation of CM-101's safety and tolerability. Each cohort will enroll 25 patients with PSC and the placebo cohort will enroll 18 patients. In addition, we plan to add an open-label extension to the trial to evaluate the safety, tolerability and durability of effect over a total of 48 weeks of treatment duration. We have begun regulatory submissions to support trial expansion and other relevant changes. We will be performing a blinded interim safety analysis of the currently enrolling dose cohort in the PSC study, expected to be completed before the end of this year. The primary purpose of this safety analysis is to support review by the Data Monitoring Committee, a prerequisite to opening enrollment in this trial to the planned higher dose cohort of 20mg/kg. Based on our ongoing efforts to expand the number of clinical trial sites, the current development landscape of trials in PSC, and the increased size of the study, we anticipate that the top-line data from this Phase 2 trial in PSC will be available in the second half of 2024. Focusing our clinical efforts in systemic sclerosis on establishing earlier biological proof-of-concept in clinically relevant aspects of this complex disease. We are focusing our SSc trial towards establishing biological proof of concept in this patient population. We are revising the design of our planned SSc trial in a way that we believe should enable an expedited path to data supporting proof of the relevance of CCL-24 biology, provide further elucidation of the different mechanisms of action of CM-101, and potentially detect a CM-101 clinical efficacy signal for treating the skin, lung and vascular damage seen in SSc patients. We expect to launch the trial by the end of 2022. Early Conclusion of enrollment in our safety, pharmacokinetic and biomarker liver fibrosis study, yielding a data readout targeted near the end of 2022. We concluded enrollment in our safety, tolerability and biomarker trial that is evaluating a subcutaneous formulation of CM-101 in NASH patients with liver fibrosis. We believe that the data from this trial could provide useful insights in support of the CM-101 development program and that the early completion of this study should be sufficient to achieve our key objectives: characterizing the safety and tolerability of CM-101 in NASH patients, assessing possible early signs of biomarker activity in these patients, and providing the tolerability and pharmacokinetic data needed to assess next steps in the development of our current subcutaneous formulation, while allowing us to focus our resources on our lead indications of PSC and SSc. 14 -------------------------------------------------------------------------------- We expect that the changes we are making to the CM-101 development program will provide important data on clinical dose response relationships to inform the broader development program and to identify the optimal dose to advance into late development in PSC. The modifications are also expected to generate proof of mechanism data on biologically relevant aspects of SSc, a complex rheumatological disorder, to best inform the development path for a novel, first-in-class therapeutic like CM-101, along with relevant safety and tolerability data to support the evaluation of higher doses and inform decisions on next steps in the development of our current subcutaneous formulation.
Shelf check-in statement and ATM offer
April 30, 2021, we filed a shelf registration statement on Form S-3 with the SEC(File No. 333-255658) for the issuance and sale by us of up to $200,000,000of our ordinary shares, ADSs, debt securities, warrants and units comprising any combination of the foregoing securities (the "Shelf Registration Statement"). On the same date, we entered into a sales agreement (the "Sales Agreement") with Cantor Fitzgerald, pursuant to which we may offer and sell, from time to time, at our option, through or to Cantor Fitzgerald, up to an aggregate of $75,000,000of our ADSs (the "ATM Facility"). During the period from April 30, 2021through the date of this quarterly report on Form 10-Q, we had sold an aggregate of 699,806 ADSs pursuant to the Sales Agreement for a total gross consideration of approximately $15.9 million. On April 25, 2022, we filed a prospectus supplement with the SECfor the issuance and sale of up to $18,125,000of our ADSs in connection with the reactivation of the ATM Facility and pursuant to General Instruction I.B.6 of Form S-3, which, subject to certain exceptions, limits the amount of securities we are able to offer and sell under such registration statement to one-third of our unaffiliated public float. Any ADSs offered, or to be offered, and sold under the Sales Agreement were issued and sold, or will be issued and sold, pursuant to the Shelf Registration Statement and the applicable prospectus or prospectus supplement by methods deemed to be an "at the market offering" as defined in Rule 415(a)(4) promulgated under the Securities Act, or if specified by us, by any other method permitted by law.
During the period of
Impact of COVID-19
March 2020, the COVID-19 pandemic has dramatically expanded into a worldwide pandemic, creating macro-economic uncertainty and disruption in the business and financial markets. The continuing implications of the COVID-19 pandemic on Chemomab remain uncertain and will depend on future developments, including any adverse impact due to additional variants of the virus; its impact on our employees; the range of government mandated restrictions and other measures; and the success of the COVID-19 vaccines and their effectiveness against the virus and related variants. Furthermore, our clinical trial sites have been affected by the COVID-19 pandemic, and as a result, commencement of the enrollment in our clinical trials of CM-101 in PSC was delayed, and the enrollment rate has been affected as well. As a result, we expanded our patient recruiting efforts to additional territories. In addition, after enrollment in these trials, patients might still discontinue participation in these trials because of possible COVID-19 implications. Based on management's assessment, the extent to which the COVID-19 pandemic will continue to impact our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the ultimate duration and changing severity of the outbreak, and the actions that may be required to continue to contain COVID-19 or address its impact. We are monitoring the remaining limitations on patient recruitment due to the effects of the COVID-19 pandemic and if necessary, will adjust activities accordingly.
We were incorporated on
September 22, 2011under the laws of the State of Israel. In March 2021, in connection with the Merger, we changed our name from Anchiano Therapeutics Ltd.to Chemomab Therapeutics Ltd.Our principal executive offices are located at Kiryat Atidim, Building 7, Tel Aviv, Israel6158002, and our phone number is +972-77-331-0156. Our website is: www.chemomab.com. The information contained on, or that can be accessed through, our website is not incorporated by reference into this Quarterly Report on Form 10-Q. We have included our website address as an inactive textual reference only. 15
Components of operating results
To date, we have not generated any revenue. We do not expect to generate any revenue unless and until we obtain regulatory approval and commercialize a product candidate, or until we receive revenue from a collaboration such as a co-development or out-licensing agreement. There can be no assurance that we will receive such regulatory approvals, and if any product candidate is approved, that we will be successful in commercializing it.
Research and development costs
Research and development expenses primarily include expenses incurred in the development of our product candidates. These expenses include:
• expenses incurred under agreements with contract research organizations or
contract manufacturing organizations, as well as investigation sites and
consultants who conduct our clinical trials, preclinical studies and other
scientific development services;
• manufacturing scale-up expenses and acquisition and manufacturing cost
preclinical and clinical testing equipment;
• employee-related expenses, including salaries, benefits, travel and
stock-based compensation expenses for employees engaged in research and
development functions, as well as external costs, such as fees paid to third parties
consultants engaged in such activities;
• license maintenance costs and milestone costs incurred as part of
various license agreements; • costs related to compliance with regulatory requirements; and • depreciation and other expenses. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use our internal resources primarily to oversee research, as well as for managing our preclinical development, process development, manufacturing and clinical development activities. Our employees work across multiple programs and, therefore, we do not track costs by program. Research and development activities are fundamental to our business. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several quarters and years as we continue to advance the development of our product candidates. We also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license agreements to acquire the rights to its product candidates.
General and administrative expenses
General and administrative expenses primarily include salaries, related benefits and stock-based compensation costs for personnel performing management and administrative functions. General and administrative expenses also include professional fees for legal, consulting, accounting and auditing services.
We anticipate that our general and administrative expenses will increase in the future as we increase headcount and general activities to support our continued research activities and development of our product candidates as well as expanding our presence in
the United States. We also anticipate that we will incur increased headcount, accounting, audit, legal, regulatory, compliance, director and officer insurance costs, as well as investor and public relations expenses associated with being a public company. We expect that the additional costs for these services will substantially increase our general and administrative expenses. Additionally, if and when we believe that regulatory approval of a product candidate appears likely, we expect to incur an increase in payroll and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of any product candidate. 16
Three and six months ended
Below is a summary of our operating results for the periods indicated:
Three Months Ended
June 30, 2022Compared to the Three Months Ended June 30, 2021Three months ended June 30, Increase/(decrease) 2022 2021 $ % (in thousands) Operating expenses: Research and development $ 2,914 $ 1,307 $ 1,607123 % General and administrative 3,340 1,446 1,894 131 % Operating loss (6,254 ) (2,753 ) 3,501 127 % Financing expense, net 480 17 463 2,724 % Income Tax (544 ) - (544 ) 100 % Net loss $ (6,190 ) $ (2,770 ) $ (3,420 )123 % Six Months Ended June 30, 2022Compared to the Six Months Ended June 30, 2021Six months ended June 30, Increase/(decrease) 2022 2021 $ % (in thousands) Operating expenses: Research and development $ 5,659 $ 2,464 $ 3,195130 % General and administrative 5,915 1,988 3,927 198 % Operating loss (11,574 ) (4,452 ) (7,122 ) 160 % Financing expense, net 264 22 242 1,100 % Income Tax (benefit) (544 ) - (544 ) 100 % Net loss $ (11,294 ) $ (4,474 ) $ (6,820 )152 % Our results of operations have varied in the past and can be expected to vary in the future due to numerous factors. We believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance. 17
Research and development costs
Research and development expenses increased by approximately
$1.6 million, or 123%, for the three months ended June 30, 2022, as compared to the same period in 2021. The increase was primarily due to increased clinical and pre-clinical activities. Research and development expenses increased by approximately $3.2 million, or 130%, for the six months ended June 30, 2022, as compared to the same period in 2021 also due primarily to increased clinical and pre-clinical activities.
General and administrative expenses
General and administrative expenses increased by approximately
$1.9 million, or 131%, for the three months ended June 30, 2022, as compared to the same period in 2021. The increase was primarily due to increase in salaries and related benefits expenses of $1.1 millionmainly related to key additions to the senior management team, as well as increase in non-cash share-based expenses in the amount of $0.2 millionand provision for expenses recorded in relation to an audit by the Israeli Tax Authority. General and administrative expenses increased by approximately $3.9 million, or 198%, for the six months ended June 30, 2022, as compared to the same period in 2021. The increase was primarily due to the increase in non-cash share-based expenses in the amount of $1.0 millionas well as increase in salaries and related benefits expenses of $1.6 millionmainly related to key additions to the senior management team, and provision for expenses recorded in relation to an audit by the Israeli Tax Authority.
Financing charges, net
Financing expenses, net increased by approximately
$463 thousandfor the three months ended June 30, 2022from the same period in 2021. Financing expense, net for the three months ended June 30, 2022was primarily related to foreign currency exchange rate loss. Financing expense, net for the three months ended June 30, 2021was primarily related to foreign currency exchange rate loss which was partially offset by interest income from bank deposits. Financing expenses, net increased by approximately $242 thousandfor the six months ended June 30, 2022from the same period in 2021. Financing expense, net for the six months ended June 30, 2022was primarily related to foreign currency exchange rate loss which was partially offset by interest income from bank deposits. Financing expense, net for the six months ended June 30, 2021was primarily related to foreign currency exchange rate loss.
Cash and capital resources
Since inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations, resulting in an accumulated deficit at
June 30, 2022of $47.5 million. We have funded our operations to date primarily with proceeds from the sale of our ADSs, and, prior to the Merger, other equity securities. Cash in excess of immediate requirements is invested primarily with a view to liquidity and capital preservation.
During the period of
18 -------------------------------------------------------------------------------- Developing product candidates, conducting clinical trials and commercializing products are expensive, and we will need to raise substantial additional funds to achieve our strategic objectives. We believe that our existing cash resources, including from the ADSs sold pursuant to the Sales Agreement, will be sufficient to fund our projected cash requirements through the end of 2023. Nevertheless, we will require significant additional financing in the future to fund our operations, including if and when we progress into additional clinical trials, obtain regulatory approval for any of our product candidates and commercialize the same. We believe that we will need to raise significant additional funds before we have any cash flow from operations, if at all. Our future capital requirements will depend on many factors, including:
• the progress and costs of our preclinical studies, clinical trials and other
research and development activities;
• the scope, prioritization and number of our clinical trials and other research
and development programs;
• the amount of revenue and contributions we receive under future licenses,
development and marketing agreements for our product
• the costs of developing and expanding our operational infrastructure;
• the costs and time required to obtain regulatory approval for our product
• the costs of filing, prosecuting, enforcing and defending patent claims and
other intellectual property rights;
• the costs and delays of securing manufacturing agreements for the
• costs of contracts with third parties to provide sales and marketing services
capabilities for us;
• acquisition costs or development and marketing efforts
for any future product, product candidate or platform;
• the magnitude of our general and administrative expenses; and
• any costs we may incur under future entry and exit license agreements
relating to our product candidates.
We currently do not have any commitments for future external funding. In the future, we will need to raise additional funds, and we may decide to raise additional funds even before we need such funds if the conditions for raising capital are favorable. Until we can generate significant recurring revenues, we expect to satisfy our future cash needs through debt or equity financings, credit facilities or by out-licensing applications of our product candidates. The sale of equity or convertible debt securities may result in dilution to our existing shareholders. The incurrence of indebtedness would result in increased fixed obligations and could also subject us to covenants that restrict our operations. We cannot be certain that additional funding, whether through grants from the
Israel Innovation Authority, financings, credit facilities or out-licensing arrangements, will be available to us on acceptable terms, if at all. If sufficient funds are not available, we may be required to delay, reduce the scope of or eliminate research or development plans for, or commercialization efforts with respect to, one or more applications of our product candidates, or obtain funds through arrangements with collaborators or others that may require us to relinquish rights to certain potential products that we might otherwise seek to develop or commercialize independently.
The table below shows a summary of our cash flow activities for the periods indicated: Six months ended June 30, Increase/(decrease) 2022 2021 $ % (in thousands)
Net cash used in operating activities
(2,512 ) 36 % Net cash provided by (used in) investing activities 4,109 (20,605 ) 24,714 (120 )% Net cash provided by financing activities 22 61,227 (61,205 ) (100 )% Net increase (decrease) in cash, cash equivalents and restricted cash
$ (5,281 ) $ 33,722 $ (39,003 )(116 )% 19
Net cash used in operating activities increased by
$2.5 million, or 36%, for the six months ended June 30 2022compared to the same period in 2021. The increase was primarily related to the increase in net loss of $6.8 million, offset by an increase in accrued expenses of $2.2 million, decrease in other receivables of $1.0 millionand changes in non-cash activities adjustment of $1.1 million.
Net cash provided by investing activities for the six months ended
June 30, 2022increased by approximately $24.7 millioncompared to same period in 2021. The increase is primarily related to an increase in short term bank deposits. Net cash used in investing activities for the six months ended June 30, 2021was primarily related to the deposit of proceeds received from a private placement in bank deposits. Financing activities Net cash provided by financing activities for the six months ended June 30, 2022decreased by approximately $61.2 million, as compared to the same period in 2021. The decrease is primarily related to a decrease in proceeds from the issuance of ADSs of approximately $58.7 million(net of expenses), and cash acquired in the Merger of approximately $2.4 million, in each case in the six months ended on June 30, 2021. Financing activities for the six months ended June 30, 2021reflect proceeds received from the private placement as well as sales of the Company's ADSs under the ATM program. Contractual Commitments The Company's contractual commitments at June 30, 2022were as follows (in thousands): Remainder of 2022 $ 5,0212023 5,741 2024 146 2025-2027 - Total $ 10,908
Critical accounting policies
The Company's financial statements are prepared in accordance with generally accepted accounting principles in
the United States("GAAP"). The preparation of the Company's financial statements and related disclosures in accordance with GAAP requires it to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in the Company's financial statements. The Company bases its estimates on historical experience, known trends and events and various other factors that it believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company evaluates its estimates and assumptions on an ongoing basis. The Company's actual results may differ from these estimates under different assumptions or conditions. While the Company's significant accounting policies are described in more detail in Note 2 to the Company's consolidated financial statements included elsewhere in the 2021 Annual Report, the Company believes that the following accounting estimates are those that include a higher degree of judgment or complexity and are reasonably likely to have a material impact on our financial condition or results of operations and are therefore considered critical accounting estimates. 20
We apply Accounting Standard Codification (ASC) 718-10, "Share-Based Payment," which requires the measurement and recognition of compensation expenses for all share-based payment awards made to employees and directors, including employee options under Chemomab's option plans based on estimated fair values. ASC 718-10 requires that we estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The fair value of the award is recognized as an expense over the requisite service periods in Chemomab's statements of comprehensive loss. Chemomab recognizes share-based award forfeitures as they occur, rather than estimate by applying a forfeiture rate. In
June 2018, the Financial Accounting Standards Board("FASB") issued Accounting Standards Update ("ASU") 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting", which simplifies the accounting for nonemployee share-based payment transactions by aligning the measurement and classification guidance, with certain exceptions, to that for share-based payment awards to employees. The amendments expand the scope of the accounting standard for share-based payment awards to include share-based payment awards granted to non-employees in exchange for goods or services used or consumed in an entity's own operations and supersedes the guidance related to equity-based payments to non-employees. We adopted these amendments on January 1, 2019.
We accrue compensation expense for the fair value of non-employee awards over the required service period of each award.
We estimate the fair value of options granted as equity awards using a Black-Scholes options pricing model. The option-pricing model requires a number of assumptions, of which the most significant are share price, expected volatility and the expected option term (the time from the grant date until the options are exercised or expire). The Company determines the fair value per share of the underlying stock by taking into consideration its most recent sales of stock, as well as additional factors that the Company deems relevant. The Company's board determined the fair value of ordinary shares based on valuations performed using the Option Pricing Method subject to relevant facts and circumstances. The Company has historically been a private company and lacks company-specific historical and implied volatility information of its stock. Expected volatility is estimated based on volatility of similar companies in the biotechnology sector. The Company has historically not paid dividends and has no foreseeable plans to issue dividends. The risk-free interest rate is based on the yield from governmental zero-coupon bonds with an equivalent term. The expected option term is calculated for options granted to employees and directors using the "simplified" method. Grants to non-employees are based on the contractual term. Changes in the determination of each of the inputs can affect the fair value of the options granted and the results of operations of the Company.
Recently issued accounting pronouncements
Certain recently issued accounting pronouncements are discussed in Note 2, Summary of Significant Accounting Policies, to the audited consolidated financial statements in our 2021 Annual Report.
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