Altimmune, Inc. (ALT) FY 2023 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. 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 together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis contains forward-looking statements that involve substantial risks and uncertainties. See “Forward-looking statements” in Part I of this Annual Report and the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report for a discussion of certain factors that could cause actual results or events to differ materially from the forward-looking statements that we make.
Overview
Altimmune, Inc. is a clinical stage biopharmaceutical company focused on developing treatments for obesity and liver diseases. Our lead product candidate, pemvidutide (formerly known as ALT-801), is a GLP-1/glucagon dual receptor agonist that is being developed for the treatment of obesity and metabolic dysfunction-associated steatohepatitis (“MASH”), previously termed non-alcoholic steatohepatitis (“NASH”). Except where the context indicates otherwise, references to “we,” “us,” “our,” “Altimmune” or the “Company” refer to the company and its subsidiaries.
Fiscal Year 2023 Business Update
On October 24, 2023, the U.S. Food and Drug Administration (“FDA”) granted fast track designation pemvidutide for the treatment of MASH.
Pemvidutide – IMPACT trial
On August 1, 2023 we announced that we enrolled the first subject in the Phase 2b trial, IMPACT, to evaluate the safety and efficacy of pemvidutide in subjects with MASH. The biopsy-driven trial is expected to enroll approximately 190 subjects with and without diabetes randomized 1:2:2 to receive 1.2 mg, 1.8 mg pemvidutide or placebo weekly for 48 weeks. The key efficacy endpoints are MASH resolution and fibrosis improvement after 24 weeks of treatment, with subjects to be followed for an additional 24 weeks to a total of 48 weeks for assessment of safety and additional biomarker responses. Top-line 24-week results from this trial are expected in the first quarter of 2025.
Pemvidutide – MOMENTUM trial
48-Week Analysis
On November 30, 2023, we announced topline results from our 48-week MOMENTUM Phase 2 obesity trial of pemvidutide. The trial enrolled 391 subjects with obesity or overweight with at least one co-morbidity and without diabetes. Subjects were randomized 1:1:1:1 to 1.2 mg, 1.8 mg, 2.4 mg pemvidutide or placebo administered weekly for 48 weeks in conjunction with diet and exercise. The 1.2 mg and 1.8 mg doses were administered without dose titration, while a short 4-week titration period was employed for the 2.4 mg dose. Unlike other obesity studies with GLP-1 based agents, dose-reduction was not allowed. At baseline, subjects had a mean age of approximately 50 years, mean body mass index (“BMI”) of approximately 37 kg/m2 and mean body weight of approximately 104 kg. Approximately 75% of subjects were female. See Item 1. Business of this Annual Report for detailed discussion of the data readout.
12-Week Type 2 Diabetes Safety Trial
In March 2023, we announced the topline results from a 12-week Phase 1b safety trial of pemvidutide, which was conducted to evaluate the safety profile of pemvidutide in subjects with overweight or obesity and type 2 diabetes. The trial was comprised of 54 subjects randomized 1:1:1:1 to 1.2 mg, 1.8 mg, 2.4 mg pemvidutide or placebo administered weekly for 12 weeks. See Item 1. Business of this Annual Report for detailed discussion of the data readout.
HepTcell
On April 11, 2023, we announced the completion of enrollment in our Phase 2 clinical trial of HepTcell, an immunotherapeutic for the treatment of chronic hepatitis B (“CHB”).
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The multicenter clinical trial, which is being conducted at 26 sites in North America, Europe and Southeast Asia, enrolled approximately 80 subjects with inactive CHB and low levels of hepatitis B surface antigen (“HBsAg”). Subjects were randomized 1:1 to HepTcell or placebo. The primary endpoint of the trial is clinical response, defined as a 1-log or greater reduction or clearance in HBsAg. Secondary endpoints include changes in the levels of hepatitis B virus (“HBV”) DNA, pre-genomic RNA and other markers of virologic response.
On March 27, 2024, we announced that the overall response in the Phase 2 trial was deemed to be insufficient to warrant further advancement in clinical trials. As a result, we have stopped any further development related to HepTcell.
Financial Operations Overview
The consolidated financial information presented below includes the accounts of Altimmune, Inc., Altimmune UK, Ltd, Spitfire Pharma, LLC. and Altimmune AU Pty, Ltd. All intercompany accounts and transactions have been eliminated in consolidation.
Revenue
We have not generated any revenue from the sale of any products to date. Our revenue has historically consisted primarily of government and foundation grants and contracts that supported our efforts on specific research projects. These grants and contracts generally provided for reimbursement of approved costs as those costs were incurred by us. Research grants and contracts and the related accounts receivable were recognized as earned when reimbursable expenses were incurred and the performance obligation was complete. Payments received in advance of services being provided were recorded as deferred revenue. We are closing out one such contract and any revenue reported during the year ended December 31, 2023 was for indirect rate adjustments.
Research and development expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:
| Column 1 | Column 2 | Column 3 |
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| ● | expenses incurred under agreements with contract research organizations (“CROs”) and investigative sites that conduct our clinical trials; |
| Column 1 | Column 2 | Column 3 |
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| ● | employee-related expenses, including salaries, benefits, travel and stock-based compensation expense; |
| Column 1 | Column 2 | Column 3 |
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| ● | costs associated with preclinical and clinical activities and regulatory operations, including the cost of acquiring, developing and manufacturing clinical trial materials; and |
| Column 1 | Column 2 | Column 3 |
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| ● | depreciation and other expenses, which include direct and allocated expenses for insurance, consultants, legal fees and other supplies. |
Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, CROs and clinical sites.
We cannot determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if, when or to what extent we will generate sales from the commercialization of any of our product candidates if they receive regulatory approval. The successful development of our product candidates is highly uncertain and may never result in approved products. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:
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| ● | scope, rate of enrollment and expense of our ongoing, as well as any additional, clinical trials, and other research and development activities; |
| Column 1 | Column 2 | Column 3 |
|---|---|---|
| ● | significant and potentially changing government regulation; and |
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| Column 1 | Column 2 | Column 3 |
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| ● | the timing and receipt of regulatory approvals, if any. |
A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, we could be required to expend significant additional financial resources and time on the completion of clinical development. Additionally, we may conduct additional trials in support of sales and marketing of our product candidates.
We plan to increase our research and development expenses for the foreseeable future as we continue the development of clinical and preclinical candidates. Our current active and planned research and development activities include the following:
| Column 1 | Column 2 | Column 3 |
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| ● | completion of data analysis of a Phase 2 clinical trial for pemvidutide in obesity; |
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| ● | conduct of a Phase 2 clinical trial for pemvidutide in MASH; |
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| ● | conduct of clinical trials and nonclinical safety studies for pemvidutide; |
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| ● | completion of a Phase 2 clinical trial for HepTcell; and |
| Column 1 | Column 2 | Column 3 |
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| ● | manufacture of clinical trial materials in support of our clinical trials. |
A significant portion of our research and development efforts have been related to the development of pemvidutide and HepTcell. The development of HepTcell was discontinued on March 27, 2024. We do not allocate personnel-related costs, costs associated with our general research platform improvements, depreciation or other indirect costs to specific programs.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation and travel expenses for our employees in executive, operational, finance and human resource functions. Other general and administrative expenses include insurance expenses, facility-related costs and professional fees for directors, accounting and legal services, and expenses associated with obtaining and maintaining our intellectual property.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development activities. We also anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and the SEC requirements, director and officer insurance, investor relations costs and other costs associated with being a public company. Additionally, if and when we believe a regulatory approval of the first product candidate appears likely, we anticipate an increase in staffing 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.
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Results of Operations
Comparison of years ended December 31, 2023 and December 31, 2022 (in thousands):
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year Ended December 31, | | |||||||||
| | 2023 | 2022 | Increase (Decrease) | |||||||||
| Revenue | | $ | 426 | | $ | (68) | | $ | 494 | 726 | % | |
| Operating expenses: | | | | | | |||||||
| Research and development | | 65,799 | | 70,538 | | (4,739) | (7) | % | ||||
| General and administrative | | 18,137 | | 17,134 | | 1,003 | 6 | % | ||||
| Impairment loss on intangible asset | | | 12,419 | | | — | | | 12,419 | | 100 | % |
| Total operating expenses | | 96,355 | | 87,672 | | 8,683 | 10 | % | ||||
| Loss from operations | | (95,929) | | (87,740) | | (8,189) | 9 | % | ||||
| Other income (expense): | | | | | | |||||||
| Interest expense | | (35) | | (8) | | (27) | 338 | % | ||||
| Interest income | | 7,351 | | 2,870 | | 4,481 | 156 | % | ||||
| Other income (expense), net | | 166 | | (32) | | 198 | 619 | % | ||||
| Total other income (expense), net | | 7,482 | | 2,830 | | 4,652 | 164 | % | ||||
| Net loss before income taxes | | | (88,447) | | | (84,910) | | | (3,537) | 4 | % | |
| Income tax expense (benefit) | | — | | (197) | | 197 | (100) | % | ||||
| Net loss | | $ | (88,447) | | $ | (84,713) | | $ | (3,734) | 4 | % |
Revenue
We have not generated any revenues from the sale of any products to date. Our revenue has historically consisted primarily of government and foundation grants and contracts that supported our efforts on specific research projects. We are closing out one such contract and any revenue reported during the years ended December 31, 2023 and 2022 were for indirect rate adjustments.
Research and development expenses
Research and development expenses for the years ended December 31, 2023 and 2022 consisted primarily of expenses related to product candidate development. Research and development expenses for the years ended December 31, 2023 and 2022 are summarized as follows:
| | | | | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | Year Ended December 31, | | |||||||||
| Product candidates | 2023 | 2022 | Increase (Decrease) | |||||||||
| Pemvidutide | | $ | 35,768 | | $ | 46,928 | | $ | (11,160) | (24) | % | |
| HepTcell | | 6,616 | | 7,524 | | (908) | (12) | % | ||||
| Non-project costs | | 23,415 | | 16,086 | | 7,329 | 46 | % | ||||
| Total research and development expenses | | $ | 65,799 | | $ | 70,538 | | $ | (4,739) | (7) | % |
The decrease in research and development expenses for pemvidutide was primarily due to a $13.7 million reduction in expenses associated with the metabolic dysfunction-associated steatotic liver disease (“MASLD”), previously termed non-alcoholic fatty liver disease (“NAFLD”), trials, a $6.8 million reduction in expenses associated with Phase 1 safety trials, all of which were ongoing during the year ended December 31, 2022, and which were substantially completed by March 31, 2023 and a $1.7 million reduction in expense associated with the MOMENTUM Phase 2 trial in obesity, which had commenced and was fully enrolled in the year ended December 31, 2022, but completed its in-life portion by September 30, 2023 and wound down in the year ended December 31, 2023. The decrease in these research and development expenses were partially offset by an $8.3 million increase related to the ramp up of the IMPACT Phase 2b
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trial in MASH, and a $2.8 million increase in net manufacturing expenses for production of Good Manufacturing Practice (“GMP”) drug substance materials.
The decrease in research and development expenses for HepTcell was primarily due to the winddown and completion of the in-life portion of the Phase 2 trial in 2023.
The increase in other non-project specific research and development expenses was primarily due to $3.3 million for labor related costs, $1.9 million in stock compensation, $1.0 million for electronic document management system (“EDMS”) implementation and service costs and $0.3 million for consultants.
General and administrative expenses
General and administrative expenses increased by $1.0 million, or 6%, during the year ended December 31, 2023 as compared to the year ended December 31, 2022. The increased expense is primarily due to a $0.6 million increase in stock compensation and $0.3 million increase in other labor-related expenses.
Impairment loss on intangible asset
Impairment loss on intangible asset of $12.4 million reported during the year ended December 31, 2023 represents a non-cash impairment charge recorded for the in-process research and development (“IPR&D”) asset associated with HepTcell (See Note 2. Summary of Significant Accounting Policies). There were no impairment charges reported during the year ended December 31, 2022.
Total other income (expense), net
Total other income (expense), net increased by $4.7 million during the year ended December 31, 2023 as compared to the year ended December 31, 2022, primarily due to a $4.5 million increase in interest income earned on our cash equivalents and short-term investments and $0.2 million increase in gain from foreign currency exchange.
Income tax benefit
We recorded an income tax benefit of $0.2 million related to interest received and receivable on income tax refunds during the year ended December 31, 2022. Other than the income tax benefit related to interest, we did not record an income tax benefit in the years ended December 31, 2023 and 2022 due to a full valuation allowance.
Liquidity and Capital Resources
Overview
Our primary sources of cash for the year ended December 31, 2023 were from equity transactions, interest and dividends from our money market funds and short-term investments, and proceeds from maturity of our short-term investments. Our cash, cash equivalents, restricted cash and short-term investments were $197.9 million as of December 31, 2023. We believe, based on the operating cash requirements and capital expenditures expected for 2024 and 2025, our cash on hand as of December 31, 2023, together with expected cash receipts from our income tax refunds and research and development incentives, are sufficient to fund operations for at least a twelve-month period from the issuance date of our December 31, 2023 consolidated financial statements.
We have not generated any revenues from the sale of any products to date, and there is no assurance of any future revenues from product sales. We have incurred significant losses since we commenced operations. As of December 31, 2023, we had an accumulated deficit of $466.3 million. In addition, we have not generated positive cash flows from operations. We have had to rely on a variety of financing sources, including the issuance of debt and equity securities. As capital resources are consumed to fund our research and development activities, we may require additional capital beyond our currently anticipated amounts. In order to address our capital needs, including our planned clinical trials, we must continue to actively pursue additional equity or debt financing, government funding, and monetization of our existing programs through partnership arrangements or sales to third parties.
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Sources of Liquidity
Shelf Registrations
On February 28, 2023, we filed a shelf registration statement on Form S-3ASR, which was declared effective immediately. This shelf registration allows us to offer and sell any amount of our common stock, preferred stock, debt securities, warrants, rights and units (the “2023 Shelf”) for a period of three years from effectiveness or until such determination that we no longer qualify as a well-known seasoned issuer.
At-the-Market Offerings
On February 28, 2023, we entered an Equity Distribution Agreement (the “2023 Agreement”) with Evercore Group L.L.C., JMP Securities LLC and B. Riley Securities, Inc., serving as sales agents, with respect to an at-the-market offerings program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, having an aggregate offering price of up to $150.0 million. During the year ended December 31, 2023, we sold 20,454,516 shares of common stock under the 2023 Agreement resulting in approximately $86.6 million in net proceeds, and as of December 31, 2023, $60.6 million remained available to be sold under the 2023 Shelf.
Cash Flows
The following table provides information regarding our cash flows for the years ended December 31, 2023 and 2022:
| | | | | | | | | | |
|---|---|---|---|---|---|---|---|---|---|
| | | Year Ended December 31, | |||||||
| (in thousands) | 2023 | 2022 | Increase (Decrease) | ||||||
| Net cash provided by (used in): | | | | ||||||
| Operating activities | | $ | (75,810) | | $ | (62,586) | | $ | (13,224) |
| Investing activities | | 13,732 | | (73,399) | | 87,131 | |||
| Financing activities | | 86,105 | | 56,781 | | 29,324 | |||
| Net increase (decrease) in cash and cash equivalents and restricted cash | | $ | 24,027 | | $ | (79,204) | | $ | 103,231 |
Operating Activities
Net cash used in operating activities was $75.8 million for the year ended December 31, 2023 compared to $62.6 million during the year ended December 31, 2022. Our sources of cash provided by operations during the year ended December 31, 2023 was primarily cash receipts of research and development incentive credits. The primary uses of cash from our operating activities include payments for labor and labor-related costs, professional fees, research and development costs associated with our clinical trials and other general corporate expenditures. The increase in cash used in operating activities of $13.2 million was due to a $22.4 million change in working capital accounts, partially offset by a $9.2 million decrease in net loss as adjusted for noncash items.
Investing Activities
Net cash provided by investing activities was $13.7 million for the year ended December 31, 2023 compared to $73.4 million net cash used during the year ended December 31, 2022. The net cash provided by investing activities during the year ended December 31, 2023 was primarily due to $102.4 million proceeds from sale and maturities of short-term investments, partially offset by $88.6 million purchase of short-term investments. The net cash used in investing activities during the year ended December 31, 2022 was primarily due to $73.3 million purchase of short-term investments.
Financing Activities
Net cash provided by financing activities was $86.1 million for the year ended December 31, 2023 compared to $56.8 million during the year ended December 31, 2022. The net cash provided by financing activities during the year ended December 31, 2023 was primarily the result of the receipt of $86.6 million in net proceeds from the issuance of common stock from our at-the-market offerings program and $0.2 million in proceeds from our employee stock purchase
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plan, partially offset by a $0.5 million payment for tax withholding obligations related to share-based compensation. The net cash provided by financing activities during the year ended December 31, 2022 was primarily the result of the receipt of $56.2 million in proceeds from the issuance of common stock from our at-the-market offerings program, $0.9 million in proceeds from exercise of stock options and $0.2 million in proceeds from employee stock purchase plan, partially offset by $0.5 million payment for tax withholding obligations related to share-based compensation.
Capital Resources
We have financed our operations to date principally through our equity offerings and proceeds from issuances of our preferred stock, common stock and warrants. As of December 31, 2023, we had $197.9 million of cash, cash equivalents, restricted cash and short-term investments. Accordingly, management believes that we have sufficient capital to fund our plan of operations for at least a twelve-month period from the issuance date of our December 31, 2023 consolidated financial statements. However, in order to address our capital needs in the long-term, including our planned clinical trials, we must continue to actively pursue additional equity or debt financing, government funding and monetization of our existing programs through partnership arrangements or sales to third parties.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates.
While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.
Impairment of Indefinite-lived Intangible Assets
We evaluate our indefinite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable in accordance with the guidance in Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 350, Intangibles—Goodwill and Other (“ASC 350”).
We had one IPR&D asset, HepTcell, that we acquired in 2015. This candidate was a viral pathogen immunotherapy product for the treatment of chronic HBV. Since 2020, we have been conducting a Phase 2 clinical trial. However, the preliminary data from this trial that management analyzed in December 2023, indicates that the results are not sufficient to warrant moving forward with this product candidate. As a result, we expect to stop all further development related to HepTcell and do not anticipate that there would be any third-party interest in the asset. This decision rendered the probability of success, which is one of the key inputs in the fair value measurement of this asset, to be effectively zero or close to zero. With no alternative use nor any anticipated interest from third parties for this asset, management determined that the fair value of the IPR&D asset was deemed di minimis as of December 31, 2023. Accordingly, we recorded a non-cash impairment charge of $12.4 million, which was the carrying value of the IPR&D asset, in the accompanying Consolidated Statements of Operations and Comprehensive Loss for the year ended December 31, 2023 under the caption “Impairment loss on intangible asset”. As of December 31, 2023, we had no indefinite-lived intangible assets.
Research and Development
Research and development costs are expensed as incurred. Research and development costs consist of payroll and personnel expense, consulting costs, external contract research and development expenses, which includes fees paid
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to other entities that conduct certain research and development activities on our behalf, such as clinical research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), raw materials, drug product manufacturing costs, laboratory supplies and allocated overhead, including depreciation and amortization, rent and utilities. Material research and development costs that are paid in advance of performance are capitalized as a prepaid expense and amortized over the service period as the services are provided.
Clinical trial costs are a significant component of research and development expenses, and we outsource a significant portion of these costs to third parties. Third-party clinical trial expenses include investigator fees, site and patient costs, CRO costs, costs for central laboratory testing, data management and CMO costs. The accrual for site and patient costs includes inputs such as estimates of patient enrollment, patient cycles incurred, clinical site activations, and other pass-through costs. These inputs are required to be estimated due to a lag in receiving the actual clinical information from third parties. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the Consolidated Balance Sheets as a prepaid asset or accrued expenses. These third-party agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred. Material advance payments for goods or services that will be used or rendered for future research and development activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed. When evaluating the adequacy of the accrued expenses, we analyze progress of the studies, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period.
Stock-based Compensation
We account for all stock-based compensation granted to employees and non-employees using a fair value method. Compensation expense related to stock-based awards is recognized over the requisite service period of the awards, usually the vesting period, on a straight-line basis, net of estimated forfeitures. The fair value of stock option awards to employees and directors is estimated using the Black Scholes option pricing model, which requires the input of subjective assumptions, including (1) the expected stock price volatility, (2) the expected term of the award, (3) the risk-free interest rate and (4) expected dividends.
We estimate forfeitures at the time of grant and, if necessary, revise the estimate in subsequent periods if actual forfeitures differ from those estimates. Estimates are based on our historical analysis of actual stock option forfeitures. The actual expense recognized over the vesting period is only for those options that vest. For the years ended December 31, 2023 and 2022, forfeiture rates were approximately 11% and 10% respectively.
We calculated the fair value of stock option awards using the Black Scholes option pricing model. The Black Scholes option pricing model requires the input of subjective assumptions, including stock price volatility and the expected life of stock options. The application of this valuation model involves assumptions that are highly subjective, judgmental and sensitive in the determination of compensation cost. Our stock started being publicly traded under ALT beginning in June 2017, and as such we do not have sufficient history to estimate the volatility of our common stock price or the expected life of our options. The expected stock price volatility for stock option awards is based on a weighted-average volatility rate of historical volatility from a representative peer group of comparable companies and our stock price volatility until such time that we have sufficient history to rely on the volatility of our own stock. The average expected life of stock options was determined according to the “simplified method” as described in SAB 107, which is the midpoint between the vesting date and the end of the contractual term. The risk-free interest rate was determined by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. We have not paid and do not anticipate paying cash dividends. Therefore, the expected dividend rate is assumed to be 0%.
There is a high degree of subjectivity involved when using option pricing models to estimate stock-based compensation. If factors change and we employ different assumptions when valuing our options, the compensation expense that we record in the future may differ significantly from what we have historically reported.
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